Housing decline ‘larger and faster than expected’: CBA calls national price correction
CBA expects house prices in Sydney and Melbourne to drop by more than 10 per cent as the combination of higher interest rates and the property tax shake-up contributes to a faster pace of decline.
Australia’s biggest home lender expects house prices in Sydney and Melbourne to drop by more than 10 per cent as the combination of higher interest rates and the Federal Government’s property tax shake-up contributes to a faster pace of decline.
Commonwealth Bank economists on Tuesday upgraded their forecasts for home prices, saying the price drop was faster-than-expected.
CBA warns national dwelling prices will drop around 9 per cent by the end of next year, while the capital cities will go into a correction with a 10 per cent decline.
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By continuing you agree to our Terms and Privacy Policy.“Housing market conditions have weakened considerably since our last forecast update on June 3, three weeks after the Budget,” CBA senior economist Trent Saunders said.
“At the time, we were already expecting a sharp loss of momentum in response to the combined headwinds from the changes to housing tax policy in the Budget, higher interest rates and softer sentiment.
“Even against that weaker starting point, the adjustment over the past three months has been larger and faster than we anticipated.”
Mr Saunders said the biggest declines would be recorded in Sydney and Melbourne, where underlying demand-supply conditions have been less supportive than in the mid-sized capitals.
“Sydney and Melbourne remain the weakest markets, with expected peak-to-trough declines of around 13 per cent and 12 per cent, respectively,” he said.
If CBA’s forecast is correct, it would mark one of the quickest and deepest downturns in Sydney’s housing market in at least the past two decades.
Mr Saunders said a fourth interest rate hike in November — which would take the cash rate from 3.60 to 4.60 per cent over the past 12 months — would only add to the decline in house prices.
“We still expect the downturn to eventually run its course,” he said.
“Falling prices should improve affordability and increase the rental yield, drawing some buyers back into the market.”
“The expected easing in monetary policy during 2027 should also provide some support. And housing supply is still very tight, with the vacancy rate a historically low level of 1.8 per cent in August.”
The more significant change to CBA’s outlook is across the mid-sized capitals of Brisbane, Perth and Adelaide.
“In our June update, we expected strong underlying demand and tight supply conditions to prevent outright price declines in Brisbane, Perth and Adelaide, even as growth slowed sharply,” Mr Saunders said. “Instead, all three markets have now recorded consecutive monthly falls.”
CBA is forecasting peak-to-trough declines of about 8 per cent in Brisbane, Perth and Adelaide.
The fresh forecasts from CBA comes a day after Cotality revealed home values fell for the fifth consecutive month in August.
It’s the latest read on the nation’s cooling housing market, with the Big Four banks last month warning of double-digit declines in mortgage volumes.
New figures from the Australian Bureau of Statistics on Tuesday also revealed the nation was approving enough houses to keep up with its supply needs, but more work was needed to hit an ambitious target.
Dwelling approvals slipped 3.6 per cent in July to 17,687. But despite the fall, there were more than 210,000 homes approved over the past 12 months nationally.
While Australia was still behind the 240,000 homes a year needed as part of the housing accord, AMP economist My Bui said the nation had finally stopped falling behind in the number of houses it needed.
“However, recent strength in approvals is a good sign for housing supply in Australia as we need to be building roughly 190,000 units per year to house population growth,” she said.
Ms Bui concedes while approvals are up, Australia still has the challenges of actually completing these properties.
Australia is currently on track to build around 175,000 new homes in 2026.
As part of Labor’s response to rising housing costs, the government announced a National Housing Accord — a banding together of all levels of governments to build 1.2 million new homes over five years until June 2029.
