Summary of Is the era of surging house prices over?

Overview of Is the era of surging house prices over?

This ABC News Daily episode examines whether Australia’s long-run house price boom is ending, with Sydney and Melbourne now seeing outright price falls while some other cities remain strong. Business editor Michael Janda explains that the recent slowdown is being driven by higher interest rates, weaker auction results, fewer bidders, and policy changes in the federal budget that affect investors. The conversation also explores what this could mean for first-home buyers, renters, construction activity, and whether Australia may be entering a new era of slower or even stagnant house price growth.

Key Takeaways

• Sydney and Melbourne prices are falling

  • Sydney prices fell 0.9% in May and Melbourne 0.8%.
  • Melbourne has been especially weak, rising only 3.3% over the past five years.

• The downturn is not nationwide

  • Some markets are still growing strongly, especially Perth, which rose 1.5% in May and more than 25% over the past year.

• Auction conditions are a warning sign

  • Auction clearance rates have dropped, in some Sydney cases below 50%.
  • Clearance rates below 60% are generally seen as a signal that prices may keep falling.

• First-home buyers may benefit in the short term

  • Fewer investors competing at auctions could make it easier for owner-occupiers to buy.
  • Treasury and the Treasurer argue this could give first-home buyers a fairer shot.

• Investor behavior may reduce sales and transactions

  • Some investors may hold onto properties longer because of the changes to negative gearing and capital gains tax.
  • Westpac economists suggest transaction volumes could fall by up to 20%.

Why Prices Are Falling

1. Higher interest rates

The Reserve Bank’s rate rises have made borrowing more expensive and reduced what buyers can afford.

2. Affordability limits

Janda and the guest argue prices had already risen so much that many buyers simply hit their maximum borrowing limit.

3. Budget changes affecting investors

The government’s planned changes to negative gearing and capital gains tax are expected to discourage some investors and change market behavior.

4. Reduced buyer demand

Agents are reporting fewer people at home inspections and fewer registered bidders at auctions.

Impact on Renters and Housing Supply

• Rents have risen about 6% over the past year.
• Treasury estimates the tax changes may lift the median rent by about $2 per week.
• The logic is that if an investor sells a rental property:
  • it may stay a rental if sold to another investor, or
  • become owner-occupied, reducing the rental pool but also removing a renter from demand.

New housing supply may not fall as much as critics claim

• Treasury forecasts 35,000 fewer homes built over a decade because of the tax changes.
• But it also expects 65 extra homes from the government’s infrastructure fund, for a net gain of 30 homes.
• Westpac questions Treasury’s modelling and argues the policy could push more investment toward new builds, which are quarantined from the tax changes.

Could House Prices Stay Flat for Years?

The most striking point in the discussion is the possibility that Australia could move away from a “property always goes up” mindset.

Forecasts mentioned

• Treasury: prices about 2 percentage points lower than they otherwise would be.
• Morgan Stanley: possible 5% to 10% drop.
• AMP: about a 5% decline over two years.
• Macquarie: the most dramatic view — no real house price growth for a decade or two, meaning prices would rise more slowly than inflation.

Why this matters

• If prices only keep pace with inflation, they become more affordable relative to wages.
• This could slow or reverse the long-term growth in house price-to-income ratios.
• The guests suggest this may be necessary if Australia is ever to improve home ownership rates.

Main Theme: A Possible Shift in the Housing Cycle

The episode argues that the current weakness may be more than a temporary dip. It could be the beginning of a broader reset in Australian housing, driven by:

• affordability ceilings,
• higher interest rates,
• changing investor incentives,
• and policy settings aimed at reducing speculative demand.

The big question is whether these changes will be enough to break the long-running cycle of surging prices, or whether prices will eventually rebound again.

Notable Insight

“Housing prices can’t go up forever because eventually people just run out of money.”

This captures the core argument of the episode: the market may finally be running into structural limits, especially in cities like Sydney where affordability has become extreme.

Production Notes

• Featured guest: Michael Janda, ABC Business Editor
• Host: Sam Hawley
• The episode also references ABC’s earlier series Housing Hostages, which explored the causes of Australia’s housing affordability crisis.