Australian property is falling fast. Cotality's daily index has Sydney home values down 19.5% over the past year, and news outlets are now carrying warnings of the steepest housing decline since the Great Depression.
The obvious question is who gets hit the hardest. Property investors? Real estate agents watching their commissions dry up? My answer is that it reaches almost everyone in this country, including people like me who rent and don't own a property at all.
Let me explain why.
Why Falling House Prices Hit the Whole Economy
For most Australians, their home is the biggest asset they will ever own. When it rises in value, people feel wealthier and spend more. Economists call this the wealth effect.
It works in reverse too. If you own a $5 million home in Mosman or Toorak and it drops 20% in a year, you are a million dollars poorer on paper. You think twice about the renovation, the holiday and the round of drinks on a Friday night.
One household cutting back doesn't move the needle. Millions of households cutting back at the same time can push an economy into recession, and recessions are when people start losing their jobs. That is how a property downturn reaches people who never owned a property in the first place.
How the 5% Deposit Scheme Puts Taxpayers on the Hook
The Australian Government's 5% Deposit Scheme lets eligible buyers purchase a home with a deposit as low as 5%, without paying Lenders Mortgage Insurance. It was expanded on 1 October 2025, when the income caps and the annual limit on places were removed.
Here is how it works. You put in 5%. The bank lends the usual 80%. The government, through Housing Australia, guarantees the remaining 15% to the lender. That guarantee is what lets the bank treat a 5% deposit like a 20% deposit.
Here is what that guarantee means in a downturn. If prices fall and a borrower can't hold on, the first 5% of the loss wipes out their deposit. The next 15% falls on the government's guarantee, and the government's money is taxpayer money.
Now look at Sydney. Someone who bought a year ago with a 5% deposit has seen the average property fall 19.5%. Their deposit is gone and the loss is eating deep into the government's 15%. With interest rates rising, personal insolvencies climbing and prices falling, I expect more of these buyers to be forced to sell. Those of us who saw this coming are still exposed, through our taxes.
Why the Banks, and Australia's Retirees, Are Exposed
The bank carries the biggest share of the risk on every mortgage: 80%. That holds whether a buyer used the 5% scheme or saved a traditional 20% deposit. And 19.5% is only Sydney's average. Some properties have fallen less, but others have fallen further, and the pattern so far is that the top end of the market is being hit hardest. A buyer at the top who has lost more than 20% is now eating into the bank's share.
That matters well beyond the banks themselves. Australian retirees have built their share portfolios around high dividend paying stocks, both for the income and for the franking credits, and the big banks sit at the centre of most of those portfolios.
So if property keeps falling and the banks take losses, retirement savings take the hit too. And if the banks ever need support, it's the taxpayer who will be expected to provide it.
What History Says About Gold and Silver When Property Falls
So how do you protect yourself from all of this? My view is that precious metals are the best place to be when things go wrong, and history backs that up.
In the Great Depression, nominal house prices in Sydney and Melbourne fell more than 25% from their 1929 peak, according to research by Nigel Stapledon at UNSW. Over the same period the Dow Jones lost 89% at its low. Gold, measured in Australian pounds, roughly doubled as the Australian pound was devalued. That last figure is my approximation from year-end exchange rates, but the direction is clear.
In the 1970s, inflation ate away at property in real terms for the whole decade. From January 1972 to January 1980, the median US house price rose 143% in nominal terms. Gold rose 1,336% and silver rose 2,137%.
We saw it again after the dot-com crash, when gold climbed 43% from its March 2001 low to January 2003. We saw it in the GFC, as gold rose from around US$670 in early 2007 to more than US$1,800 by August 2011. And we saw it in the eurozone crisis. From 2007 to 2018, Greek house prices fell 38% while gold rose 93% in US dollar terms. I covered Greece in more detail in why rising US bond yields could send gold and silver higher.
Where I'm Positioned
Everybody is exposed to this property downturn. Investors are doing it tough and probably have it worst, but if you don't own property at all you are still exposed through the 5% Deposit Scheme, through the banks, and through your super.
That's why I think precious metals are going to be the best place to be for the next five to ten years. Physical gold bars and silver bars sit outside the banking system, with no counterparty standing between you and your wealth, and you can hold them in professional vault storage if you'd rather not keep them at home.
This is not financial advice. This is insight into what I do with my own money, not a recommendation for what you should do with yours.
What a time to be alive.
Sam from Liberty Bullion.
