“Australian residential property prices never fall”
I can’t tell you how many times I have heard the expression, “Australian residential Property prices never fall”. Admittedly these “experts” have enjoyed an enormous 40-odd year bull market. However, they don’t believe that asset prices can be cyclical, and they likely missed the 1993 London headline which read “One million homes in negative equity”.
As Australia’s unemployment rate hits 4.7 per cent, a five year high, and inflation reaches 4.0 per cent in the 12 months to August 2026, it appears a period of stagflation – slow or negative real economic growth per capita, higher unemployment and persistent inflation – will likely be with us for the foreseeable future.
Recent economic analysis from KPMG has found that Australians now face greater economic pressure than they did when the Reserve Bank of Australia (RBA) cash rate hit 17.5 per cent in the early-1990, a function of the incredibly high consumer debt to disposable income ratio (180 per cent) combined with the cost-of-living crisis.
KPMG estimates that total interest payments on housing loans and consumer debt have risen from 5.7 per cent of household income in 1990 to 5.9 per cent – and that is prior to the September 2026 0.25 per cent RBA cash rate tightening and does not include any repayment of principal on the mortgage. What makes this analysis counter-intuitive is that even with four increases in the cash rate from February 2026 to 4.6 per cent, it still stands at around one-quarter of the level reached in early-1990s at 17.5 per cent.
Furthermore, this analysis is a total view, and it does not consider the approximate one-third of Australian households with no mortgage, or the approximate one third of Australian households who are renters. Pity those who joined the Government’s first home buyer 5 per cent deposit scheme, many of whom picked the peak of the property cycle and have now seen their deposit become worthless with the double-digit decline in residential property prices.
And with Stamp Duty received by most Australian state governments typically accounting for 16 per cent of general revenue, the estimated 35 percent reduction in the combined volumes (down 25 per cent) and prices (down 15 per cent) of residential property will see at least a five per cent state government revenue drag, ensuring a much great requirement for government fiscal responsibility and austerity. It is called a negative feedback loop and often comes at a most inopportune time.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 40 years of industry experience.
David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
