Unemployment Spikes. Is Australia’s Housing Boom About to Crack? EP113

What we’re talking about today could shape Australia’s economic path over the next two years. In September, the unemployment rate jumped from 4.3% to 4.5%. It’s now at the highest level since November 2021—and it beat market expectations by a wide margin. Why does this number matter so much? A rapid rise in unemployment is usually a key signal that the economy has shifted, and it can have a huge impact on the property market.

Back in December 1992, Australia’s unemployment rate spiked to a record 11.2%. National house prices fell only 8%, but Melbourne—the most overheated market back then—saw a real price drop of 19%, and it took 7 years for the recovery. We saw something similar during the Global Financial Crisis in 2008.

What many people miss is that rising unemployment is often the result of an economic downturn, not a leading indicator of it. And yes, there is a clear link between unemployment and house prices. When unemployment climbs, buying power falls, mortgage stress rises, and price growth usually slows—or turns negative.

The next twelve months could be a make-or-break decision window for Australian property investors. How long can the current upswing in the housing market really last? And for those who haven't bought yet—should you still buy now?

The Unemployment Numbers Are Alarming

Let’s take a closer look at what’s actually happening. In September, Australia's unemployment rate rose to 4.5%, back around the highs of November 2021. Some might say, it's just 0.2%, not a big deal. What it really means is a turning point in the labour market.

According to the Australian Bureau of Statistics, the number of unemployed grew by 33,900 month on month, taking total unemployment to 684,000—the highest since October 2021.

Year on year—compared with last September—the unemployment rate is up 12.5%, with 80,000 more people out of work than a year ago. Behind every unemployed person, there is a real Australian family. Imagine what life looks like when a family has no one working.

By gender, male unemployment increased by 24,000 to 370,000, while female unemployment rose by 10,000 to 314,000. Male-dominated sectors like mining and manufacturing are tightening headcount. Only construction showed a small increase in total hires. Shrinking labour in these foundational industries points to a demand problem across the economy.

It’s not just unemployment—the structure has shifted. In the past, job losses were concentrated in lower-skill roles, but not this time. Major banks and financial institutions are cutting staff—these are high-paying, steady white-collar jobs. When even banks are laying people off, you know there are real problems in the economy.

The most counterintuitive sign is that the participation rate actually rose—from 66.9% in August to 67% in September. That’s dangerous, because it means more people are being pushed into the labour market to look for work, but there simply aren’t enough roles.

In September, employment increased by only 14,900, well below market expectations. It shows the hiring appetite is falling sharply—businesses are tightening their belts.

Research from Roy Morgan is even gloomier. They estimate the combined true unemployment and underemployment rate has already topped 20%—meaning one in five Australian workers is either out of a job or doesn’t work enough hours. The jobs problem in Australia’s economy is far more severe than that 4.5% headline suggests.

History Repeats

History has a way of repeating itself. Let’s wind the clock back and trace Australia’s unemployment path. From 1987 to now, the long-term average sits around 6.3%. On the surface, today’s 4.5% still looks alright. But, when unemployment surges quickly off historic lows, it’s far more worrying than a slow, steady rise.

In December 1992, Australia’s jobless rate hit a record 11.2%. What happened in those years? From 1989 to 1996, the housing market went through a correction. The national house prices fell about 8% in real terms—manageable—but the differences across cities were huge. Melbourne, the most overheated market in the late 1980s, saw a real price decline of 19% from its 1989 peak to 1996, with a seven-year recovery period. There was negative equity for many buyers back then, but Australia didn’t suffer as badly as the UK, where prices fell 25% over the same period.

A rapid rise in unemployment usually indicates a turning point in the economy. Look at the Global Financial Crisis in 2008–2009: unemployment climbed from 4% in early 2008 to 5.75% by mid-2009—up 1.75%. Australia ultimately avoided a technical recession, but that rise still put the economy under real pressure. The key is this: the lift in unemployment is the result of a downturn, not a leading indicator.

Now, think about the pandemic years. In June–July 2020, the unemployment rate spiked to 7.4%, but that was driven by the lockdown. The government rolled out JobKeeper and JobSeeker programs, and unemployment quickly eased. This time, it’s different. There’s no pandemic, no external shock—what we’re seeing is an internal signal of economic adjustment.

Historically—while it’s not a perfect rule—unemployment and house prices do show an inverse relationship. The classic case is Western Australia. As the mining boom finished 2014, Perth’s median house price fell from its 2014 peak of $616,000 and kept slipping. By 2019, Perth prices were down 14%. Mining hubs like the Pilbara was far worse: from 2012 to 2018, prices plunged 68%. And that happened while the property price in most other cities nationwide were still rising. If the national unemployment rate was also higher, you can imagine the impact.

In the past, rising unemployment often came with a falling participation rate, because many people who couldn’t find work simply left the labour force. This time, participation is rising, not falling, which tells us the cost-of-living squeeze is so intense that more people are being forced to look for work. This “participation up + unemployment up” combo has appeared before—in the 1980s recession and again in the early 1990s downturn. Rising participation alongside rising unemployment is a key sign that the economy is entering an adjustment phase. However, we are in a different situation today. The central bank is reacting faster, and the government’s policy toolkit is more extensive than it used to be.

If you have any questions about property investment, please book a free 15-minute discovery call on our website. If you want a team offering one-stop service to help you build a property investment portfolio, achieve financial freedom and retire early, join our VISION Membership by booking a 30-minute obligation-free discovery session to start with. Or to keep it simple, our data-driven buyer's agency service can help. We buy and manage properties for our clients anywhere in Australia. Links to the service are in the description below.

What Happens To Housing Prices

By logic and common sense, unemployment and housing do connect in many ways. In research from Macquarie University, Professor Abelson and other economists found that factors like high jobless rate, high mortgage interest rates, and high share prices all have a negative effect on house prices. Unemployment directly harms homebuying demand and the ability to service a loan.

Take a professional earning $150,000 a year for example. By standard bank lending rules, they can usually borrow around $700,000 to $900,000. If they lose that job, not only are they out of the market, but they may also face financial stress from an existing mortgage. Now we’ve added more than 30,000 people to the unemployment queue. They’re not all high earners, but each person without work means one household’s purchasing power just fell.

More importantly, a rising unemployment rate tightens bank lending standards. When the economic outlook is uncertain, even if you’re employed, banks will assess your repayment capacity more cautiously. First-home buyers are often hit first and hardest because their savings and income stability are usually weaker than those of other buyers.

I’ve worked in this industry for many years, and I’ve seen a lot of cycles. In the 2018 correction, many thought APRA’s tighter lending rules were the sole reason. Yes, stricter regulation mattered—but the deeper drivers were slowing economic growth, a softening jobs market, and a lot of supply.

RBA research shows rising unemployment hits house prices through multiple channels: lower incomes reduce consumption; households feel poorer and lose the urge to buy; and banks, fearing defaults, tighten credit. Add those effects together, and you get downward pressure on housing prices.

But here’s the key turning point. If we simply let unemployment climb and the economy weaken, that whole chain reaction we just described will play out. Yet the federal government and the central bank will not just stand by. The RBA has recognised the seriousness of the problem and is considering adding more rate cuts. The question is: can easier rates offset the negative drag from higher unemployment? What matters next is how fast the bank moves, and how strong the response is.

The RBA's Rescue Playbook

Right now, the RBA faces a dilemma. On one side, surging unemployment is dragging on growth. On the other, inflation hasn’t fully returned to its target. There’s no choice that fixes everything at once.

At the moment, the cash rate is holding at 3.6%, with no cuts since August. After pausing in September, markets had given up on a November cut—but the jobs data flipped that view almost overnight.

As of 20 October, markets were pricing in the probability of a cut at the 4 November meeting, up from 40% before the September jobs release to 74%. They also expect another cut in May next year. This is one of the main reasons I previously projected the current upswing in Australia’s housing market could extend to the third quarter of 2026.

In the 30 September monetary policy statement, the RBA said it would “remain data-dependent.” In plain language: if unemployment keeps rising, we’ll have to cut rates. In August forecasts, the RBA saw unemployment peaking at 4.3% and holding there through the end of 2027—yet by September it had already jumped to 4.5%.

The big four banks don’t fully agree. Westpac says a November cut is very likely, followed by cuts in February and May next year—but it also says whether November's cut goes ahead depends on the third-quarter inflation report coming out at the end of October.

Inflation is the RBA’s toughest problem. Last month’s number came in at 3%, the top of the target band. If rates are cut sharply now, could inflation go back up? Usually, when unemployment rises quickly, inflation pressure eases by itself—people simply have less money to spend. In the past, rate cuts could quickly turn the market into an upswing. But with job losses mounting and job security in doubt, even lower rates may not tempt some buyers back in.

But, I’m not worried. When it comes to unemployment, the federal government and the RBA won’t just sit there and do nothing. History shows that when joblessness surges, they roll out a combined response. During the 2008 Global Financial Crisis, after Lehman Brothers collapsed, the RBA cut from 7.25% to 3% in seven meetings, while the government launched a $42 billion stimulus—cash payments, infrastructure investments, and small business support. That combination helped Australia become one of the few advanced economies to avoid a technical recession.

I also ran a market study across the past 30 years to see what the unemployment–house price relationship really looks like. The result is a little surprising, but it makes sense. Over those three decades, house prices rose when unemployment fell—and they also rose when unemployment rose. Not because jobs and housing are unrelated, but because each time unemployment jumped, policy intervention arrived quickly: rate cuts, subsidies, or fiscal stimulus. Interest rates have a much stronger impact on house prices than unemployment does. Many say Australia’s housing market is a policy-driven market—and I agree.

Opportunity for Everyday Investors

A surge in unemployment is bad news for the economy, but for prepared investors it can be a once-in-a-decade opportunity. First, the buyers will have more bargaining power. When joblessness rises, sellers’ mindsets shift—especially those forced to sell. Second, with rate cuts now on the horizon, it's better to make a fast move. The market is already starting to price future cuts into housing prices, but many sellers haven’t. Savvy buyers move before the rates actually fall, locking in quality stock. Melbourne is a standout city, with prices lower than in other cities due to factors such as more supply, more state taxes, higher holding costs, and lower rental yields. Short-term performance may be mixed, but the medium to long-term potential is there. Third, look for quality suburbs the market has overlooked. The impact of unemployment differs by location. Places with stable employment—think suburbs with a concentration of government positions, or inner suburbs rich in health and education—can be mispriced by fear. That’s a valuable opportunity.

If you haven’t bought yet, keep two things in mind. One: investing in regions with high unemployment carries a big short-term risk. For every one-percentage-point rise in the jobless rate, house prices often fall 3%–5%. Western Sydney, Melbourne’s north—manufacturing-heavy pockets—could be volatile in the short run. Two: don’t push leverage too high. When uncertainty rises, high leverage is dangerous. If a recession does arrive, strong cash flow and a safety buffer can keep you from becoming a forced seller.

As for where to focus, favour suburbs with a higher owner-occupier rate, backed by government infrastructure, and with stable rental yields. For first-home buyers, this could be the best entry point: banks are more flexible on owner-occupied loans, and government support is generous. Property investing isn’t a sprint—it’s a marathon. Before every move, ask one question: will my next step—buying, selling, or anything else—get me closer to my long-term goal? If it doesn’t help that long-term goal, then even a property that could make you quick money isn’t one we should buy.

Watch the video version of the blog on YouTube.

15 Minutes Free Consultation (Limited-Time Free Offer)

If you have any questions about Australian real estate, we invite you to use our 15 Minutes Free Consultation service. Once you have filled in the form, a professional property investment strategist will be in touch with you. They will assess your needs and provide fundamental advice. This service is designed to help answer general property-related queries. BOOK NOW.

VISION Membership

Our Flagship Service: VISION Membership. Your One-Stop Property Investment Manager – Build a Tailored Portfolio and Achieve Financial Freedom

Whether you're an employee, a professional, a business owner or even a new migrant, everyone has a financial goal for the future. The VISION Membership is designed to solve all the pain points in your Australian property investment journey through one single, comprehensive service.

By analysing your current financial situation and long-term goals, we'll tailor a property investment plan just for you. Our team will match you with the ideal mortgage structure, tax strategies, wealth planning, and legal support, empowering you to go further, faster, and smarter on your path to financial freedom.

VISION Membership is perfect for busy individuals who want a professional team to create, expand and manage their Australian investment portfolio. If you're looking for a dedicated team, including real estate investment experts, mortgage brokers, accountants, financial planners, and property solicitors, VISION Membership is your ideal solution.

Start with an obligation-free 30-minute discovery session on Zoom. BOOK NOW.

VISION Buyer’s Agent

No time for inspections? Tired of dealing with pushy selling agents? Unsure how much to offer or feeling nervous about auctions? Worried about buying the wrong property? If any of these sound like you, AusPropertyStrategy's Australia-wide VISION Buyer's Agent Service is here to help.

We provide end-to-end support to help you build an optimised property portfolio and achieve your financial goals—whether you're investing interstate, refinancing, or planning post-settlement leasing or resale. Our services cover everything from suburb research and property selection, to price negotiation, auction bidding, and post-settlement support.

Start with an obligation-free 30-minute discovery session on Zoom. BOOK NOW.

real estate australia,real estate investing,australian property,australian housing market,australian economy,australian property investment,australian property market,buying property,australian real estate,mortgage brokers brisbane,first home buyer,Australian Real Estate,Australian Real Estate Investment,Australian Property Investment,Real Estate Investment,Property Investment,Property Investment Australia,Passive Income,Positive Cash Flow,Australia Real Estate Investing,Australian Real Estate Investors,Australian Property Investors,Vision Wealth Mentors,Vision Real Estate Investors Australia,financial freedom, freedom through property investment,real estate investors,property investment,passive income,positive cash flow,real estate course,real estate courses,real estate training,australian property market,property investment brisbane,property investment sydney,melbourne property market,investing in brisbane,investing in melbourne,how to invest in property,buying properties,start investing in property,property investment strategy,how to buy investment property,property investing tips,best suburbs to invest in sydney,locations real estate,prime location,property growth by suburb,capital growth suburbs