While Commonwealth Bank of Australia’s (CBA) recent insight on property value movement is quite disheartening, there was a silver lining embedded in the bank’s statement, as reported by Business Insider Australia.
While CBA economist Gareth Aird projected that home values will continue to drop until the end of 2019, but pointed out that Australia’s property market won’t crash.
“We see the peak to trough being around 10% in Sydney and a little less in Melbourne (8.8%),” he said.
Digging deeper, it appears that Sydney home prices will decrease by 5% annually in 2018 – a tempered assessment compared to a recent CoreLogic report, which showed that the city home values are presently currently 5.9% lower than the same period last year.
All factors considered, overall declines for Sydney from the highs of July 2017 were predicted to come in around 7.5%.
Melbourne prices, on the other hand, were tracking nearly 5% lower than their November 2017 high.
“Nationally, we think prices will end the year down by around 3% with a roughly similar outcome likely in 2019,” Aird said. “That would mean the total correction in dwelling prices is not too dissimilar to the corrections of 2010 and 1989.”
What does this tell the onlookers and market players? That the “CBA doesn’t expect a hard landing — largely because the broader economy outside of housing is still performing well,” according to Business Insider.
Aird noted the factors that could potentially help Australia avoid a worse downturn.
First, there is sustained strength in the country’s labour market. As the unemployment rate is expected to decline, the risk of mortgage defaults is reduced.
Moreover, Australian rate of population growth is increasing in a much faster rate than other developed economies due to a strong migrant intake. Regardless of its effects to productivity levels per capita, higher growth “props up the underlying demand for housing,” according to Aird.
