Australia's housing market is facing an extended downturn, according to National Australia Bank's chief economist, who said the adjustment to new tax rules will 'probably take the better part of a year' and that the market is 'a third of the way through' the correction.

The comments, reported by the Financial Review, mark one of the most explicit forecasts from a major bank since the federal government's property tax reforms took effect. While NAB did not specify the exact tax changes referenced, the remarks align with recent policy shifts including tighter negative gearing rules, changes to capital gains tax concessions, and stamp duty adjustments in several states.

The bank's assessment suggests that homeowners and investors should brace for further price declines in the coming months, with the full impact of the reforms yet to be felt. NAB's chief economist noted that the transition period would be 'protracted' as buyers, sellers, and investors recalibrate their expectations.

Property market analysts have offered mixed views on the outlook. Some argue that the tax changes are necessary to cool an overheated market and improve affordability for first-home buyers, while others warn that an extended downturn could trigger a broader economic slowdown, particularly if falling prices lead to reduced consumer spending and construction activity.

The Reserve Bank of Australia has maintained a cautious stance, noting that while housing market corrections are typically orderly, the combination of high interest rates and structural tax changes creates unusual uncertainty. The government has defended its reforms as essential for long-term sustainability, but opposition parties have seized on NAB's forecast as evidence of policy overreach.

For existing homeowners, the extended correction raises concerns about negative equity, particularly for those who purchased near the recent market peak. Investors, meanwhile, face lower rental yields and diminished capital gains prospects. First-home buyers, while potentially benefiting from lower entry prices, may struggle to secure financing as banks tighten lending criteria in response to falling collateral values.

NAB's forecast stands in contrast to more optimistic projections from some real estate agencies, which have pointed to Australia's chronic housing shortage as a buffer against severe price declines. The bank, however, maintains that the tax changes represent a fundamental shift in market dynamics that will take considerable time to absorb.