“Not A Bad Thing”: Why house prices may need to fall

Moderate house price falls welcomed by most Australians, says senior economist at Australia Institute

Australia’s cooling housing market may be unsettling for homeowners, but economists say a moderate decline in house prices could improve affordability and give prospective buyers a better chance of entering the market.

Matt Grudnoff, Senior Economist at the Australia Institute, argues that many Australians would actually welcome lower property prices after years of rapid growth.

The latest downturn comes as higher interest rates weigh on demand, with the Reserve Bank of Australia keeping the cash rate at 4.35 per cent and warning that inflation remains a concern.

However, Grudnoff warns that the picture could change if prices fell by around 20 per cent.

A sharp decline could hurt existing homeowners and reduce consumer confidence, even as it creates opportunities for buyers.

The RBA has also indicated that a 20 per cent fall in property prices would not necessarily pose a major financial stability risk.

For now, the housing correction highlights a difficult economic trade-off: lower prices could improve affordability, but a severe downturn could put pressure on households, spending and the broader economy.

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