“On the cusp of a boom”: CBA’s assessment of the housing market

News
February 17, 2021

Australia’s housing market is on the “cusp of a boom”, with house prices set to leap 16% over the next two years, according to the Commonwealth Bank (CBA).

The head of economics at Australia’s biggest bank, Gareth Aird, predicts national house prices will surge 9% in 2021 and a further 7% in 2022.

Apartment prices meanwhile are predicted to rise 5% in 2021 and 4% in 2022.

“The negative impact that COVID-19 had on Australian property prices turned out to be much more muted than almost any forecaster expected,” Mr Aird has written in a note to clients.

The CBA prediction is similar to that contained in an internal RBA FOI document, which projects house prices could rise by up to 30% if interest rates remain low over the next three years (which the RBA has indicated will happen).

So what can we expect across the country?

In Sydney and Melbourne, dwelling (house and apartment) prices are predicted to grow by at least 12% in the next two years, says Mr Aird.

That would see Sydney’s median dwelling price increase by a whopping $160,000 to $1.2 million, and Melbourne’s median dwelling price increase by $110,000 to $920,000.

Meanwhile, Perth values are tipped to rise 17.7% ($99,000), Brisbane 16.6% ($102,000), and Canberra 15.5% ($132,000).

Rounding out the capital cities, Adelaide is predicted to increase 14.5% ($86,000), Hobart 15% ($87,000) and Darwin 18% ($99,000).

So when and why are property prices set to increase?

Well, it appears as though the “boom” may have already just begun, Mr Aird explains in a CBA podcast.

“Over the first two weeks of February, national prices are up 0.8%. So we’re looking at over 1.5% in February alone,” says Mr Aird.

“Prices are now rising in all capital cities. And they’re rising quite quickly.”

Mr Aird says a strong indicator for property prices is lending figures, and over the last four to five months lending has picked up quite significantly.

“It’s quite intuitive when you think about it. The money that people borrow ends up going into the housing market, and that then pushes up housing prices. There’s usually about a six month lead time,” he explains.

“Initially, that (lending) was with owner-occupiers, but more recently it has spilled over to investors. And that is now feeding into house prices.”

Another strong indicator is auction clearance rates, adds Mr Aird.

“They are very, very firm at the moment. Nationally we’re seeing it sit in the 80s (percent), which historically has been consistent with double-digit dwelling price growth,” he says.

Other key momentum builders are the RBA advising that the record-low official cash rate won’t increase until 2024, says Mr Aird, and strong recovery in the labour market.

“The fact that the Reserve Bank has given explicit public guidance that rates are going to stay very, very low for a number of years, that’s given borrowers a lot of confidence to go out there and take on debt,” he says.

“All of those inputs that go into our model are screaming that house price rises could be faster than at any point we’ve seen before, and our model goes back 10 years.”

Explore your options

If you’re one of the many prospective homebuyers who are feeling confident about the housing market right now and want to explore your financing options, get in touch today.

We’re more than happy to help you determine whether you can finance that home you have your eye on before the next housing boom takes off.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. Information in this article is correct as of the date of publication and is subject to change.