The housing market in Australia is facing a turbulent period, according to AMP chief economist Shane Oliver, who warns of a potential downturn in the country's housing 'super cycle'. This term refers to a 20 to 40-year period of sustained price growth, and Oliver believes the current upswing is powered by a combination of factors, including falling interest rates, expanding credit, strong population growth, tight supply, investor tax breaks, and the rise of dual-income households. However, he also highlights the risks that could disrupt this cycle, such as higher long-term rates, worsening affordability, tighter tax concessions for investors, and a policy tilt towards lower immigration.
Oliver predicts that the Reserve Bank of Australia will deliver two more interest rate hikes, pushing the cash rate to a peak of 4.85%. This will have a significant impact on mortgage holders, with an estimated increase of $200 per month in repayments for those with a $600,000 mortgage. The three hikes already implemented in 2026 have already increased monthly repayments by $272, and further hikes will add almost $500 more to mortgage payments.
The economist notes that the ratio of home prices to wages and incomes is at record highs, indicating a significant affordability squeeze. Rising mortgage rates are widening the gap between what buyers can afford and current asking prices, leading to a decline in confidence and a deterioration in perceptions of the optimal time to buy. However, Oliver stops short of calling the end of the super cycle, emphasizing that a crash would require widespread forced selling, which he considers unlikely without a sharp rise in unemployment.
In my opinion, Oliver's analysis provides a valuable insight into the potential challenges facing the Australian housing market. The combination of rising interest rates, affordability issues, and the impact of policy changes on investor behavior could indeed disrupt the housing super cycle. However, the resilience of homeowners and the potential for immigration to boost the market cannot be overlooked. The key question remains: will the housing market withstand these challenges, or will it experience a significant downturn?
One thing that immediately stands out is the potential impact on mortgage holders, who may face substantial financial strain due to rising interest rates. This raises a deeper question: how will the government and financial institutions support these individuals during a period of economic uncertainty? Additionally, the role of immigration in sustaining the housing market cannot be ignored, and policymakers should consider the implications of their decisions on the housing sector.
