CBA adjusts home value predictions
A significant drop in house prices is expected to unfold sooner than expected under revised forecasting based on the Reserve Bank of Australia’s current tightening cycle.
While the Commonwealth Bank of Australia in June predicted home prices would fall nationally by about 15 per cent in the subsequent 18 months, unexpected factors had prompted shifts in the forecasted timeline.
“We have not changed our expectation that national dwelling prices will fall from peak to trough by approximately 15 per cent. But we now see that trough reached sooner given prices are falling at a slightly quicker pace than we anticipated,” a report from the bank published Friday stated.
Given the RBA was now expected to cut the cash rate by 50 basis points in the second half of next year, CBA said house prices were likely to begin rising modestly in late 2023.
The CBA’s scenario was dependent on the RBA delivering 75 basis points of rate hikes in the coming months, pushing the cash rate to a peak of 2.6 per cent.
“We would anticipate a larger fall in dwelling prices if the RBA takes the cash rate higher than our terminal rate forecast.”
The change in forecast was also partially attributable to a shortening in the lag between changes in the cash rate and its impact on home prices.
“The rapid pace of RBA tightening has had an almost immediate impact on the demand for credit and by extension home prices.”
The swift pace at which national dwelling prices are currently falling are not anticipated to change in the near term as the RBA continues to raise the cash rate, CBA added.
CoreLogic data has indicated home prices nationally fell by 1.4 per cent in July and were likely to be down by 1.5 per cent for August.
The plunge would represent a drop of 4 per cent in dwelling prices from their April 2022 peak. House prices in Sydney are expected to fall by a little more than 2 per cent for a second consecutive month, indicating a drop of 7 per cent since its peak in January.
Melbourne prices were expected to fall by 1.3 per cent, representing a drop of 5 per cent since its peak earlier this year.
In Brisbane, dwelling prices look set to post a sizeable fall of 1.7 per cent in August, and while prices in Adelaide and Perth have maintained momentum, prices are expected to also drop.
“We expect prices to decline in those markets from here as higher interest rates further dampens the demand for housing credit and in turn price expectations and outcomes adjust downwards,” CBA said.
Article Credited to Brooke Rolfe at news.com.au
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