Westpac and CBA forecast exactly when property prices will fall

Posted: 25 November 2021 2:44 pm
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Westpac and CBA have both put their property predictions on the record, naming exactly when they think Australian property prices will fall – and by how much.

Both banks used the words "moderation" in their predictions, and both flagged rising inflation and the potential for interest rate hikes as key influences on housing prices.

First, let's start with Westpac: In it's Westpac Housing Pulse – November, Westpac senior economist Matt Hassan said the boom times of 2021 are waning.

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"Sentiment now clearly points to moderating demand from owner occupiers due to affordability pressures," Hassan said.

He added that investor activity is currency strong, which "presents upside potential for house prices in the near term if this continues".

Translation: We could see some continued price growth in 2022.

Westpac's official forecast is:

  • From a massive 22% average price gain in 2021
  • A slower growth rate of 8% rise in 2022
  • Then a 5% correction in 2023

Does this line up with CBA's line of thinking?

Both banks have adopted a similar view, although CommBank is a little more aggressive.

CBA's head of Australian economics Gareth Aird said the massive lift in property prices in 2021 "is not over yet", with house prices "still rising briskly in most capital cities".

"But near-term indicators of momentum, coupled with the recent move higher in fixed rate mortgages, suggest that conditions will moderate from here," he added.

Citing record-low mortgage interest rates as a driver of property price growth, CommBank has released its official forecast of:

  • A slower growth rate of 7% rise in 2022
  • Then a 10% correction in 2023

Specifically, Aird believes that a fall in property values will start to bite around July 2023.

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What does this mean in reality?

Chad Hoy Poy, national lending manager at digital lending and payment provider WLTH, said it is "unlikely that property prices will fall near pre-pandemic levels".

But you can expect to see some volatility in the next couple of years.

Say you owned a home at the beginning of 2021 that was worth $750,000:

  • Based on the average 21% growth rate, that home would be worth $907,500 by the end of 2021.
  • The home grows in value again next year, based on the average growth rate of 7–8% growth in 2022 predicted by Westpac and CommBank.
  • By the end of next year, it is valued at around $975,000.
  • Then in 2023, the market corrects (or retracts) by 5–10%, depending on which bank you listen to.
  • Your home value falls by $49,000 to $98,000, bringing its worth to $880,000–$926,000.

In other words, your home could be worth less in 2 years than it is worth today.

But keep in mind that these are all based on averages and these are predictions – not statements of fact.

One thing we do know is that mortgage interest rates are creeping back up, with Aird forecasting the cash rate to jump by over 1% to reach 1.25% by 2023.

CTA: You may want to lock in a low fixed rate loan before interest rates climb back to 3%. Compare the latest fixed home loan offers now.

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