Mixed signals
The Reserve Bank of Australia released the latest Financial Aggregates figures for the month of March 2026, which showed another solid 0.6 per cent growth result for business credit over the month.
The first impacts of the Iran conflict would barely have had time to take effect in these data, and over the year business credit rose by 9.9 per cent.
Overall, credit growth in the economy was a strong 8.1 per cent over the year.
Housing credit growth also remained solid at 0.6 per cent for the month, and 7.3 per cent for the year.
Much of the growth of late has been driven by investors - especially focussed upon regional Australia given the dearth of rentals.
Despite this, it appears that the housing credit impulse passed a peak at the end of 2025 at the national level.
Australia's home value index is weighted towards Sydney and Melbourne, and prices in those cities are down by around -1 per cent in nominal terms over the past quarter.
What's going on?
From chatting to agents and industry contacts it sounds as though the previously red hot Perth market is now finally just beginning to come off the boil, with further interest rate hikes pencilled in for May and beyond looking likely to end the cycle.
The Federal Budget on the evening of May 12 also appears likely to have some tax reforms which will adversely impact property investment.
For the time being, Adelaide and Brisbane still seem to have some decent momentum.
In Sydney there have been some examples of recent house sales achieving perhaps $200,000 to $400,000 less than might have been expected in the more ebullient environment of a few months ago.
While sentiment may be down, unit prices have been less impacted to date, which seems to reflect another explosion in construction costs and the higher demand in the lowest price points of the market (fuelled by the 5 per cent deposit scheme for first homebuyers).
Market pricing is looking for a couple of further interest rate hikes, starting with 25 basis points in May.
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Budget reforms ahoy
Spit-balling a few thoughts on negative gearing changes, were the deductibility off losses to be quarantined to new build properties only.
Currently rental yields at the national level are 3.7 per cent for houses and 4.8 per cent for units.
Were the negative gearing benefit to be removed, it would seem logical that the rental yield would need to rise by at least 100 basis points, to account for the fact that the net rental losses could only be carried forward, rather than used immediately against other income.
You can play around with some assumptions in terms of gearing and expected mortgage rates.
Source: SQM Research
Take Sydney as an example, where rents have increased markedly since 2020.
The median unit in Sydney rents - for the sake of round numbers - for around $40,000 per annum.
Source: SQM Research
With a median unit value of $907,000 this equates to a gross rental yield of about 4.4 per cent.
Source: SQM Research
If the median unit price was to fall by 10 per cent (in nominal terms) and rents increased by 10 per cent, this would take the gross rental yield up to a more manageable 5.4 per cent (versus a mortgage rate of around 6 per cent).
The price drop for houses might be steeper, though there are more owner-occupiers driving that part of the market too.
The above having been said, previous modelling from the CIS, Grattan Institute, and others, has claimed that nominal prices would likely fall by only 1 to 4 per cent, due to other shifts in supply and demand.
Nobody knows for sure, but with this debate having run for decades now, it certainly won't be dull.
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