Australia's property market is heading for its steepest downturn in history, with prices falling in over 90% of suburbs, but the Reserve Bank will still deliver a fourth consecutive interest rate hike. Because why let a little thing like a historic crash get in the way of fighting inflation?

New data from Cotality reveals the perfect storm: higher borrowing costs, a weak economy, and a once-in-a-generation change in tax treatment for property investors. Shane Oliver, AMP's chief economist, predicts average home values will fall for another six to nine months, ending up about 10% below their peak - the worst in the postwar period. Though, as he notes, it's not hugely out of line with previous 8% corrections, like the one in 2022-23.

CBA analysts are even more bearish, forecasting 12-13% drops in Sydney and Melbourne, and 8% in Brisbane, Perth, and Adelaide. But don't expect this to fix Australia's chronic housing unaffordability. Oliver says, 'In some ways this just takes us back to where we were a year ago... and we were complaining about housing affordability then, so not much will change.'

RBA Governor Michele Bullock, at her 11 August press conference, called the housing downturn 'not the main game' - a phrase that will surely comfort those watching their home equity evaporate. She noted prices are still 50% higher than in 2020, so really, what's a little 10% dip?

Oliver says the RBA will 'think twice' but will keep hiking because inflation is the bigger problem. Jonathan Kearns, chief economist at Challenger and former RBA official, agrees the correction is coming 'harder and faster than anticipated,' but 'it's not large enough for them to say we don't need to hike.'

Meanwhile, the economy is barely growing. Belinda Allen, CBA's head of Australian economics, expects GDP growth of just 0.1% for the June quarter - the weakest in two-and-a-half years. 'The Australian economy has slowed, but inflation has not,' she says. So, get ready for more rate pain, because apparently, the cure for high prices is to make everything more expensive.