Treasurer Jim Chalmers is insisting property prices will start growing again next year as Australia’s biggest banks predict the worst house price downturn in four decades will fail to help first homebuyers get into the market.

The Federal Government went into defensive mode hours before the Reserve Bank warned the housing market downturn would discourage developers from building new homes during a housing crisis.

“If you look at the numbers put out by the Commonwealth Bank, for example, this week, where they had some forecasts — updated forecasts for house prices - they still expected house prices to return to growth next year,” Dr Chalmers told ABC Radio National on Thursday.

“And so again, another really important reminder, people don’t buy and sell houses on a week-to-week or month-to-month basis.

“Housing is a longer-term investment. Over time we expect our policies to have an impact on house prices, but house prices will continue to grow, but a bit more modestly and that means more affordable options for more first homebuyers to get into the market, which is our objective here.”

Dr Chalmers rejected a suggestion Labor’s changes to negative gearing and capital gains tax concessions were solely to blame for the housing downturn, with house values last month falling in every capital city market except Darwin.

“I think that’s one of a number of reasons. I think that there’s not one factor driving softness in the housing market,” he said.

“We saw house prices and auction clearance rates soften even before the Budget, reacting to interest rate changes and developments in the economy more broadly.”

Shadow Treasurer Tim Wilson has seized on the comments as a concession from Labor that its Budget was to blame for the housing market downturn.

“Jim Chalmers has conceded his Budget is destroying the wealth and wages of Australian families, while Australians are living the consequences of his active inflation agenda,” he said.

“The Treasurer confirmed that house price falls can be attributed to his taxes on housing and family savings and record high interest rates that are driven by his active inflation agenda, finally confirming that house prices are collapsing by design of his Budget.”

The Reserve Bank’s chief economist Sarah Hunter warned the housing market downturn would hamper the supply of new builds.

“We had an assumption that the housing market downturn would make some residential projects, at the margin, wouldn’t be so attractive, developers wouldn’t get so many projects off the ground,” she told a Senate hearing into intergenerational housing inequity on Thursday.

“By the end of the forecast horizon, we have dwelling construction activity tipping down - less supply to the economy, less supply to the rental market and that will play through.”

ANZ’s head of Australian economics Adam Boyton is expecting a 10.6 per cent decline across Australia from the peak in 2026 to next year’s trough, with Sydney tipped to suffer an even bigger plunge closer to 15 per cent.

But first homebuyers would still be unable to afford a house, even with the worst decline since the early 1980s.

“Is housing affordability and that challenge solved by a 10 per cent decline in house prices? I certainly would not want to suggest to you, Senator, that that would solve that challenge,” he told the hearing in Canberra.

Bigger declines are forecast in more expensive suburbs of Sydney, which Mr Boyton said would do little to help property newcomers into more affordable suburbs, given the surge in values since 2021 when interest rates were at record lows during COVID.

“What I can tell you is typically, when you see house price declines, it is the more expensive properties that often do the larger adjustment,” he said.

Belinda Allen, the Commonwealth Bank’s head of Australian economics, said the Reserve Bank’s February and March interest rate hikes sparked the housing market downturn before the May Budget tax changes added to the decline.

“We actually saw home price falls start in April after the Reserve Bank of Australia lifted the cash rate earlier this year,” she said.

“And a number of reasons why home prices have fallen — those interest rate hikes, weaker sentiment because of the Middle East conflict, and of course, the tax policy changes in May have all contributed to what we are seeing across the board is investors, owner-occupiers and first homebuyers now really sit on the sidelines of the housing market as they’re watching and waiting and seeing developments unfold.”

Robert Parker, the Commonwealth Bank’s executive general manager of retail banking, noted overall mortgage applications had dived by 15 per cent since the May Budget, with investor applications plunging by 28 per cent.

“We have observed that mortgage applications overall are certainly softer,” he said.

The Commonwealth Bank, Australia’s biggest home lender, is predicting a 10 per cent capital city property price decline from the peak earlier this year to a trough next year.

It is also predicting a national decline of 9 per cent, taking in regional areas, which would be worse than the 8.2 per cent plunge from 2017 to 2019 after the Australian Prudential Regulation Authority cracked down on interest-only loans.

Should that materialise, Australia would be suffering from the worst downturn since 1982 and 1983 when the nation was in the grip of a year-long recession and a drought.

The Commonwealth Bank is even more downbeat about Sydney, forecasting a 13 per cent drop from its February peak, which coincided with the first of the Reserve Bank of Australia’s three interest rate rises.

Melbourne values were tipped to fall by 12 per cent from a peak reached much earlier in March 2022.

Brisbane, Perth and Adelaide were expected to see an 8 per cent decline, with the Queensland and South Australian capital markets peaking in May.

That is when Dr Chalmers delivered a Budget that restricted negative gearing to new builds from July next year and replaced the 50 per cent capital gains tax discount with indexation for inflation and a minimum 30 per cent tax.

Perth’s market peaked in April this year, before the RBA hiked rates for the third time this year in May.

Capital city house prices plunged by 4 per cent in the three months to August 31, but in Sydney they plummeted by 5.4 per cent during the quarter, as equivalent Melbourne values fell by 4.6 per cent, Cotality data showed.

National Australia Bank sees home prices growing again next year but is forecasting a 10 per cent decline in Sydney this year and a 9 per cent drop in Melbourne.

It sees prices across the capital cities falling by 5 per cent in 2026 but still sees Brisbane prices growing by 2 per cent as values rose by 5 per cent in Perth and 1 per cent in Adelaide.

Dr Hunter said she was personally affected by stories of hardship arising from interest rate rises, given another hike would add $121 to monthly repayments on an average, new mortgage of $731,000.

“We understand what we’re doing; it is very confronting, the contact that we have from many people in the community who call us, who write letters, when we meet with community organisations as well who tell us about their clients and what they’re experiencing and their struggles and how it’s manifesting - you can’t not be affected by this,” she said.

“I certainly am very affected by this when I talk to these people and I really do emphasise and sympathise, I know that it’s hard, we know that it’s hard. We’re not deaf to that.”

The Commonwealth Bank, like NAB and ANZ, is expecting another interest rate hike this year that would take the Reserve Bank cash rate to a 15-year high of 4.6 per cent but it would still be well below the record-high target rate of 17.5 per cent in early 1990.