The housing market in Australia is facing a turbulent period, according to AMP chief economist Shane Oliver, who warns of a looming crisis that could disrupt decades of price growth. Oliver's recent comments in the Daily Mail highlight a complex interplay of factors that are putting pressure on the housing 'super cycle'.
The Super Cycle at Risk
Oliver defines the housing super cycle as a 20 to 40-year period of sustained price growth, and Australia's recent upswing has been fueled by a combination of factors: falling interest rates, expanding credit, strong population growth, tight supply, investor tax breaks, and the rise of dual-income households. However, this engine is now sputtering, and the cycle is under threat.
The economist points to higher long-term rates, worsening affordability, tighter tax concessions for investors, and a policy tilt towards lower immigration as the key pressures. These factors, he argues, could threaten to end decades of house price gains. Oliver's prediction of a 1% fall in national average home prices this year and a 5% decline over 2026-2027 underscores the severity of the situation.
The Impact on Mortgage Holders
The implications for mortgage holders are significant. With the Reserve Bank expected to deliver two more rate hikes, pushing the cash rate to 4.85%, the financial pain will be felt across the board. For a $600,000 mortgage, these hikes will add approximately $200 to monthly repayments, and for those with $600,000 outstanding and 25 years remaining, the three hikes already delivered in 2026 have increased monthly repayments by $272 since January. A further two hikes would mean an additional $500 in monthly payments.
The Affordability Squeeze
The affordability squeeze is a critical issue. The ratio of home prices to wages and incomes is at record highs, and rising mortgage rates are widening the gap between what buyers can afford and current asking prices. This has led to a decline in confidence and a deterioration in perceptions of the timing of home purchases. However, Oliver notes that a crash would require widespread forced selling, which he sees as unlikely without a sharp rise in unemployment.
The Uncertain Future
While Oliver stresses that a crash is not imminent, the housing super cycle is under significant pressure. The surge in immigration post-pandemic and constrained home building have contributed to a chronic undersupply of housing, which has extended the cycle. However, the combination of higher interest rates, tax changes, and a shift in immigration policies could spell the end of this prolonged period of price growth.
In my opinion, the housing market's future is uncertain, and the implications for mortgage holders and the broader economy are profound. The super cycle, which has been a cornerstone of Australia's economic growth, may be reaching its limits, and the coming months will be crucial in determining the market's trajectory.
