Housing becoming a buyers' market as prices and seller expectations cool | The Business | ABC NEWS

At this inner Melbourne auction, the signs are up and the stage is set.

We're going into this auction process today with two registered parties but yeah that definitely would have been a different platform by double I would have thought six to nine months ago.

Who wants to start me off buys?

The silence says it all.

Buys looks like it's going to be a quick auction.

It was.

At $1205, we will formally pass the property in.

Nationally, home values flatlined in the softest result since January 2025, but has still climbed 8 .8 % over the year.The median home price is now almost $942 ,000.Perth and Darwin led the monthly gains, followed by Brisbane, Hobart, Adelaide and the regions rose slightly, while values in Sydney, Melbourne and Canberra went backwards.

We're seeing a three -speed market really across the country, so Sydney and Melbourne are already in decline, Perth is still well out in front in terms of price growth, and Brisbane and Adelaide are sort of in the middle.The national trend we do expect to head into a downturn in coming months.

In Sydney's North Shore, the scene looks different.

With six registered bidders, the house sold under the hammer.

And it is sold.Congratulations, well bought.

But bidding was careful.

So this was above average in terms of competition.You saw that it was very tentative in terms of the price increments that people were willing to bid.So that is a sign of the caution in the marketplace.

That caution shifting the balance of power, particularly in the biggest markets.

I think it is better for buyers at the moment.

Anecdotally, we've seen that the housing marketseem to be stagnating a little bit even in expensive areas.

Selling agent William Chan says buyers are still there but not in the same numbers.

For us this time last year we had about 11 groups per inspection across our agency.Now we're seeing on average around three groups per inspection.

Since the federal budget, the outlook has become more uncertain.Treasury says the tax changes could slow house price growth by 2 % over a couple of years versus no change.Some economists say the fall could be sharper.

We do seem to have a bit of a perfect storm brewing for the property market.Thinking about the next 12 months, I'd say price is falling by around 5 % or so.

When we look at previous downturns in Australia, there's just been 10 in the past 40 years.And the peak to trough declines have been in the range of sort of five to 8%.So that's the kind of broad position that we're likely to see.

Raising questions about whether falling home prices could spill into the wider economy.

I don't think we're seeing a negative wealth effect yet in terms of consumer spending, but it's certainly a risk over the next 12 months.

The next test is interest rates.The RBA is tipped to stay on hold this month, but economists say stubborn inflation means another rise this year can't be ruled out.

But if interest rates do rise, then that also does hamstring our ability to borrow.

Putting the brakes on an already cooling market.

Westpac expects the tax changes announced on budget night will see property investor activity drop by 34 % and will significantly affect Australia's housing markets.The bank is the only one of the big four, which is forecasting another two rate hikes this year, which if realised, will furtherdampen sentiment.Matthew Hasson is Westpac's Senior Economist.Welcome.Can you talk me through how Westpac has come to its forecast that the volume of transactions in the property market could drop by some 20 per cent over the next 18 months?

Well, the changes in tax policy are pretty material, especially for prospective new investors.Our assessment is that amongst investors, the portion that are going to be most affected are those that are really seeking the negative gearing tax benefits over the medium to longer term.We think there'll be a little bit of switching in that subgroup between purchasing new investment and newly built dwellings.But even allowing for that, the decline we think will be substantial, in the order of about a third.The aim of these policy changes is to discourage investment in established dwellings, and we think it will be effective in the investor cohort.And that's really where the drag comes from.

It's a sizable portion of turnover is driven by investor activity.

And you're saying the level of investor activity Westpac believes will drop by about a third over the same period.What are the implications then for new builds in terms of supply, the government's ultimate objective?

Well, the outlook's quite uncertain.Treasury's own assessments of the policy changes point to a lower level of new dwelling construction.We think that's understating the carve -out for newly built dwellings.They're still going to be eligible for negative gearing tax benefits.and the original 50 % CGT tax discount.And so amongst prospective investors that were really seeking that preferential tax benefit, it's really the only remaining eligible option for investment to lower tax over the longer term.

So we think there will be some significant switching ultimately.Near term though, as I said, it's very uncertain.At the moment we're still working through, you know,initial sentiment effects of the changes.And it may take time for investors to come to grips with investing in newly built dwellings.There are additional considerations for that channel, particularly the risk of building delivery, the higher costs that are involved with that segment.

And there are some other considerations that may deter some investors from that segment.But we think it'll be a significant shift.

And so Westpac is warning of a near term pricing risk for some markets as a result of the combination of the budget changes and higher interest rates.

That's right, what we've seen with today's price updates really reflects the interest rate changes earlier in the year, overlaid with a little bit of uncertainty around the situation in the Middle East and the outlook for interest rates.We're yet to really see the full impact from the May hike, any additional rate hikes we may see to bring inflation back under control, and of course the tax policy changes, which have only just been put to Parliament, they haven't come into effect just yet.So there is a risk that the softness, we do expect more softness around prices, and there is a risk that we can move into quite an unsettled period for the market.I think the thing to bear in mind around the drop -off in investor demand is there's also going to be a drop in investor listings.There are strong incentives in these tax policy changes for existing owners of investment properties to hold on to those properties that are still receiving the negative gearing tax treatment.So there'll be an overall pullback in turnover in the midst of a bit of a, I think there's a risk of an air pocket for prices as that flows through.

Okay, so price action could be quite different in different sectors of the market.

That's right, so it depends on how prominent investor activity was in different sectors, where the price points are for owner -occupiers rather than investors, and of course there'll be some jostling around supply and demand.The thing that makes us a little bit, I think, not too pessimistic I would say around this, is that the tax policy changesas I said, they encourage existing owners to hold on to their property.So we're not going to see, we're not likely to see a wave of selling into this market.At the same time, what we're seeing across the nation more broadly, and especially in sub -markets like Brisbane, Adelaide and Perth, is extremely low levels of supply.We're coming into this with extremely tight markets in many parts of Australia, and again that sort of limits some of the downside risk to prices and activity more generally.

Are we going to see differences in terms of pricing?for houses versus units.Are these changes going to hit those two markets differently?

It's likely, although exactly how that breaks down is quite difficult to tell.prominence of investors in different sub -markets varies, but also I think some of the appeal of particular sub -markets is going to shift.So for example, we've seen that the shift from 50 % discount to inflation indexation for capital gains has winners and losers over the medium to longer term.For some slower growing assets, it's actually a better way of taxing for the end result.And of course, the negative gearing piece is different again.It's still available for those purchasing newly built dwellings, which may have more of an influence on unit prices, although more in the new space rather than the established space.

I think overlay that with an additional consideration that construction costs also affect that price point.In markets like Sydney and Melbourne, It's not really feasible to build new dwellings at the price points that would be attractive for investors.It may be in some of the medium -sized capital cities rather than the major capital cities where we see investors looking into those newly built dwellings more so.

Over the longer term, could the budget changes and if they go through, they're legislated as proposed, could they break thevery long held belief in Australia that owning property here over the long term equals real price growth?

Look, I don't know.I think that's an interesting one.We've got counterexamples of other jurisdictions that haven't had a capital gains tax arrangement that have still seen very strong price gains over the medium term.I think there's an understanding across mainstream Australia that the main source of the price growth that we've seen over the last decade especially relates more to a supply shortage than anything else.That said, the changes are quite disruptive and we're going to go into a period of price correction to varying degrees in different markets.So I think it will test that belief.

I think Australians are likely to still remain pretty positive about property over the medium to longer term, but it may change.The expectations of jackpot price gains and capital gains tax relief on top of that is probably gone.We think the price cycles will be more muted going forward and on average a little bit slower.But that's going to take time to play out.And meanwhile, there will be other major structural changes in the way the housing market works.So a very difficult question to answer.

Really, only time will tell.

Matthew Hassan, thank you.

Thanks.