How bad is the housing downturn? Let’s look at Australian property and home loans

Collage of a man tiptoeing along a cracked line on a blue field.

After last year’s record-shattering property boom, Australia’s red hot housing market has seemingly cooled off. Here’s a rundown of what’s happening right now and why. 

Quick facts

  • Corelogic reports a national slowdown in sales rates and dwelling values, though smaller capitals like Adelaide appear to be going strong.
  • Home loan lending has decreased 4.4% over July, especially for first home buyers (whose lending numbers fell 9.8%). 
  • Rents have shot up nearly 10% over the last year.

Prices are slipping – but they’re still high

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Numbers can be a little misleading. Last year, the pandemic property boom caused a record price growth of 22.4%, mostly due to a dynamite combo of cashed up buyers and low interest rates. This year on the other hand, prices have only grown 8%. So while it’s technically accurate to say prices have dropped, they’ve still increased overall.

What’s worse, the price drops have mostly been seen in the most expensive lots – not the ones most people are trying to buy.

According to Corelogic, the cost of relatively cheaper properties (those in the bottom 25%) rose 3.4% in the three months to July, while the top quarter dipped by 1.4%. 

“This is something we would expect to see at the cusp of a market change,” says CoreLogic’s head of residential research, Eliza Owen, in a statement to The Sydney Morning Herald.

“The high end of the market tends to be the first mover, and […] more volatile... the lower end is more of a slow and steady performer."

Owens predicts the lower priced homes will eventually follow the high ones in price relief, but the downturn they experience won’t be nearly as severe.

Despite market forces, it’s inevitable prices will still rise over time, which can be great news for sellers hoping to maximise their capital growth. However, lagging values is a symptom of a cooling housing market, which is good news for buyers. Those who’ve prepared may find it slightly easier to ‘pass in’ their bids at auction and negotiate a better price – at least compared to last year.

Property sales dragged down by heavy interest rates

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Growth in the housing sector is highly dependent on the cost of housing finance, as the last thirty years of property trends have shown us. With the Reserve Bank hiking interest rates and new regulations clamping down on serviceability assessments, first home buyers find themselves up against it.

After all, three successive 0.50% hikes have so far done little to dampen inflation. They have, however, done lots to dampen access to home loans, which explains the eye-catching 9.8% drop in first home buyer lending over June.

Meanwhile, sales rates trended down in capital cities over July, averaging around 54% compared to July 2021’s decent 75%. Properties Australia-wide are also taking longer to sell, sitting on the market a median 32 days over the three months to July, while median vendor discounts dropped 4% in the same period.

As the cash rate climbs, these numbers will likely plummet even further.

“Clearly, the RBA is first and foremost in inflation fighting mode,” says Corelogic research director Tim Lawless. 

“The trajectory of home values will depend on how fast and how high interest rates move, along with the performance of the broader Australian economy, labour markets and demographic trends.”

RELATED: Rising interest rates aren’t the only reason why it’s harder to get a home loan

Westpac projects the cash rate will peak at 3.35% in February 2023, which will push variable interest rates into the 6% to 7% territory – numbers dreaded by borrowers.

However, Lawless notes the RBA will probably overlook “weakness in housing demand” and other signs of economic slowdown in their battle against runaway inflation, which hit 6.1% in the June quarter. 

“As the cash rate finds a ceiling,” he says, “that will probably be the cue for housing values to find a floor.”

We haven’t found the floor yet, but we’re certainly looking for it.

Loan details

Rate change

Repayment change if rates go up

How have banks responded to the housing slowdown?

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Both the RBA and major banks have come under fire for raising rates despite cost of living pressures on customers. To counteract this, many lenders have boosted savings accounts rates to 2% - 3% levels. Some, like CommBank, Westpac, and Macquarie, have even slashed long-term fixed rates in the hopes of enticing new customers.

However, jumping on these fixed deals too quickly could backfire on borrowers. If the RBA goes too far with its aggressive monetary policy, causes a recession, and has to cut rates once more, then people who’ve fixed through the downturn will find themselves stuck at higher interest rates in a time of severe economic stress – unless they can refinance

“It is akin to the old saying that, ‘if you have your head in the oven and feet in the freezer, you feel OK, on average’,” says Barrenjoey expert banking analyst, Jon Mott. “In banking, it is the tail that matters, the last 5% to 10% of borrowers.”

“If interest rates continue to rise sharply, and stay around these levels, there will be a ‘fat tail’ of borrowers who will simply not be able to afford to meet their repayments.”

The consequences of leaving these borrowers behind could be disastrous.

“For the first time in several decades, we are likely to see a wave of fully employed borrowers falling into delinquency as they simply can’t make ends meet,” warns Mott.

But despite pressure on funding costs from the RBA rate hikes, NAB recently reported a $1.8 billion third quarter profit, with chief executive Ross McEwan stating the bank was “in good shape for this evolving environment”.

CommBank is also poised to earn $250 - $300 million more due to rate rises, according to analysts. Mortgages might be feeling the heat, banks certainly aren’t. 

Customers comparing home loans will need therefore to be mindful of which lenders have taken the opportunity to look out for customers – and which just looked at their profits.

Head to our home loans hub for more market insights, or if you’re ready to buy in, compare low interest rate home loans below.

Home loan comparisons on Mozo

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Last updated 21 July 2024 Important disclosures and comparison rate warning*
  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Optimum Fixed Rate Home Loan

    • Owner Occupier
    • Principal & Interest
    Interest rate
    5.69 % p.a.
    Fixed 3 years
    Comparison rate
    6.34 % p.a.
    Initial monthly repayment
    $2,899
    Go to site

    Lock in a competitive interest rate and enjoy peace of mind for the fixed period. Available for owner occupied new and refinanced home loans with at least 20% deposit. Split option available as well as offset and redraw. Noapplication, ongoing or banking fees. Third Party fees may be applicable - payable within loan repayments. Extra repayments up to $20K per annum permitted. Apply online, 100% member owned credit union.

  • Special Real Deal Home Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <80%
    Interest rate
    6.09 % p.a.
    Variable
    Comparison rate
    6.13 % p.a.
    Initial monthly repayment
    $3,027
    Go to site

    Refinancers or first home buyers pay no monthly or annual fees. Flexibility to choose your repayment schedule (weekly, fortnightly or monthly). Redraw facility available. Split your home loan into multiple loan accounts.

  • Optimum Fixed Rate Home Loan

    • Owner Occupier
    • Principal & Interest
    Interest rate
    5.69 % p.a.
    Fixed 3 years
    Comparison rate
    6.34 % p.a.
    Initial monthly repayment
    $2,899
    Go to site

    Lock in a competitive interest rate and enjoy peace of mind for the fixed period. Available for owner occupied new and refinanced home loans with at least 20% deposit. Split option available as well as offset and redraw. Noapplication, ongoing or banking fees. Third Party fees may be applicable - payable within loan repayments. Extra repayments up to $20K per annum permitted. Apply online, 100% member owned credit union.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Express Home Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <90%
    Interest rate
    6.01 % p.a.
    Variable
    Comparison rate
    6.14 % p.a.
    Initial monthly repayment
    $3,001
    Go to site

    Get online approval from the award-winning Bendigo Bank Express Home Loan. Multiple offset accounts and redraw available. 100% offset on variable rate loans and partial offset on fixed rate. Flexible repayment options. New home loans only.

  • Special Real Deal Home Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <80%
    Interest rate
    6.09 % p.a.
    Variable
    Comparison rate
    6.13 % p.a.
    Initial monthly repayment
    $3,027
    Go to site

    Refinancers or first home buyers pay no monthly or annual fees. Flexibility to choose your repayment schedule (weekly, fortnightly or monthly). Redraw facility available. Split your home loan into multiple loan accounts.

  • Fixed Rate Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <80%
    Interest rate
    6.09 % p.a.
    Fixed 3 years
    Comparison rate
    6.15 % p.a.
    Initial monthly repayment
    $3,027

    Additional repayments of up to $10K per fixed year. Interest rate discounts available. Waiver of $499 application fee when combined with an Orange Advantage Home Loan.

  • Basic Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.16 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

  • Mortgage Simplifier

    • LVR<80%
    • Owner Occupier
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.17 % p.a.
    Initial monthly repayment
    $3,043

    Get a competitive variable rate with ING’s Mortgage Simplifier. Free extra repayments, no monthly or annual fees. Freedom to make free extra repayments or redraws.

  • Offset Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.39 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Ability to open up to 10 offset accounts per loan account. Fast online application. Linked Debit Mastercard® with fee-free access at ATMs across Australia. Package a credit card with your home loan and the annual card fee will be waived (T&Cs apply). 40% deposit required.

  • Basic Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR<70%
    Interest rate
    6.25 % p.a.
    Fixed 3 years
    Comparison rate
    6.20 % p.a.
    Initial monthly repayment
    $3,079
    Go to site

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $10,000,000.

  • Offset Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR <70%
    Interest rate
    6.25 % p.a.
    Fixed 3 years
    Comparison rate
    6.42 % p.a.
    Initial monthly repayment
    $3,079
    Go to site

  • Fixed Rate

    • Owner Occupier
    • Principal & Interest
    • <80% LVR
    Interest rate
    6.54 % p.a.
    Fixed 2 years
    Comparison rate
    7.10 % p.a.
    Initial monthly repayment
    $3,174

    Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.

image of houses

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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