Commonwealth Bank tipping slowdown in property price growth as a result of interest rate rises

Australia’s biggest home lender is expecting a slowdown in house price growth this year as higher inflation from soaring petrol prices leads to interest rate rises.

The Commonwealth Bank is predicting growth in the middle-market house price will slow to 5 per cent in 2026, down from 8.7 per cent last year, with even weaker growth forecast in Sydney and Melbourne as Labor revisits capital gains tax concessions in the upcoming May Budget.

“Higher mortgage rates are expected to be the primary driver of this slowdown, with an easing in population growth and the anticipated CGT discount reduction adding further downward pressure,” economists Trent Saunders and Belinda Allen said on Monday.

“Overall, while housing prices will remain supported by past undersupply and still-tight rental conditions, interest rate increases and slower population growth are expected to take some of the momentum out of the market in the period ahead.”

A slowdown in growth would see Australia’s median property price rise by $45,063 to $946,320, based on Cotality data covering capital cities and regional areas.

But Perth and Brisbane were still expected to have double-digit growth next year that would add at least $124,000 to the typical home in cities receiving a big influx of interstate migration, while Adelaide was the only major market expected to buck the trend and do better this year.

Sydney, Australia’s most expensive, property market was expected to see its growth pace slow to 2 per cent, down from 6 per cent last year, which would see the mid-point value for all properties rise by $25,612 to $1.306 million by the end of 2026.

Melbourne, another recipient of high overseas migration, was tipped to see its property price growth slow to 1 per cent, down from 4.9 per cent, leading to an $8271 increase to $835,388.

“Sydney and Melbourne are likely to experience more subdued outcomes, largely reflecting higher construction rates relative to population increases in recent years,” the Commonwealth Bank said.

Australia’s best-performing market, Perth, was expected to remain hot with a 15 per cent increase forecast for this year, down slightly from last year’s very strong pace of 16.5 per cent.

This would still see the median price in the West Australian capital soar by $141,095 to $1.082 million.

Brisbane growth was tipped to slow to 12 per cent, down 14.5 per cent, which would still add $124,359 to the typical home and take the mid-point price to $1.16 million.

“Brisbane and Perth are expected to continue to outperform in the near term, supported by tight demand – supply dynamics and economic momentum, though higher borrowing costs and affordability constraints should see growth slow by 2027,” the Commonwealth Bank said.

Adelaide, a strong market that receives weaker population growth, was expected to post even stronger growth of 9 per cent this year, up from 8.3 per cent, adding $81,202 to the typical home and taking the median to $983,451.

Darwin, Australia’s most affordable market, was set to see its property price growth plunge from a nation-leading 18.7 per cent to just 4 per cent, which would see the median property price edge up by a more subdued $23,476 to $610,388.

Hobart was tipped to continuing having weaker growth with a 5 per cent increase, down from 6.9 per cent which would add $36,017 to the median price and take it to $756,358.

The Middle East crisis is already pushing average petrol prices to the verge of hitting new record highs within days, which would add to existing elevated inflation rate of 3.8 per cent.

The consumer price index is well above the Reserve Bank of Australia’s 2-3 per cent target with the big four banks all tipping a May rate rise before the US strike on Iran this month that killed Ayatollah Ali Khamenei.

But even higher inflation, as a result of higher petrol prices, could see the RBA raise interest rates next week, without waiting for the usually quarterly inflation figures, governor Michele Bullock has hinted.

The futures market is now forecasting two more rate rises this year that would take the cash rate to 4.35 per cent for the first time since February last year, before the RBA embarked on three rate cuts only to change course and hike again in February this year.

Treasurer Jim Chalmers has also suggested the upcoming May Budget will dilute the 50 per cent capital gains tax discount, which potentially dampens demand from investors.

His department is also forecasting net overseas migration will slow from 305,600 during the last financial year to 260,000 this financial year.