CBA says brace for worst housing crash ever

Commonwealth Bank of Australia (CBA) has cut its housing forecast for the second time in two months, and recent buyers are the most exposed. 

In an economic update released this morning, CBA's economists said they now expect national dwelling values to fall around 14% from their March peak before finding a floor, with the five-capital-city average tipped to bottom out about 15% below its high. If that plays out, it would be the steepest drop in the 45-year history of CBA's monthly price series, eclipsing the 8.6% slide recorded during the 2017–19 slump that coincided with the banking royal commission. 

On 1 September, the bank was calling a 9% national fall and a 10% drop across the capitals. 

CBA senior economist Trent Saunders said the correction had turned out "faster and broader than expected", forcing the bank to cut its outlook for every mainland capital. Brisbane and Perth, the strongest markets of recent years, copped the biggest revisions.

CBA expects prices to stabilise in the second half of 2027, helped by cheaper homes, higher rental yields, a persistent shortage of new supply and, eventually, lower interest rates. But the bank is not pencilling in any meaningful rebound, and concedes the rate outlook remains uncertain. 

Brisbane and Perth lead the real estate slide 

Prices have fallen faster than CBA expected -  Saunders said Brisbane and Perth had already blown through the bank's previous 8% forecasts despite tight supply, and he put the bigger falls down to fading "overexuberance" in those cities. 

Cotality's latest Home Value Index shows the same trend. National values slipped 1.2% in October, the seventh monthly decline in a row, leaving the index 6.7% below its March high. That works out to roughly $63,400 off the median Australian dwelling, which now sits at $884,855. 

Brisbane (down 2.0%) and Perth (down 1.7%) led the October falls, edging out Sydney (down 1.6%). Across the combined capitals, values are down 8.1% in seven months. Cotality says that is the quickest pace of decline in 40 years; the 2022–23 downturn had shaved 7.0% off capital city values over the same stretch. As brokernews.com.au reported on Monday, the PropTrack index paints a milder picture, with a 4.3% fall from the March peak, so the depth of the downturn depends on whose numbers you read. 

"The mid-sized capitals ... are now well and truly in a correction," Cotality research director Tim Lawless said, adding that almost every suburb in Brisbane, Perth and Adelaide had lost value over the past three months. 

Cotality estimates sales volumes over the past three months were 23% lower than a year earlier, with Sydney and Brisbane down around 30%. Homes are taking a median 39 days to sell, the longest since August 2020, and vendor discounts of 4.7% are the deepest since May 2019. Capital city auction clearance rates have been stuck below 50%. 

In June, CBA was still tipping Perth to rise 12% and Brisbane 8% over 2026, even as it warned Sydney and Melbourne buyers about negative equity. 

By brokernews.com.au's rough calculation using Cotality's October medians, an 18% peak-to-trough fall would leave Brisbane and Perth with about another 10% to go from here. That is in the order of $100,000 off a typical home in each city. The figure is indicative only, because CBA and Cotality measure prices differently. 

Fifth rate rise  

CBA's update came out hours before the Reserve Bank of Australia (RBA) was due to announce its Melbourne Cup Day decision, with markets and all four major banks expecting a 25 basis point rise to 4.85%. That would be the fifth hike of 2026 and the highest cash rate since 2008. The RBA has already lifted the cash rate four times this year, most recently to 4.60% in September. 

Annual headline CPI hit 4.3% in September and the trimmed mean measure rose to 3.7% for the quarter, well above the RBA's 2–3% target band, according to Cotality's summary of the data. RBA deputy governor Andrew Hauser had already warned that the inflation outlook looked "materially worse" than the bank projected in August. 

CBA itself only switched to calling a November hike last week, after the latest inflation data and RBA commentary. It expects the RBA to sit on 4.85% after today, with two quarter-point cuts pencilled in for August and November 2027, though the bank says the timing of those cuts is highly uncertain. 

In its broader economic outlook, released a day earlier, CBA said it now expects annual GDP growth to slow to 1% by mid-2027, down from its previous call of 1.8%, and unemployment to peak at 5.1% at the end of next year rather than 4.8%. Growth is not expected to return to its trend rate of around 2% until the second half of 2028. 

"Households will bear the brunt of the needed slowdown in economic activity," CBA's head of Australian economics, Belinda Allen, said. 

Lawless estimates that if the RBA hikes again, borrowing capacity will have dropped by around 11.5%, or more than $105,000, through this hiking cycle. That is a bigger hit than the $63,400 already wiped off the national median value. 

Investors, meanwhile, are still digesting the May Budget's changes to negative gearing and capital gains tax, which take effect from July next year. New investor loan commitments fell 8.6% in the June quarter, the sharpest quarterly drop since September 2022, according to Cotality. 

What it means for brokers 

Many existing owners still have plenty of equity. Cotality says prices rose so far before the downturn that most homeowners in the mid-sized capitals are sitting on a significant buffer. A 20% fall from Perth's record high, for example, would only drag values back to around mid-2025 levels. 

Melbourne values are 7.3% lower than five years ago and Sydney's are 1.5% below October 2021, so recent buyers in those cities, particularly first-home buyers who went in with small deposits, have far less room to absorb further falls. 

Canstar estimates that a fifth hike would add about $92 a month to a $600,000 loan, taking the cumulative increase since the start of this year's hikes to around $456 a month. The big four passed September's rise on in full, ending sub-6% variable rates at the majors, and investor mortgage rates are now close to 7%, according to Cotality. 

Gross rental yields across the combined capitals have climbed to 3.77%, the highest since May 2015, and CBA expects the national yield to rise from around 3.75% before the Budget to about 4.75% by late 2027. But Lawless said yields were still well short of delivering neutral cash flow once insurance, strata, maintenance and higher rates are counted. 

Brokers who spoke to Australian Broker in October said clients were already asking whether they should fix, and whether their lender was still competitive. They also flagged a likely wave of refinancing enquiries before today's decision, and a 14% national forecast from the country's biggest lender is likely to keep it coming. 

CBA expects prices to bottom out in the second half of 2027, but that relies on the RBA cutting rates. If rates stay higher for longer, the bank's own numbers suggest the wait for a recovery could stretch further still.