House prices across Australia’s capital cities are set to fall by 10 per cent in 2023, according to the latest forecasts from the Commonwealth Bank.
CBA has predicted price falls of 12 per cent in Sydney and Hobart and 10 per cent in Melbourne and Canberra in 2023.
Prices in Perth are expected to fall 9 per cent, while drops of 8 per cent are predicted for Brisbane, Adelaide and Darwin.
By the end of this year, CBA said property prices will have risen by 22 per cent, putting the Australian housing market in what it described as “the twilight of an incredible boom”.
The bank expects prices will rise a further 7 per cent in 2022 before falling in 2023 in response to rising interest rates.
“A gradual and shallow RBA tightening cycle that takes the cash rate to 1.25 per cent by Q3 2023 lies at the heart of our expectation that home prices will contract over 2023,” said CBA head of Australian economics Gareth Aird.
CBA’s forecasts for 2023 were significantly lower than those released by ANZ last week.
According to ANZ, average capital city house prices are expected to fall 4 per cent in 2023 after a rise of 6 per cent in 2022.
Westpac’s latest property outlook released last month was also less pessimistic than CBA with a predicted fall of 5 per cent in 2023.
Mr Aird noted that the context of its predicted fall needed to be considered.
“Price rises have been exceptional over 2021 and further gains are forecast in 2022,” he said.
“A decline in national dwelling prices of 10 per cent in 2023 on our figuring simply takes prices back to where they were in Q3 2021.”
CBA has predicted that the first interest rate rise by the Reserve Bank will take place in November next year to 0.25 per cent before a further rise in December to 0.50 per cent.
Additional rate rises of 25 basis points are expected to take place in the first, second and third quarter of 2023, bringing the cash rate to 1.25 per cent.
“Rising rates will put downward pressure on the demand for credit which will result in dwelling prices correcting lower,” said Mr Aird.
“Indeed, rising rates work in much the same way falling interest rates generate an increase in demand for credit and higher home prices.”
Mr Aird said that the path of interest rates was the main risk to its long-term forecasts.
“If the RBA tightens policy more aggressively and/or earlier than our forecast profile for the cash rate, we would expect dwelling prices to fall by more than our central scenario,” he said.
“Equally, if the RBA tightens policy later than we anticipate or delivers a more shallow tightening cycle, we would expect a smaller decline in home prices in 2023.”
Meanwhile, macroprudential measures present a near-term risk, with smaller rises anticipated in 2022 if the Australian Prudential Regulation Authority introduces new policies or an additional increase to the serviceability buffer.
