- Commonwealth Bank does not expect Australia's home prices to rise in 2026
- The nation's largest home lender has revised its housing outlook on the back of falling sentiment
- Housing tax changes announced in the federal budget have played a part but are not expected to slow the home price trajectory in the longer term
CommBank economists say sentiment is now playing a key role in housing market outcomes, with softer conditions evident in recent weeks.
It has prompted the bank to downgrade its forecast for home prices, with no growth expected on a national basis for the rest of 2026.
This is down from its forecast of a modest 3% growth in the wake of the federal budget.
Two months earlier, in March, CBA economists had forecast 5% price growth.
Home prices hit by 'multiple headwinds'
CommBank's latest economic update said the housing market is under increasing pressure.
"Higher interest rates, tighter financing conditions, weak sentiment, and changes to housing tax policy are all weighing on demand in the established housing market," the update said.
It singled out the 'notable shift in sentiment' following negative gearing and capital gains tax policy changes in the federal budget.
The bank said in isolation, it wouldn't have expected the changes to have such a large near-term impact but a combination of different pressures has led to a bigger response.
"The tax changes have accelerated a slowdown that was already underway," the update said.
Market momentum grinds slower
The report cited low auction clearance rates which data provider Cotality reported hit at a six-year low last week, dropping to levels not seen since the onset of the pandemic.
This was coupled with a notable increase in listings over the previous week.
Median time for homes to remain on the market has also increased although price growth remains uneven across the capital cities.
Sydney and Melbourne have recorded the biggest slowdowns with prices dropping by close to 1% in both markets over May alone.
Perth, Brisbane, Adelaide, Darwin, and Hobart continue to see price gains although momentum is slowing, according to Cotality data.
Market lull may not be long lived
However, CommBank economists don't expect home price weakness to last much beyond 2026.
They've forecast price growth to pick up to 3% over the year to December 2027 on the back of interest rate decreases in May and August 2027.
They also expect lower prices to ease credit constraints that are locking some buyers out of the market following this year's three consecutive cash rate increases.
It's expected lower prices will also lift rental yields which should eventually attract some investors back into the market, CommBank predicts.
It also expects the market to be buoyed by strong first home buyer demand and ongoing housing undersupply.
Tax changes a 'one-off adjustment'
Over the longer term, CBA economists expect the investor tax changes to be a mere speedbump in the upward trajectory of housing prices.
"Once prices have reset to this lower level, growth is expected to return to broadly the same trajectory it would have followed without the policy changes, as higher rental yields should by then have compensated for higher holding costs," the update said.
In the short-term, however, CommBank said home lending has already weakened and is expected to drop further, driven by lower investor demand.
This has been concentrated on existing homes, which will no longer be permitted to be negatively geared from 1 July 2027 (for homes purchased after 7:30pm 12 May 2026).
CommBank expects the new-build sector, not affected by investor negative gearing changes, to be more resilient and may see an increase in lending under the new tax regime.
Owner occupier lending will also be subdued for the rest of 2026, the bank expects, but this mostly reflects higher interest rates rather than tax changes.
Cash rate outlook is key
CommBank concluded its update by saying its new forecasts are based on the cash rate remaining at its current level - 4.35% - until early 2027, with rate cuts predicted to come in May and August next year.
"These expected cash rate cuts are an important driver of the forecast recovery in housing market momentum through 2027 and into 2028," the update said.
However, CommBank economists say risks to its outlook are tilted to the cash rate remaining higher for longer.
This will depend on consumer spending "holding up better than expected" and inflation remaining persistent, with the Middle East conflict playing a role in these variables.
Markets and economists see virtually no prospect of a further cash rate increase at the next Reserve Bank meeting in June although CommBank concedes there remains a possibility of further tightening in August.
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| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
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