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CBA predicts when Aussie house prices will drop 10%

·3-min read
The exterior of a CBA branch and an aerial view of an Australian suburb.
CBA expects house prices to keep rising next year, but the end is in sight. (Source: Getty)

The Commonwealth Bank (CBA) believes house prices will tumble 10 per cent, and it predicts when this will happen.

CBA’s head of Australian economics, Gareth Aird, said he expected property price growth to moderate in the first half of next year, but 2023 would see a drop.

He said house prices would drop by 10 per cent over 2023 as the RBA takes the cash rate to 1.25 by the third quarter of that year. The current official cash rate is 0.10 per cent.

“We expect an orderly correction in home prices of around 10 per cent in 2023 as the RBA takes the cash rate to 1.25 per cent by Q3 2023,” Aird said.

The third quarter of 2023, or Q3, begins in July and goes until September.

Aird said house prices would be dependent on the RBA’s cash rate decision, which the CBA believed would rise sooner than initially anticipated.

Aird said he expected the RBA to start increasing the cash rate gradually from November 2022, but in the meantime house prices would continue to rise.

He said house prices were expected to peak next year at around 7 per cent higher than this year.

“The Australian housing market is in the twilight of an incredible boom that has been fuelled by record-low mortgage rates,” he said.

“The phenomenal lift in prices is not over yet, given dwelling prices are still rising briskly in most capital cities. But near-term indicators of momentum, coupled with the recent move higher in fixed-rate mortgages, suggest that conditions will moderate from here.”

Could this really be the end of the property boom?

According to Aird, yes.

He said there was actually a simple explanation as to why.

“The price that someone is willing and able to pay for a home is predominantly influenced by two things – income and borrowing rates,” he said.

“As home prices move higher, affordability becomes stretched. That can be improved via a reduction in mortgage rates or higher income.

“But at some point, the tailwind of lower mortgage rates on prices wanes unless there are further cuts in interest rates.”

In addition, Aird said, a lift in population growth as the international border reopened would boost the underlying demand for bricks and mortar, particularly inner-city apartments.

“As such, we expect house prices to decline by a little more than apartment prices over 2023,” he said.

When will interest rates rise?

Aird said the bank was expecting the RBA to gradually increase the cash rate to 1.25 per cent by July next year.

“The cash rate is forecast to lift because the economy will be at full employment and annual wages growth will have pushed to the desired level of 3 per cent,” Aird said.

“Stronger wages growth will provide a partial offset to rising interest rates on the property market.”

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