What the Commonwealth Bank Has to Say…

Welcome to the last week of winter..... Yay !

Yet again last week we had one of the big four banks publish their latest thoughts on the property market.

Following on from the week before updates from the NAB & ANZ, this week the Commonwealth Bank put forward their thoughts.

The Commonwealth Bank findings, which we are featuring in this week's report, suggest that the fall in property prices is likely to reach the bottom sooner than first predicted and then recover earlier than initially expected.

Whilst this information is clearly speculative, it is yet another report that identifies that property prices are trending lower.

Whilst prices are falling, an article that appeared in Saturday's Gold Coast Bulletin highlighted property price growth across the Gold Coast over the past twelve months.

One of the best performers over this period was Robina with an impressive 38% increase.

The incredible gains seen over the past 12 months show that sellers selling now are still likely to achieve a price considerably higher than what they would have received throughout 2020 and 2021. This is a point that every seller should take into account.

Also included this week is the latest HTW Valuers report for the month of August. As you will see, the Gold Coast housing market is still in decline whilst the unit market is listed as being currently at its peak according to the HTW property clocks.

We start this week with the CBA findings :-

Surprise twist in latest home price forecast by Australia's biggest bank. Australia's biggest bank now tips that home prices will reach the bottom sooner than expected – and start rising again quicker than it previously forecast. Commonwealth Bank of Australia economists still expect home prices to fall by about 15% nationally from top to bottom, as higher interest rates reduce buyers' borrowing capacity, following extraordinary price gains last year.

But Gareth Aird, CBA's head of Australian economics, said on Friday that the trough will be reached sooner given prices are falling at a slightly quicker pace than anticipated. 

"We expect national dwelling prices to reach a floor in mid-2023 before gradually rising over the second half of 2023," Mr Aird said.

CBA is the first of the big four banks to bring forward their prediction for when the bottom of the market will be reached, with other forecasts pointing to the end of 2023.

Mr Aird said the rapid pace of the Reserve Bank of Australia's rate hikes had an almost immediate impact on the demand for credit, with national dwelling prices currently falling after peaking in April.

"In many parts of Australia the housing market has swung from FOMO (fear of missing out) in 2021 to FOGI (fear of getting in)," he said.

"That dynamic of course does not last indefinitely and prices will stabilise and rebound at some stage.

"But we are not there yet given the RBA is broadly expected to continue to raise the cash rate, which means standard variable mortgage rates have further to lift."

The RBA is expected to hike rates again in September, after delivering an unprecedented fourth consecutive increase and third double hike - of 50 basis points - in a row in August, which took the cash rate to 1.85%.

CBA's central forecast is the RBA will deliver a further 75 basis points of rate hikes over coming months and the cash rate will peak at 2.6% late this year. Mr Aird said there is a risk of a higher terminal rate of about 2.85%, which would lead to a larger fall in dwelling prices.

Mr Aird noted CBA's 2.6% peak forecast is the most conservative among the forecasting community and its expectation for the RBA to cut the cash rate by 50 basis points in the second half of 2023 is also not the consensus. CBA's home price expectations are conditional on those cash rate forecasts.

"Our expectation that the RBA cuts the cash rate by 50 basis points in the second half of 2023 sees home prices rise modestly on our central scenario over late 2023."

CBA expects Sydney will record the largest peak-to-trough fall of about 18%, with broadly similar declines of 17% forecast for Melbourne and Brisbane. Perth is tipped to be the best performing market through the correction phase with the smallest peak-to-trough fall of 8%.

Westpac senior economist Matthew Hassan on Monday said the housing downturn that began at the start of the year has accelerated and broadened over the last three months, driven by the RBA's rapid series of large rate rises.

With Westpac economists tipping the cash rate will rise by a further 1.5 percentage points to 3.35% by February, Mr Hassan said the expected market correction will come through earlier than previously anticipated.

"Prices nationally are still expected to fall 16% peak to trough. While large, the main dynamic in the correction is still expected to be around higher rates reducing borrowing capacity rather than a physical oversupply and/or a wave of distressed sales.

"As such, a prospective policy easing should allow for a modest recovery in prices in 2024."

Last week ANZ senior economists Felicity Emmett and Adelaide Timbrell, who expect a cash rate of 3.35% by the end of the year, said a steep increase in variable mortgage rates to just under 6% will weigh heavily on house prices by significantly reducing borrowing capacity.

"We expect capital city prices to fall 18% over the balance of 2022 and 2023, before a 5% gain in 2024 as mortgage rates fall," they said.

The latest Prop Track Property Market Outlook forecasts nationally prices will fall by up to 15% by the end of next year, but will still be higher than pre-pandemic levels after a 35.1% increase nationally between March 2020 and the peak in March 2022.

Please see below the HTW Valuers Month in Review for August 2022

https://static.htw.com.au/HTW-month-in-review-August-2022.pdf

Please see below the HTW Valuers National property Clocks for both Houses & Units