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Here’s why CBA reckons house prices are about to surge

Sebastian Bowen
growth shares

Australia is known as a sport loving nation, but forget about rugby, swimming or cricket – I reckon watching property prices is our favourite national pastime.

News about property always seems to dominate our news cycle – especially when it’s negative. Despite nearly a decade of double-digit property growth, the dip in sentiment that hit the market across 2017 and last year got everyone a-talking about an impending crash and all the doom and gloom that goes with it. Headlines about housing ‘crashing the economy’ abounded, and shares of our big four banks had a particularly rough time during the period (although the Royal Commission didn’t help).

But according to reporting in the Australian Financial Review (AFR), it’s Commonwealth Bank of Australia (ASX: CBA) that is predicting a rapid turnaround in our nation’s housing market, with the bank doubling its property price target for 2020. The AFR reports that CBA is now forecasting the national dwelling price to rise by 6.1% by the end of next year, which is twice what our biggest bank was predicting back in July.

Naturally, Sydney and Melbourne are expected to lead the charge, with CBA expecting price appreciation of 7% and 8%, respectively. Brisbane and Canberra prices are expected to rise by 4% and Adelaide and Hobart by a more modest 3%.

What’s behind this turnaround?

Well, there’s little doubt that the Reserve Bank of Australia (RBA)’s 3 interest rates cuts this year would have helped this turnaround. Lower interest rates translates into lower loan rates for mortgages and investment loans.

The election results earlier this year also offered some assistance in my opinion. Now that the current capital gains tax and negative gearing policies will remain in place for the foreseeable future, investing certainty has undoubtably improved.

Foolish takeaway

If CBA’s predictions hold true, it bodes well for the ASX and the big banks in particular. But trying to predict the future is a fickle business, and who knows what next year will bring.

The post Here’s why CBA reckons house prices are about to surge appeared first on Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019