Economist warns Aussie house prices could plunge by 40 per cent in some suburbs amid alarming recession prediction

House prices could plunge by as much as 40 per cent in some Australian suburbs as the nation faces its biggest property downturn on record, a leading economist has warned.

The warning comes as borrowers absorb four Reserve Bank interest rate rises this year, with the possibility of another increase in November.

Chris Joye, founder and chief investment officer at Coolabah Capital Investments, said Sydney prices were already falling at an annualised rate of 18 per cent. 

He forecast a 17 per cent peak-to-trough decline during an appearance on Mark Bouris’ Straight Talk podcast on Monday.

‘On our numbers, individual suburbs (in Sydney) will fall as much as 20 to 40 per cent,’ Mr Joye said.

‘National house prices are currently falling at about a 16 per cent annual rate. We’re expecting the national peak-to-trough fall to be about 13 per cent.

‘We’ll break the record for the biggest fall ever in house prices on our numbers before Christmas. So Sydney’s falling at 18 per cent per annum, Melbourne a bit less than that, but double-digit all around the country.’

Mr Joye warned the property slump could be accompanied by a recession, business failures and a surge in unemployment. 

But Mr Joye also said Australia faced a genuine risk of recession, warning there could be ‘a big increase in unemployment, a lot of businesses are going to go bust and a lot of people are going to lose their jobs’.

‘I think it’s going to be tough,’ he said.

‘There’ll be adversity and your house is not going to be worth as much as it was, and your super’s probably not going to be worth as much as you thought it was going to be worth, and you’re going to have to work a little longer.

‘Maybe you won’t retire when you thought you were going to retire.’

Other property experts are also forecasting a prolonged downturn, although their projections are more modest. 

Property prices are tipped to fall between eight and 11 per cent from their March peak and not begin recovering until September 2027, a survey of 384 real estate experts found.

That suggests the market could be only halfway through its slide, with dwelling values already down 5.2 per cent since March, according to property data firm Cotality.

For Sydney and Melbourne, an 11 per cent fall would send values back to levels not seen since as early as February 2021.

Australian Property Institute research head Sherman Chan said uncertainty over interest rates and government policy was keeping buyers on the sidelines.

‘People are worried about more interest rate hikes on the horizon, and they are after greater clarity,’ Dr Chan told AAP.

Higher interest rates were the experts’ biggest concern, followed by inflation and changes to tax concessions for property investors.

The cash rate was raised to a 15-year high of 4.6 per cent at the Reserve Bank’s September 29 meeting, with governor Michele Bullock warning further increases could follow before the end of the year.

The RBA has made clear it is prepared to tolerate a weaker labour market and falling property prices to bring inflation under control.

An International Monetary Fund outlook on Tuesday forecast inflation would remain above the RBA’s two-to-three per cent target until the end of 2027.

But Dr Chan said interest-rate fears alone could not explain the property slump, arguing uncertainty surrounding Labor’s tax changes was also weighing heavily on buyers.

‘There’s a lot of “wait and see”. High inflation and cost-of-living concerns… (don’t) really justify the slump that we are seeing,’ she said.

‘It is really about the lack of clarity about the policy changes that’s holding people back.’

Under the government’s proposed changes, negative gearing would be limited to new builds, while real capital gains would be taxed at a minimum rate of 30 per cent from July 2027, the same month the API expects the housing market could begin recovering. 

Dr Chan said a recovery could come earlier if buyers gained greater certainty about the changes before they took effect.

‘I won’t rule that out,’ she said.

‘Some are even optimistic enough to think that it will rebound in the start of 2027, and some are more pessimistic, thinking that it will drag into 2028. What we present is that medium perspective.’

AMP is forecasting a 15 per cent fall in Australian house prices that could become the worst downturn on record. 

Such a fall would wipe about $139,971 from national home values and $241,057 from Sydney prices, potentially leaving recent buyers who purchased near the peak facing mortgage stress and negative equity, where they owe the bank more than their home is worth.

Mr Joye blamed the inflation problem largely on government spending, population growth and weak productivity, dismissing claims that the war between the US and Iran and resulting surge in fuel prices was the main culprit.

He said state and federal governments had racked up $660 billion in spending on cheap credit since 2022. 

‘It’s all public spending. It’s all population growth and migration,’ he said.

‘And it’s all productivity. I mean, the oil price stuff is at the margins.  

‘It’s not… the reason the RBA hasn’t hit its inflation target since 2021. That’s a recent event. So, he’s just bulls***ing.’