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Commonwealth Bank economists are maintaining that property prices will end 2022 flat and decrease 8 per cent in 2023.
The bank’s latest Household Spending Intentions (HSI) Index showed that plans for making a property purchase rose 29.6 per cent in February – a larger than usual increase, though the month generally tracks upward following a seasonal slump over the summer holidays.
But overall, home buying intentions in February 2022 are down 4.4 per cent over the year before, when many Australians were making big plans after the first widespread COVID-19 lockdown.
The bank’s data also indicates that dwelling prices in Australia rose by only 0.3 per cent in February, with the annual pace of dwelling price growth moderating to 19.2 per cent from over 22 per cent in late 2021. Still, the Real Estate Institute of Australia recently sounded the alarm on worsening affordability in 2022.
CBA economists used the year-over-year decreases to bolster their projections that the market would level and then drop by as much as 8 per cent in 2023.
Rising interest rates will trigger the diving prices, according to CBA. The bank’s housing report from 1 March noted the strong correlation between interest rates and consumer sentiment.
“Rising interest rates will generate changes in behaviour, which in turn will impact economic outcomes. For context, we estimate there are over 1 million home borrowers who have never experienced an increase in mortgage rates,” it said.
Even so, CBA’s chief economist Stephen Halmarick acknowledged the need for the cash rate to rise sooner rather than later.
“Given surging inflation as well as strong employment and wages growth data, we maintain our view that the Reserve Bank of Australia will need to raise interest rates earlier than many expect, with an initial increase to 0.25 per cent in June this year, rising to a peak of 1.25 per cent in early 2023,” Mr Halmarick said.
Home buying was largely responsible for an overall increase in the bank’s HSI Index, with rising spending on transport, household services and health and fitness helping to elevate the rate to 107.3 – a 1.8 per cent increase over January and a 5.5 per cent over February 2021.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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