CBA expects smaller property price falls of 6 per cent, revising forecast upwards

One of the nation’s biggest banks has revised its national property price forecast upwards in a show of confidence for Australia’s property market.

The Commonwealth Bank of Australia now expects smaller price falls, updating its national dwelling price to drop 6 per cent from the April peak to a predicted trough in the first quarter of 2021.

That’s a four percentage point increase on their initial scenario – set out at the start of the pandemic in April – of a 10 per cent fall in national property prices from peak to trough.

CBA’s head of Australian economics Gareth Aird said most state and territories’ property markets were performing better than expected.

“The reality is prices haven’t been falling as much as we thought they would,” Mr Aird said. “In fact, they’ve held up very, very well in some parts of the countries.”

“Outside of Melbourne, most economies are open now. The evidence suggests that we won’t see falls of 10 per cent.”

When the bank’s first COVID-19 pandemic forecasts were announced in April, Mr Aird said the property market was heavily impacted by the lockdown.

“When we first put those forecasts [out] in April, you couldn’t even get to an inspection,” he said.

The Reserve Bank of Australia’s two interest rates cuts in March had also helped slow down the pace of property price falls, according to Mr Aird. “Right now, they’re providing a floor on house prices slide.”

Bigger property price variation between the capital cities was another reason for the revised forecast as some cities were doing much better than others.

CBA expects Canberra property prices to rise 2 per cent from April 2020 to the first quarter of 2021, while Hobart is forecast to rise half a per cent in the same period and Adelaide prices will remain flat.

Brisbane would drop 4 per cent and Perth would fall 3.5 per cent. 

Property price falls would continue to be led by Sydney (-7 per cent) and Melbourne (-12 per cent) as previously forecast, Mr Aird said.

It comes as the Australian Bureau of Statistics also released lending data on Wednesday, showing that new home loans rose for two consecutive months.

The value of new home lending rose by 8.9 per cent in July, following a 6.4 per cent rise in June, based on seasonally adjusted figures. 

That was the biggest back-to-back increase in home loans in 18 years, according to CommSec research.

ANZ Research economist Adelaide Timbrell said while the data showed strong growth in owner-occupier home loans – 2.5 per cent more lending in July compared to pre-pandemic levels in February – it reflected purchasing decisions before the second wave of the COVID-19 crisis.

“We believe that the July spike in lending is by no means the start of a trend. Rather it is more likely a last hurrah before stage four lockdowns in Melbourne hit households’ ability and confidence to borrow,” Ms Timbrell said.

“We expect the bulk of housing price falls to occur next year, as fiscal support starts to wind back and less mortgage deferrals are in play,” Ms Timbrell said, adding that their forecasts were riskier than usual due to the uncertainty around the pandemic.

While ANZ Bank has maintained its forecast for national house prices to fall by 10 per cent from peak to trough, it now expects smaller falls in Hobart, Brisbane, Adelaide Perth and Canberra.

Meanwhile, NAB Group chief economist Alan Oster told Domain he maintained his July outlook of a 10 to 15 per cent drop in national property prices.

“If they’re going to have problems in terms of repayments, it’s still ahead of us.”

Canstar group executive of financial services Steve Mickenbecker said he was encouraged by the fact home lending rose, despite a lag in the data.

“There is a lag with this. The difference between the time you buy at auction and when you settle is six to nine weeks,” he said. “I’m still heartened by the new lending volumes that are almost up to pre-COVID peak.

“There is reasonable ground for optimism in that data. I think people want to get on with their lives. I think it’s a psychological thing as much as anything else.”

He also said while the total value of owner-occupiers refinancing to a new lender was down 11.8 per in July from June, it still had increased 39.3 per cent year-on-year.

“Even though [interest rates are] low … people are battening down the hatches,” he said, adding that the pandemic had pushed people to chase the best rate possible.

BIS Oxford Economist principal economist Timothy Hibbert said all regions saw new home loans rebound but expected that to fall in Melbourne in coming months.

“All regions experienced strong growth in new owner-occupier housing loan approvals,” he said. “Of the major states, Western Australia saw the greatest improvement, up 17 per cent month-on-month in value terms.

“Victoria expanded 9 per cent month-on-month but, with the introduction of stage four lockdown restrictions in Melbourne, a sharp fall in new mortgage approvals across all buyer channels is expected from August.

“While Victoria will weigh heavily on the national outlook for the remainder of 2020, further improvement in housing finance indicators is expected for the rest of Australia over the coming months.”