Major bank retreats on its housing stance

ONE of Australia’s biggest banks has downgraded its housing forecasts on the back of less than impressive dwelling numbers.

CommBank said the housing downturn is proving faster and more widespread than expected, with price falls extending beyond Sydney and Melbourne to some of the country’s previously strongest capital city markets.

National dwelling prices fell another 0.9 per cent in August, their fifth consecutive monthly decline, leaving prices 3.6 per cent below their March peak.

The weakness has prompted CommBank economists to downgrade their housing forecasts, with national prices now expected to fall around nine per cent this cycle.

“The adjustment over the past three months has been larger and faster than we anticipated,” CommBank senior economist Trent Saunders said.

Melbourne and Sydney remain the weakest major housing markets.

Sydney dwelling prices fell 1.4 per cent in August and are now 7.1 per cent below their February peak, while Melbourne prices fell 1.1 per cent and are 6.5 per cent below their previous peak.

CommBank now expects declines of around 13 per cent in Sydney and 12 per cent in Melbourne. 

But the bigger change in recent months has been what’s happening elsewhere.

Brisbane and Adelaide have each recorded three consecutive monthly price falls, while Perth has fallen for four months in a row, CommBank said.

That marks a sharp reversal from earlier in the year, when Perth home prices were increasing by around 2-2.5 per cent every 28 days.

CommBank now expects prices in Brisbane, Perth and Adelaide to fall by around eight per cent. 

“The downturn has also broadened materially,” Saunders said.

Homes are taking longer to sell, particularly in markets that entered the year with strong momentum, CommBank said.

In Brisbane, the median time a property spends on the market has increased from 15 days at the start of the year to 35 days over the three months to August.

In Perth, it has risen from just nine days to 22 days.

Auction clearance rates have also weakened relative to where they were last year, giving prospective buyers more choice and more time to make decisions than they had when competition was stronger.

Saunders said three main reasons were behind the downgraded forecast.

Firstly, housing market momentum has weakened more rapidly than expected over the past three months.

Secondly, the downturn has spread to cities where tight housing supply had previously been expected to provide greater support to prices.

And thirdly, the outlook for interest rates has shifted higher. 

CommBank now expects the Reserve Bank to raise the cash rate by another 0.25 percentage points to 4.6 per cent in November.

That would add to the pressure already coming from higher borrowing costs, weaker sentiment and changes to housing tax policy announced in the Budget.

CommBank still expects the housing downturn to eventually run its course, with prices forecast to stabilise and begin recovering during 2027. 

But the expected recovery is modest.

National dwelling prices are forecast to rise around two per cent over 2027 and that forecast relies partly on CommBank’s expectation that the RBA will cut interest rates in May and August next year.

If the cash rate remained at 4.6 per cent throughout 2027, CommBank estimates national dwelling prices would be broadly flat over the year.

“The modest growth in our baseline forecast over 2027 relies on the expected rate cuts,” Saunders said.