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Commonwealth Bank tips 10 per cent house price drop over next 18 months

06 June 2022

The Commonwealth Bank says it thinks house prices will fall by 10 per cent in Australia but still wants action to be taken to increase housing supply to address affordability.

CoreLogic figures show house prices have fallen for the first time in nearly two years, dropping 0.1 per cent nationally and 0.7 per cent here in Melbourne for the month of May.

The Real Estate Institute of Australia’s PopTrack index shows property markets around the country are very much a mixed affair.

"A clear two-speed housing market has emerged," PropTrack's Paul Ryan told the ABC.

“Affordable, lifestyle regions of Brisbane, Adelaide, regional NSW and Tasmania continue to see solid growth, with flat or falling prices elsewhere.”

CoreLogic research director Tim Lawless said it’s not just rising interest rates that are slowing down the housing market, with households becoming increasingly sensitive to interest rate rises thanks to cost of living pressures, rising debt levels, reduced savings and tighter lending conditions.

It comes as banks prepare for a rush of customers looking to refinance their loans in the face of rising interest rates, which are expected to continue as the Reserve Bank tries to keep a rein on inflation.

Banks will be under scrutiny to fulfil their responsible lending obligations and provide loans that suit their customers going forward.

“But of course if we do see really significant increases in interest rates there will unfortunately be some borrowers that will get into financial difficulty,” Australian Securities and Investments Commission executive director Joanna Bird told a banking forum this week.

Speaking at the same forum, the Australian Financial Review’s banking summit in Sydney, the Commonwealth Bank’s general manager of home buying Michael Baumann said the bank tips a 10 per cent drop in house prices over the next 18 months but a post-COVID migration increase and tight labour market will ensure price falls aren’t too deep.

“We are starting to see a bit of a pause on purchases, but we’re definitely seeing a lot of activity from a refinance perspective.

“There’s two ways to skin this cat when it comes to housing affordability: either you bring demand down, and I don’t see that any time soon quite frankly, or you bring the supply side up, and there’s the answer,” he said.

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