The boom time is over and we're now officially experiencing the "house price fall we had to have", according to Deloitte Access Economics's latest business outlook.
It has found what many had been predicting: prices are dipping as interest rates are rising, with our biggest cities feeling the winds of change most keenly.
"Our house prices here in Australia had streaked past anything sensible by way of valuation," said Deloitte partner Chris Richardson.
"Now, finally gravity has caught up with that stupidity and prices are falling.
"In Sydney and Melbourne, housing prices are falling by over $1,000 a week."
Prices had surged across the country over the past five years as historically low interest rates have driven Australians to load up on debt, while investors had also cashed in.
Mr Richardson said normally a drop in house prices could damage the economy, but in this case the indicators were the fall was mild and Australia's economic growth continued to accelerate.
"Yes, they're falling but they're not falling at a dangerous rate and it's making them, shifting them, to safer territory," he said.
"There are more falls to come, particularly in Sydney and Melbourne, because the prices there got silliest and you're seeing a range of pressures on it."
Mr Richardson names three particular factors putting downward pressure on prices.
- Banks are raising interest rates: "Even though the Reserve Bank has done nothing."
- Banks have become cautious: "You've seen the banks being more careful with the loans they're giving. Those loans are slower and smaller than they used to be."
- Less money from overseas: "Foreign buyers are a bit more cautious."
The Deloitte report reflects recent data from Thomson Reuters, which shows changes in the rate of residential property price growth, year-on-year.
A falling line in this chart doesn't necessarily mean prices are dropping — simply the rate of growth is slowing — but if it drops below zero then prices are technically falling.
Wages growth is a good news story
While falling house prices might mean owners are losing out on paper, there is also good news on the horizon: better wage growth.
Deloitte's outlook found wages growth "bottomed out" in 2016 and since then had been making "glacial gains".
Mr Richardson said while we've gone through a long period of low interest rates and low wage growth, both measures would start to noticeably creep up.
"We'll go from a phase in which wage growth has been bad news and interest rates have been good news," he said.
"That will slowly start to swap, if you like.
"It's not as though wage growth or interest rates will roar up, but both of them will slowly move up over time."
Mr Richardson tips the Reserve Bank won't raise official interest rates until late 2019, and even then it will be incremental to offer some protections against families that have taken on a lot of debt.
