More house price pain to come, warns nation’s biggest lender

The nation’s biggest home lender has warned property prices will continue to fall until well into next year, led by steep falls in Sydney and Melbourne that could be even worse if the Reserve Bank delivers another interest rate rise to quell inflation.

Before the June quarter national accounts, which are expected to show the economy barely growing despite resilient household spending, the Commonwealth Bank on Tuesday said it expects Sydney dwelling prices to fall 11 per cent this year and Melbourne to drop 10 per cent.

Figures released by analytics firm Cotality on Tuesday showed national dwelling values down for a fifth consecutive month in August . About $40,000 was wiped from the median value of homes through winter as high interest rates, the federal government’s property tax changes and poor affordability combined to hit the market.

So far this year, dwelling values have fallen by 6.7 per cent in Sydney and by 6.3 per cent in Melbourne. Other capitals are still up on where they finished last year but are now falling.

Commonwealth Bank senior economist Trent Saunders said the market was deteriorating faster than expected, forcing a downgrade to the bank’s outlook for the market.

The bank has sliced its forecasts for each capital city, with Sydney likely to experience a peak-to-trough fall of 13 per cent and Melbourne 12 per cent by April next year when values are expected to stop falling. The Brisbane, Adelaide and Perth markets, which had been holding, are also expected to be either flat or show a small fall this year.

A recovery through the second half of next year is expected to lift prices in almost every capital by around 2 per cent through 2027.

The key factor is interest rate settings, with the CBA expecting the Reserve Bank to lift rates by November before starting to cut in May next year.

“The interest rate outlook has also moved against the housing market,” Saunders said.

“We still expect the downturn to eventually run its course. Falling prices should improve affordability and increase the rental yield, drawing some buyers back into the market. ”

Shadow treasurer Tim Wilson accused the government of failing to deal with inflation as the key factor in the fall in house values.

“The Albanese active inflation agenda that is forcing the hand of the RBA is killing home values,” Wilson said.

“Australian families already struggling to pay their bills are now sitting at the kitchen table watching the value of their biggest asset, their family home, fall through the floor.”

The Property Council’s group executive for policy, Matthew Kandelaars, said the government’s planned changes to the tax treatment of trusts would also harm the market.