HSBC flags deeper Australian housing slump risk

HSBC has warned that Australia’s housing downturn could intensify if policy interest rates are increased further. The bank estimates that national house prices could fall by about 13% in a scenario where rates are raised two more times. This projected decline is framed as a downside risk rather than a baseline, underscoring sensitivity of the housing market to additional monetary tightening.

Alongside this assessment, a group of economists is cited as expecting a somewhat smaller national peak‑to‑trough decline in house prices of around 10%. These forecasts point to a meaningful, though not uniform, correction across the housing market, with national averages masking variation between regions and segments.

The prospective fall in house prices is linked to several channels through which the housing slump could slow Australia’s economy. Weaker housing turnover is expected to reduce related activity in areas such as real estate services, renovations and household goods. Softer construction activity is another concern, as lower prices and reduced confidence can delay or cancel new housing projects.

Falling property values are also seen as a drag on consumer spending. As household wealth diminishes, consumers may cut back on discretionary purchases, adding to the slowdown in domestic demand. Together, these effects mean that a deeper housing downturn could become a material headwind for overall economic growth.

The analysis highlights that the Reserve Bank views movements in house prices as part of the monetary transmission mechanism. When interest rates rise, the resulting pressure on the housing market can help restrain consumer demand and reduce housing construction. This cooling of activity feeds through to slower price growth in the broader economy.

Lower house prices therefore serve a dual role in the current environment. They weigh on growth through weaker spending and investment, but they also reinforce disinflationary forces that can help return inflation toward target. The current forecasts and risk scenarios suggest that the housing market will remain central to how monetary policy affects Australia’s economic outlook.