Aussie banks forecast biggest house price falls on record

Recent reports from Australian banks reveal the most significant projected house price declines on record. A 40-year analysis by Cotality indicates that the greatest capital city house price decline occurred between October 2017 and May 2019, with values falling by 8.2%. Current data shows that city-wide dwelling values have already decreased by 4.6%, with an 8.7% decline in the August quarter.

The combined value of the five major capital city markets has seen a 4.8% drop, significantly below the historic 8.6% decline. The Reserve Bank of Australia (RBA) is likely to raise interest rates again, with a 72% chance of an increase at the September meeting, and possibly another at the November meeting. The speed of the market decline and the anticipated rate hikes have prompted several banks to revise their forecasts.

Australia's biggest lender, Commonwealth Bank of Australia (CBA), has projected a peak-to-trough decline of 10% across the five major capital cities, a record-high. However, this forecast relies on only one more rate hike, followed by two cuts in May and August 2027. If the RBA raises rates twice or fails to lower them, the rate of decline would be steeper.

HSBC's chief economist, Paul Bloxham, anticipates a 13% peak-to-trough fall, citing the impact of additional rate hikes from the RBA. He believes the market slowdown will continue into 2027, indicating that growth may nearly stagnate around the year's end. Bloxham asserts that higher interest rates, coupled with changes to negative gearing and capital gains tax, anti-money laundering rules, budget austerity, and potentially lower immigration rates, are crucial drivers for the largest house price decline in living memory.