Commonwealth Bank of Australia predicting 18 per cent house price falls in Sydney and Melbourne
The Commonwealth Bank now expects house prices to fall by 18 percent as the Reserve Bank continues to raise interest rates to combat its highest inflation in 32 years.
In Sydney, this would mean a drop of more than $240,000 for an average-price home over the next year, as Melbourne homeowners typically lost more than $170,000.
The CBA now expects inflation in Australia to continue to climb to 6.25 percent by the end of the year, the highest level since 1990 during the Gulf War, when Bob Hawke was Labor Prime Minister.
Australia’s largest mortgage lender revised its forecasts last night as the OECD warned that rising inflation would likely see the RBA raise ‘more aggressively’.
By Christmas, this would mean that a borrower with an average mortgage of $600,000 would pay $582 more each month in their repayments, as a working couple with a $1 million mortgage was forced to pay an additional $970.
Gareth Aird, Australian economics chief at Commonwealth Bank, now expects property prices in Sydney and Melbourne to fall by 18 percent over the next year.
The Commonwealth Bank now expects house prices to fall by 18 percent as the Reserve Bank of Australia continues to raise interest rates (pictured is an auction in Melbourne)
Commonwealth Bank house price falls
SYDNEY: 11 percent down in 2022; a 7 percent decline in 2023
MELBOURNE: 10 percent lower in 2022; 8 percent down in 2023
BRISBANE: up 6 percent in 2022; 10 percent down in 2023
ADELAIDE: up 6 percent in 2022; an 11 percent decline in 2023
PERTH: up 2 percent in 2022; 8 percent down in 2023
HOBART: 4 percent down in 2022; 9 percent down in 2023
DARWIN: 1 percent lower in 2022; 9 percent down in 2023
CANBERRAE: 4 percent down in 2022; 9 percent down in 2023
AUSTRALIA: 6 percent lower in 2022; 8 percent down in 2023
“Prices in Sydney and Melbourne are expected to fall more than in the other capitals,” the Commonwealth Bank said.
“House prices will move lower from here on out as the RBA is expected to tighten policy through rate hikes soon.
“The rate at which prices contract depends in large part on the speed and magnitude with which the RBA raises the spot rate.”
In this grim scenario, house prices in Sydney would fall by 11 percent in 2022, followed by another 7 percent in 2023.
An 18 percent drop, over two consecutive years, in Sydney would drop the median home price by $241,903 from $1,403 million in May to $1,162 million next year.
Melbourne property values are expected to fall 10 percent this year, followed by 8 percent next year.
This would drop home prices in the middle by $170,706 from $992,474 to $821,768.
Property prices in Sydney and Melbourne suffered their first quarterly decline since mid-to-late 2020 in April before the RBA cut cash interest rates to a record low of 0.1 percent, CoreLogic data shows.
Brisbane, which has experienced a strong price hike in the past year, is expected to experience a milder net decline of 4 percent, based on a 6 percent increase in 2022, followed by a 10 percent decline in 2023.
Australia’s largest mortgage lender revised its forecasts last night as the OECD warned that rising inflation would likely see the RBA raise ‘more aggressively’
Commonwealth Bank’s New Interest Rate Forecasts on RBA Cash Rates
JULY: 0.5 percentage point up to 1.35 percent
AUGUST: 0.25 percentage point up to 1.6 percent
SEPTEMBER: 0.25 percentage point up to 1.85 percent
NOVEMBER: 0.25 percentage point up to 2.1 percent
But a 4 percent net drop over two years would still mean a loss of $40,739, as the city’s median home price fell from $885,633 to $844,894.
A similar scenario was predicted for Adelaide, with a 6 percent rise forecast for 2022, followed by an 11 percent plunge.
This 5 percent net drop would represent a drop of $38,921 from $687,635 to $648,714.
Hobart, another strong performer during the pandemic, was expected to see a 4 percent drop in 2022, followed by a 9 percent drop next year.
By 2023, that 13 percent decline over two years would drop the median home price by $100,690 from $796,595 to $693,038.
Property prices in Canberra are set to fall by 4 percent in 2022, followed by another 9 percent next year.
That 13 percent drop over two years would drop the capital’s median home price $135,299 from $1,070 million to $935,105.
The Commonwealth Bank now expects the RBA cash rate to rise four more times by Christmas – from 0.85 percent now to 2.1 percent.
The OECD warned on Thursday that high inflation and low unemployment would likely lead to more rate hikes than expected from the RBA (Pictured is a Woolworths supermarket in Sydney)
High inflation in the past three decades
DECEMBER 1990: 6.9 percent during Gulf War
SEPTEMBER 2000: 6.1 percent after introduction of GST
JUNE 2001: 6.1 percent per year after GST debut
MARCH 2022: 5.1 percent during the Russian invasion of Ukraine, global pandemic crisis in the supply chain
Another rate hike of 0.5 percentage point was forecast for July, followed by increases of 0.25 percentage point in August, September and November.
The Commonwealth Bank now expects inflation to rise to 6.25 percent by the end of 2022 – the highest annualized level since the December quarter of 1990.
“The RBA has a lot of work for them on inflation as they can do very little to deal with global factors that have pushed inflation up, especially in the areas of energy and food,” the Commonwealth Bank said.
The major banks have revised their forecasts after the RBA raised interest rates by more than expected 0.5 percentage point on Tuesday – the largest monthly increase since February 2000.
The June rate hike, following the May hike, marked the first consecutive monthly hikes since April and May 2010.
The OECD warned on Thursday that high inflation and low unemployment would likely lead to more rate hikes than expected by the RBA.
Strong global inflationary pressures and a tight labor market pose a further upside risk to inflation in Australia, which could lead the Reserve Bank of Australia to tighten monetary policy more aggressively, potentially negatively impacting consumption, investment and economic growth in general the report said. said.
Inflation in the year to March rose 5.1 percent, the fastest pace since 2001 and well above the RBA’s 2 to 3 percent target.
Unemployment fell to 3.9 percent in April, the lowest level since August 1974, but so far the tight labor market has not led to wage pressures.
How much YOU could pay on your mortgage this Christmas?
$500,000: $485 up from $1,987 to $2,472
$600,000: $582 up from $2,384 to $2,966
$700,000: $679 up from $2,781 to $3,460
$800,000: $777 up from $3,178 to $3,955
$900,000: $874 up from $3,575 to $4,449
$1,000,000: $970 up from $3,973 to $4,943
The monthly amortization calculations are based on a typical Commonwealth Bank floating rate rising from 2.54 percent to 4.29 percent, in line with the spot interest rate rising from 0.35 percent to 2.1 percent. Figures refer to banks before adjusting to new 0.85 percent spot rate later this month