Australia’s sharemarket is set to be an unexpected winner from the housing market slump, with falling property prices historically linked to higher returns on the local bourse. Research by Morningstar analysed five housing downturns since 1980, where national dwelling prices fell by at least 5 per cent. Excluding the 2008 global financial crisis, the S&P/ASX 200 Index climbed about 7.5 per cent on average during each slump. Morningstar’s market strategist Lochlan Halloway noted, “By the time housing found its floor, the sharemarket was higher.” This aligns with academic studies, suggesting investors often switch from property to shares.
The current housing downturn saw national prices slip 0.4 per cent in June, following rapid Reserve Bank of Australia (RBA) interest rate rises and government changes to negative gearing and capital gains tax (CGT), policies designed to slow property growth. While the ASX 200 climbed 0.5 per cent last month, its 2026 financial year performance was lacklustre. Australia’s big banks comprise a quarter of the benchmark index, leaving ASX investors exposed to a housing crunch. Economist Jonathan Kearns noted prior solid house price growth and a low 4.4 per cent unemployment rate have buffered banks against widespread defaults.
However, worsening economic conditions are projected to impact bank growth. Kearns warned a rise in unemployment would increase arrears and limit home loan expansion, affecting bank profitability. Despite a recent rise in the ASX financials sector, sentiment is bearish, with short positions in major banks soaring. While RBA rate rises are the primary downturn driver, government changes to negative gearing and CGT, which also apply to shares, are expected to channel more passive money into the Australian sharemarket. Betashares chief economist David Bassanese cautioned investors about potentially high effective tax rates on portfolios due to these CGT adjustments.
