More house price pain to come, warns nation’s biggest lender

The nation’s biggest home lender has warned property prices will continue to fall until well into next year, led by steep falls in Sydney and Melbourne that could be even worse if the Reserve Bank delivers another interest rate rise to quell inflation.

Before the June quarter national accounts, which are expected to show the economy barely growing despite resilient household spending, the Commonwealth Bank on Tuesday said it expects Sydney dwelling prices to fall 11 per cent this year and Melbourne to drop 10 per cent.

Figures released by analytics firm Cotality on Tuesday showed national dwelling values down for a fifth consecutive month in August. About $40,000 was wiped from the median value of homes through winter as high interest rates, the federal government’s property tax changes and poor affordability combined to hit the market.

So far this year, dwelling values have fallen by 6.7 per cent in Sydney and by 6.3 per cent in Melbourne. Other capitals are still up on where they finished last year but are now falling.

Commonwealth Bank senior economist Trent Saunders said the market was deteriorating faster than expected, forcing a downgrade to the bank’s outlook for the market.

The bank has sliced its forecasts for each capital city, with Sydney likely to experience a peak-to-trough fall of 13 per cent and Melbourne 12 per cent by April next year when values are expected to stop falling. The Brisbane, Adelaide and Perth markets, which had been holding, are also expected to be either flat or show a small fall this year.

A recovery through the second half of next year is expected to lift prices in almost every capital by around 2 per cent through 2027.

The key factor is interest rate settings, with the CBA expecting the Reserve Bank to lift rates by November before starting to cut in May next year.

“The interest rate outlook has also moved against the housing market,” Saunders said.

“We still expect the downturn to eventually run its course. Falling prices should improve affordability and increase the rental yield, drawing some buyers back into the market. ”

Shadow treasurer Tim Wilson accused the government of failing to deal with inflation as the key factor in the fall in house values.

“The Albanese active inflation agenda that is forcing the hand of the RBA is killing home values,” Wilson said.

“Australian families already struggling to pay their bills are now sitting at the kitchen table watching the value of their biggest asset, their family home, fall through the floor.”

The Property Council’s group executive for policy, Matthew Kandelaars, said the government’s planned changes to the tax treatment of trusts would also harm the market.

“Family-owned and mid-tier builders do much of the heavy lifting on housing supply. The proposed trust tax risks hitting exactly those businesses the government is relying on to help deliver 1.2 million homes,” he said.

Figures from the Australian Bureau of Statistics confirm the government is falling further behind its target of 1.2 million new homes by the end of the decade.

Building approvals fell by 3.6 per cent in July, with approvals for new houses slipping by 4.2 per cent. The single largest drop was 5.5 per cent in Queensland.

Despite the fall in July, overall approvals are still 9 per cent up on the same time last year. On the more stable trend measure, which takes out monthly statistical noise, approvals are at their highest level in five years. Approvals of units and apartments are at their highest level since 2018.

Over the past year, almost 210,000 homes have been approved for construction. To meet the 1.2 million target, there needs to be about 250,000 properties green-lit for construction each year.

Separate figures released by the bureau on Tuesday highlight the overall sluggishness of the economy.

Trade and government spending figures suggest that Wednesday’s national accounts will show economic growth easing back from 2.5 per cent to around 2 per cent. The only bright spot remains household spending, although that is facing headwinds from higher interest rates and ongoing inflation.

The war against Iran and the volatile nature of the Trump administration are also changing Australians’ spending habits.

For the first time since COVID, June quarter travel by Australian tourists for the European and American summers fell as oil prices and security issues through key Middle East transit hubs pushed up the price of long-distance flights.

There was a near-20 per cent drop in trips to Britain and Ireland, a 16 per cent fall to north-west European nations such as Germany and a 19 per cent tumble in visits to southern and eastern European destinations.

Australians also shunned trips to the USA, with visits down by 12.6 per cent in the quarter despite the Australian dollar appreciating against its American counterpart. Instead, they headed for Canada with visits up 18.5 per cent to a record 39,000.

Outside of travel, the surge in oil prices meant the nation imported a record amount of petrol and diesel in the quarter. In original terms, the value of fuel imports jumped by 62 per cent, or $9 billion.

That high-priced oil also meant motorists imported a record number of EVs and hybrid vehicles.

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