The coming housing stall
Higher interest rates, lower confidence, fewer transactions and a bigger shortage waiting on the other side
Synopsis
A prolonged Middle East conflict could push Australia into recession, with higher inflation and interest rates hitting housing hard. Sales volumes fall first, prices soften next, but new supply collapses, setting up an even tighter housing market and a return to price growth once conditions stabilise.
Introduction
My pre-Easter post said that I wanted to think through what was going on in the world a bit more before I updated my housing outlook for the next year or three.
So here we go.
Revisit
Where to begin?
Let’s not overcomplicate this. When global energy shocks hit housing doesn’t usually crash. It stalls.
Financial collapses cause housing crashes not energy shocks. And whilst we are talking in platitudes, AI - for mine - will change how many of us live, not necessarily reduce the values of established home values. But more on this stuff in coming posts.
Now back to energy shocks.
A range of recent (and I reckon realistic) economic models have looked at what happens if the Middle East conflict drags on. Not a quick skirmish. A prolonged disruption - oil between US$130 and $US140 per barrel, inflation back toward 2022 highs (or more), and central banks forced to act.
This seems like a worse case scenario, as right now, things still look relatively peachy. Petrol prices haven’t exploded. Supply chains haven’t seized up. Supermarket shelves remain largely full. And in Australia, temporary fuel subsidies and government intervention are helping cushion the immediate hit from the latest Gulf conflict.
But this is the calm before the storm.
Global oil inventories are now being drawn down at a record pace, spare capacity is thin, and shipping risks through key trade routes remain elevated. Even if this conflict ends quickly, the economic damage is already being baked in. Higher fuel costs flow into freight, construction, manufacturing, food and just about everything else. Inflation pressures will rise again. Interest rates are likely to stay higher for longer. And economies already carrying too much debt and too little productivity growth will feel it hardest over the next 12 to 24 months.
The conclusion? Australia tips into recession. And housing goes into deep pause.
How this economic hit is likely to impact on housing sales, prices, rents and supply are covered behind the paywall. Also how long this malaise might last and what could happen on the other side.