Australian house prices to fizzle as property market loses steam

Below is an article written by me published yesterday at

There are two strong indicators used to predict house price growth – and both of them are showing a downward trajectory right now.

This week, CoreLogic recorded another strong 1.6 per cent rise in Australian property prices in July, with values up a remarkable 14.1 per cent over the first seven months of 2021 and 16.1 per cent over the past year.

This marked the strongest annual price growth recorded by CoreLogic in 17 years. It is also one of the broadest property booms on record with every capital city and state region recording annual growth.

There are several factors behind the strong price growth. Record low mortgage rates and an acute shortage of homes for sale has created ‘FOMO’ [fear of missing out] in the market. Household finances are in rude shape after they banked $200 billion worth of coronavirus stimulus. Finally, jobs are plentiful with the number of job vacancies per unemployed and underemployed Australian tracking at a record low.

However, while property price growth remains strong, the market is beginning to lose steam.

The best short-term leading indicator of price growth is the national auction clearance rate, which has fallen sharply from its March peak; albeit remains elevated from a historical perspective.

Auction clearance rate is a good short-term indicator of the market.

The second best leading indicator for property prices is the growth in new mortgage commitments, which have also turned down:

There’s been a recent drop in new mortgage commitments.

Later this year, the Australian Prudential Regulatory Authority (APRA) is likely to impose ‘macro-prudential’ curbs on mortgages to cool the market, such as loan-to-value ratio (LVR) restrictions, debt-to-income (DTI) restrictions, increased mortgage buffers, or restrictions on interest-only lending.

These types of restrictions were imposed by APRA in December 2014 and March 2017 and quickly reduced credit growth in the targeted mortgage products.

While it is highly unlikely that the official cash rate will rise over the next 12 months, fixed mortgage rates should also rise moderately owing to the closure of the Reserve Bank’s Term Funding Facility (TFF), which was shut to new drawdowns on June 30, 2021.

The TFF provided low cost three-year funding for banks to support the supply of credit. It was highly successful in replacing more expensive wholesale funding and driving fixed mortgage rates lower.

So, with the TFF now closed, average mortgage rates should rise from their record lows, dampening mortgage and property price growth into 2022.

Another longer-term headwind for the Australian property market is the rising supply of homes under construction amid plunging population growth.

The federal government’s Homebuilder stimulus package has driven a huge lift in homes under construction, most of which will hit the market next year. This comes at a time when immigration into Australia is running at century lows, meaning the structural supply of homes will increase sharply (see next chart).

Population growth is going down while dwelling construction has lifted.

Finally, property price growth should slow on the back of declining affordability. Home values are rising far more quickly than incomes, meaning that an increasing share of buyers are being priced-out. As values rise, the pool of potential buyers will necessarily shrink.

Weighing all of the factors, our base case is for Australian property price growth to decelerate over the remainder of 2021 and then slow more sharply in 2022 once regulatory mortgage curbs are introduced, with the next property downturn to arrive in late 2022 or early 2023.

We do not expect recent lockdowns to alter this trajectory. Previous lockdowns witnessed a fall in both buyer activity and vendor activity before recovering to pre-lockdown levels once restrictions were eased or lifted. Essentially, the low stock levels supported prices while the various markets were placed on lockdown hiatus.

Unconventional Economist
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    • For good? Or until after the next election? The Great Princes are all still out there, slavering over their fortunes and demanding more workers at slave wages to also act as customers for their shabby wares. And the Great Princes (hard to think of Gerry Harvey as a Great Prince, but these are the times we live in) own both the LNP and ALP, body and soul.

    • Two comparable houses to ours in our neighbourhood on NSW mid-north coast just sold prior to marketing for $100-115K more than what we bought for in December!

      Had a RE spiv knock on our door last weekend asking if we were planning on selling as he has full books of registered interest from capital city buyers keen on buying existing houses. New land releases have all been sold without advertising but a shortage of builders means those people are waiting many months to be able to move in, so buyers are paying a premium to move in now.

  1. I paid over $1.1M for a very nice house on a large block in a nice Canberra suburb back in February. Never thought I’d see the day, but that’s the reality. And overall, I think it was not so much a good choice, as a least bad choice. I want a roof over my head when I retire next year that won’t be subject to some p1ss-ant RE agent telling me I need to sweep the floor more regularly.

    • The Travelling Phantom

      I’m 22 and wish i can buy a 2 bedder as long as its on a land not an apartment in the air…i hear you regarding the RE agent, plus you worked all your life and paid tax and everything, time for you to relax

      • Hey, thanks man. I really appreciate that.

        I mostly hear intergenerational warfare stuff like “all old people are bastards and should die”. I worked, studied, worked, soldiered, worked, raised kids, worked, obeyed the law, worked, was financially responsible, worked and did all the right things for more than 40 years, and at retirement age I’ll still be paying off a mortgage when I’m no longer working. That’s the reality of life that our mongrel elites have inflicted on us with their evil and corruption.

        I have a 27 year old daughter and sons aged 23 and 20…about your age. I fear for their future. They and you deserve better than the sh1t sandwich our society is providing.

        • C'est de la folieMEMBER

          I fear for their future. They and you deserve better than the sh1t sandwich our society is providing.


          It is time for decent hard working people to set aside the work and to overthrow Australian politics, and to scalp some of those who have creamed the rest of society for more than a generation – as an example for the rest. Being nice is getting Australia and Australians nowhere.

          That is the only way we will provide better than the sh1t sandwich your kids, my kids and almost everyone else I knows kids, are going to be getting if we do nothing – in no area more than the price of housing

  2. It’s economically, financially, statistically impossible to make housing ‘affordable’ again without a global financial or credit downturn that take us down with it, a long way down.
    It just isn’t ! The vast majority are just not wired to give that much away. The disruption would too much to bare and we are too soft and greedy.
    Hell, I’m prepared to lose 20 or 25% if it make my kids life easier, but that’s probably not enough either.

    • Lord DudleyMEMBER

      Australia is now at the same point wrt housing that an alcoholic is when his liver gives out.

      The current situation is the result of your past actions, and you can’t undo them. It’s too late now… every option from here on out is bad.

      As Jerry would say, good luck with all that.