Easing Values Unlikely To Trigger Recession

Australia’s housing downturn will slow the economy, but the Reserve Bank does not expect it to push the country into recession.

RBA assistant governor Sarah Hunter says falling property values and weaker housing turnover are already affecting industries such as real estate, conveyancing and removal services. The decline will also make households feel less wealthy, which may reduce spending on furniture, vehicles and other purchases.

However, Hunter expects the overall reduction in consumer spending to be relatively small. She said the slowdown would weigh on economic activity and reduce new housing construction during 2027 and 2028, but would not be enough to cause a recession given the strength elsewhere in the economy.

That view is supported by strong household balance sheets and mortgage defaults remaining below 1%, despite mortgage rates sitting at a 15-year high.

The national mean dwelling price fell 0.7% to $1.1 million during the June quarter. NSW and Victoria recorded the largest falls, while analysts expect national prices to decline about 10% from peak to trough.

The bigger concern may be the longer-term impact on housing supply. Falling prices, higher interest rates, rising construction costs and weaker investor confidence are making new developments less viable. This could deepen Australia’s housing shortage and place further pressure on rents.

There is also an inflation trade-off. Weaker house prices may restrain consumer spending, helping inflation fall, but the RBA remains concerned that underlying inflation of 3.6% is too high.

The downturn therefore presents an economic slowdown, not an economic collapse.