CBA tips large lift for Aussie house prices
Australia’s biggest bank says property markets are about to boom, less than a year after spooking housing markets across the country with doomsday predictions of price plunges of more than 30 per cent.
Australia’s biggest bank says property markets are about to boom, less than a year after spooking housing markets across the country with doomsday predictions of price plunges of more than 30 per cent.
The Commonwealth Bank of Australia this week released its updated forecasts for Australian dwellings, tipping price rises of 16 per cent for houses and 9 per cent for units across all markets.
“The Australian housing market is on the cusp of a boom,” CBA economist Gareth Aird said.
“New lending has lifted sharply, dwelling prices are rising briskly in most capital cities and turnover is up significantly on a year ago.”
The forecast is a massive turnaround from CBA’s pessimistic view in May last year, when it said the uncertainty swirling around the impacts of the COVID pandemic could result in a worst case scenario of price plunges of 32 per cent.
Mr Aird said the coming property boom was being driven by historically-low interest rates and a v-shaped recovery in the labour market.
Borrowing rates currently remain below the rental yield, meaning that most markets across the country need to find an equilibrium, he said.
“For the bulk of Australia, equilibrium will be achieved via further dwelling price rises,” Mr Aird said.
“We expect strong growth in national dwelling prices of around 14 per cent over the next two years.
“A critical assumption underpinning our forecasts is the cash rate remaining at its record low of 0.1 per cent, which is in line with RBA forward guidance.
“We do, however, factor in a modest increase in fixed rate mortgages, which will rise if the RBA removes or raises its target yield on the three-year Australian government bond, as we expect in the second half of 2021.”
Mr Aird acknowledged that COVID’s impact on housing markets was much more muted than expected, with the bank revising its doomsday predictions in September last year as a smaller peak-to-trough fall and a “decent” lift in prices over 2021.
“But even then, the rapid growth in new lending over the second half of 2020 was stronger than we anticipated,” he said.
“The increase in new lending is now feeding into higher prices for bricks and mortar.”
On the downside, the CBA identified three key risks to its forecasts - the reintroduction of measures to slow the rate of growth in lending, a lift to the RBA cash rate and a significant outbreak of COVID-19.
A key upside risk, CBA said, was sustained buyer enthusiasm combined with the fear of missing out, which could generate a “turbo-charged” rise in prices.
“We consider this to be the biggest risk to our forecasts given the demand impulse from interest rate cuts, the level of interest rates relative to the rental yield and the recent spike in momentum indicators,” Mr Aird said.
“History shows that prices can rise very quickly when the housing market is on a roll.
“Indeed it may turn out the growth profile for price outcomes over the next two years ends up more front loaded than our current projections.”