HSBC predicts 13% slide in Australian house prices by 2027

HSBC economists project that Australian home prices will drop 13% nationally by mid-2027, a decline that would surpass the 8% fall in capital cities between 2017 and 2019 – the steepest correction in three decades. The forecast, released on Tuesday, attributes the slide to federal property tax reforms and the prospect of further interest rate increases.

Paul Bloxham, HSBC's chief economist for Australia, said the projected correction would be the largest in modern history. He noted that nearly five percentage points of the decline has already occurred, with the full drop expected to unfold over 15 months starting from April – the month before the government announced its tax changes in the May budget.

The centre-left Labor government plans to scrap the capital gains tax discount from July 2027 and ban negative gearing on existing properties, a policy that lets investors offset rental losses against taxable income. These measures have already weighed on the market: national prices fell 0.9% in August after a 1.2% drop in July, with Sydney and Melbourne leading the decline at 1.4% and 1.1% respectively, leaving values about 7% below their peaks.

Bloxham highlighted two key drivers: the unprecedented nature of the tax changes, and persistently high inflation stemming from weak productivity growth. He argued that this could push the Reserve Bank of Australia (RBA) to hike rather than cut rates, even as prices fall. The RBA has already raised the cash rate three times this year to 4.35%, and markets fully expect another increase after strong July inflation data. HSBC anticipates further hikes in September and November.