SYDNEY — Australia's softening housing market is tightening financial conditions, Reserve Bank of Australia Assistant Governor Chris Kent said. National property prices fell 0.7 percent in July, the largest single-month decline since December 2022, following three consecutive RBA rate hikes and government tax changes.
The downturn now extends beyond Sydney and Melbourne. Property data firm Cotality said Brisbane prices dropped 0.6 percent and Adelaide prices fell 0.2 percent last month — both cities recording their second consecutive monthly decline after Cotality revised June data.
Gerard Burg, Cotality's head of research, said Brisbane conditions have deteriorated rapidly. Available housing supply there rose to 6 percent above its five-year average, compared with February when supply sat 25 percent below that average.
Perth posted a modest 0.1 percent gain in July after a revised 0.5 percent contraction in June. Darwin rose 0.8 percent.
Changes to negative gearing and capital gains tax policies have contributed to broader market softening, Burg said. The three RBA rate increases this year are compounding that effect.
RBA Governor Michele Bullock said July 28 the housing market serves as a "litmus test" for whether financial conditions are restrictive enough to bring inflation down.
The weaker market has given some first-time buyers an opening. Melbourne real estate agent Shahid Khan said he has observed more confident bidders in recent weeks. "The buyers are there, limited buyers," Khan said.
Prices will likely continue falling nationally, Burg said. He expects more vendors to withdraw rather than accept losses, with sellers reluctant to concede they missed the peak.
From a fixed-income perspective, a spreading housing downturn signals RBA policy is gaining traction. Falling prices and reduced housing demand can deliver a sustained drop in inflation — lowering the probability of further rate hikes and flattening the short end of the yield curve.
Duration risk remains elevated as long as inflation stays sticky and the RBA holds rates high. A rapid inflation cool-off benefits long-duration bonds. In mortgage-backed securities, current conditions point to spread widening as housing collateral loses appeal.
Falling property values erode household wealth and curb consumer spending, reinforcing the RBA's effort to tighten overall financial conditions. Economists say the trajectory of prices depends directly on rate policy, mortgage affordability and the unemployment rate.
