House prices across Australia’s capital cities are expected to end this year flat before declining 8 per cent in 2023, according to revised forecasts from the Commonwealth Bank.
The recent slowdowns seen in Sydney and Melbourne and looming interest rate rises from the Reserve Bank led CBA to shift from its previous forecasts made late last year, which pointed to a rise of 7 per cent in 2022 and a fall of 10 per cent in 2023.
“On the surface, this may appear counterintuitive given we are now looking for a slightly smaller decline in 2023 compared to our previous call. But this expected contraction is only lower in percentage terms,” explained CBA head of Australian economics Gareth Aird.
“In levels terms prices are forecast to end 2023 a little lower than previously, given we are looking for a flat outcome nationally now in 2022.”
Mr Aird said that the Sydney and Melbourne markets now appear to have peaked, with prices in both cities forecast to fall by 3 per cent this year and a further 9 per cent next year.
“Home price booms cannot go on indefinitely and this cycle looks to have run its course in Sydney and Melbourne. Some other markets across the country, however, have a bit further to go in this cycle,” he said.
Brisbane and Hobart are tipped to record the strongest gains among the capital cities this year with rises of 7 per cent in each market.
Price gains are also expected to continue this year in Adelaide (6 per cent) and Canberra (5 per cent) with a more modest rise of 2 per cent in store for both Perth and Darwin.
Looking ahead to 2023, Canberra will suffer a fall of 9 per cent alongside Sydney and Melbourne according to CBA’s forecasts. Additionally, prices are set to decline by 8 per cent in Adelaide, Hobart and Darwin, 7 per cent in Brisbane and 6 per cent in Perth.
CBA expects that house prices nationally will continue to rise during the first half of the year before gradually declining in the second half and ending the year “broadly unchanged”.
The latest data from CoreLogic indicated that price growth had already come to an end in Sydney and Melbourne but was still strong in Brisbane (1.8 per cent), Adelaide (1.5 per cent) and Hobart (1.2 per cent).
“The cooling influence we anticipated has been a lot stronger in Sydney and Melbourne, while price rises have continued to rise briskly in other capital cities. Indeed, the data today paints the picture of a divergent housing market,” said Mr Aird.
The bank expects the first rate hike from the RBA will take place in June this year before interest rates continue to climb to 1.25 per cent in the first quarter of 2023 and remain at this level for the remainder of the year.
“A correction lower in dwelling prices is a natural response to rising interest rates given it was record low interest rates that drove the phenomenal lift in prices in 2021,” said Mr Aird.
“We expect the RBA to be cognisant of the nexus between changes in interest rates and the impact on home prices, household behaviour and the broader economy.”
Over one million home borrowers are yet to experience an increase in mortgage rates according to the bank’s estimates.
“The RBA will need to assess the impact of rate hikes on the economy, particularly the household sector and the housing market, as they move through the tightening cycle,” Mr Aird concluded.
CBA is the last of the big four banks to update its housing market forecasts within the past month, with Westpac, ANZ and NAB all predicting small rises in 2022 ahead of falls in 2023.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
