Home prices to fall 10% in 2023: CBA

The big bank predictions are piling in and on Monday CommBank forecast a further rise in home prices in 2022 before a pullback in 2023.

CommBank predicts home prices to 'moderate' over the first half of 2022, peaking in late 2022 around 7% higher than at the end of 2021.

Already CoreLogic data shows home prices have surged 21.58% annually to the end of October 2021.

After a moderation next year, CBA predicts an 'orderly correction' of about 10% in 2023.

This is because CBA economists expect the Reserve Bank to 'normalise' the cash rate to 1.25% by the third quarter of 2023, higher fixed mortgage rates, no further macroprudential tightening, and 'national fatigue' after a bumper 2021.

"The Australian housing market is in the twilight of an incredible boom that has been fuelled by record low mortgage rates," said Gareth Aird, CBA's head of Australian economics.

"The phenomenal lift in prices is not over yet given dwelling prices are 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.

"Interest rates become a headwind on property prices if they are rising. That is the place we believe we are moving towards over the next two years given our expectation for the RBA to commence normalising the cash rate in late 2022."

However, RBA Governor Dr Philip Lowe has pushed back at markets 'pricing-in' cash rate increases before 2024, ruling out a 2022 cash rate hike.

"The latest data and forecasts do not warrant an increase in the cash rate in 2022," Dr Lowe said in an address last week.

"The economy and inflation would have to turn out very differently from our central scenario for the Board to consider an increase in interest rates next year.

"It is likely to take time to meet the condition we have set for an increase in the cash rate and the Board is prepared to be patient."

CBA's 10% drop prediction is higher than ANZ's prediction of a 4% drop, released on Friday. 

In 2020, CBA also predicted home prices to fall 30% in a 'worst case scenario' - Domain data shows home prices rose 5.8% nationally instead.

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