Big bank predicts worst housing crash on record - realestate.com.au

In a stark warning, one of Australia’s largest banks has projected an unprecedented decline in the housing market, predicting the most significant crash on record. The Commonwealth Bank (CBA) released its latest economic update on Tuesday, highlighting an alarming downgrade in housing forecasts that could result in median price drops of up to $199,000 in some capital cities.

The bank indicated that a quicker and more extensive correction than anticipated, compared to its previous update in September, necessitated these drastic revisions. The forecast anticipates a national decline of 14 percent from peak to trough, marking the steepest downturn in the 45-year history of the CBA's monthly index series.

According to the report, capital cities are expected to experience the most significant impacts, with the combined index of five major capitals projected to fall by approximately 15 percent before reaching its lowest point in late 2027. If realized, this 14 percent national correction would surpass the 8.6 percent decline recorded during the banking royal commission period from 2017 to 2019.

CBA’s senior economist, Trent Saunders, confirmed that the property market's downturn has accelerated beyond earlier expectations. "We have revised down our dwelling price forecasts again," Saunders stated in the economic update. "National dwelling prices are now expected to decline by around 14 percent from peak to trough in this cycle, while the average for the five major capitals is anticipated to be around 15 percent below its most recent peak."

He noted that national values have already decreased by 6.7 percent since their peak in March, with the combined five-capital index down by 8.2 percent. "Brisbane and Perth have already surpassed our previous peak-to-trough forecasts," he added, while also indicating that historical adjustments have led to further reductions in price growth predictions for mid-sized capitals.

The report forecasts significant declines in specific cities: Brisbane and Perth are expected to see peak-to-trough falls of 18 percent, while Sydney is projected to experience a 16 percent decline, and Melbourne and Adelaide are anticipated to drop by 13 percent each.

To illustrate these declines, a predicted 18 percent drop in Brisbane would result in a decrease of $199,040 from typical property values, bringing the median down to $906,740. For standalone houses peaking at $1.227 million, the loss would amount to $220,900, reducing their median value to $1,006,400.

In Sydney, a 16 percent decline would mean a loss of $195,200, leading to a median price of around $1,024,800. With values already down 10.1 percent, an additional $72,000 drop is expected. Perth homeowners could face a cumulative loss of $147,600, with median prices falling to around $672,400. In Melbourne, typical properties are projected to lose $104,650, resulting in a median value of $700,350. Adelaide homeowners may see a reduction of $102,700, pulling the median down to $687,300.

Despite the bleak outlook for property prices, there is a silver lining in the form of rising rental yields. The CBA forecasts that national rental yields will increase from approximately 3.75 percent before the Budget to around 4.75 percent by late 2027, driven by weaker dwelling prices and robust rent growth.

Looking ahead, the bank anticipates market stabilization in the second half of 2027, supported by lower dwelling prices, higher rental yields, persistent supply constraints, and a possible easing of monetary policy. However, the CBA does not foresee a significant recovery in the housing market and acknowledges ongoing uncertainty regarding interest rate trends.