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Home price growth expected to fall in 2018

Home price growth expected to fall in 2018

Annual home price growth in Australia is expected to gradually lower towards zero over the first half of 2018, according to CommBank economists.

Home prices for houses and apartments combined in capital cities throughout Australia fell in December in total by 0.3% and annual growth is down to 4.2%, compared with 5.8% in 2016 and 9.2% in 2015.

CommBank economists said in a note that the overall national trend towards monthly price falls will gradually lower annual price growth towards the zero level over the first half of 2018.

  • Capital city dwelling prices fell by 0.3% in December, with annual growth softening to 4.2%
  • Both detached house and apartment prices fell by 0.3% in December
  • CommBank economists expect dwelling prices to keep softening over 2018

Commenting on the most recent CoreLogic data released today, CommBank economists said that Sydney’s housing market is the softest. Prices fell by 0.9% in December and are just 3% higher than a year ago. Falls also occurred for the December figures in Melbourne, down 0.2%, Perth ‑0.1% and Darwin ‑0.9%.

Dwelling prices rose in December in Adelaide by 0.2%, Hobart 1.5% and Canberra 0.2%. Brisbane’s prices were unchanged.

Housing markets adjusting

Dwelling prices in Australia are strongly cyclical, CommBank economists said.

"After a period of strong prices growth over the past five years, housing markets are now adjusting. The major issue for households seeking to manage mortgages over the coming year is the prospect of quite weak disposable income growth. It will slow the growth in new housing lending.

"Melbourne and Hobart are the strongest housing markets nationally, with annual dwelling price growth of 8.9% and 12.3%. It indicates the strength of demand conditions. Especially in Melbourne where annual population growth of 120,000 people is absorbing the large amount of new dwellings being delivered to the market.

"Sydney and Darwin are the weakest housing markets currently. Over the past year, Sydney’s dwelling prices are just 3% higher, while Darwin’s are down 6.5%."

Outlook for 2018

"We expect national dwelling prices to flat‑line over 2018. But, there are likely to be some variations between the capital cities, with Melbourne, Adelaide and Hobart prices staying in moderately annual positive territory while Sydney, Brisbane and Perth show modest falls. 

CommBank economists are forecasting that the Reserve Bank of Australia (RBA) will prepare markets in the second half of 2018 for a lift in the cash rate - currently 1.5% - in the December quarter, and expect another RBA rate rise in the first half of 2019.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.