Commonwealth Bank forecasts average Perth property price to fall 8 per cent in 2023

Perth property prices are forecast to fall 8 per cent next year as the effects of the Reserve Bank of Australia’s interest rate hikes kick in.

New forecasts from the Commonwealth Bank on Thursday suggest the RBA’s tightening will have an enormous impact on gross domestic product and the broader economy.

The country’s largest lender expects 50 basis points in cuts in the second half of next year after rates hit a forecast peak of 2.1 per cent this year.

Head of Australian economics Gareth Aird said though no economic bust was expected, and talk of a recession was premature, growth would moderate to “below trend”.

This would eventually pull inflation down and the unemployment rate would increase towards the end of next year.

“The RBA looks very intent on dropping the inflation rate quickly. But this will come at the expense of growth in aggregate demand, particularly household consumption,” Mr Aird said.

He said the RBA now appeared to be “first and foremost inflation fighters”. His comments come a day after he told The West Australian that the RBA’s actions were not matching its language.

“Their objective of ‘the economic prosperity and welfare of the people of Australia’ has taken a back seat to their desire to drop the rate of inflation,” Mr Aird on Thursday said.

“We do not think the RBA has to run hard against wages growth by aggressively hiking the cash rate ... but ultimately it does not matter what we think, it is about what they do.”

Nationally, the CBA expects property prices to fall and believes prices hit a cyclical high in April. In Sydney, Melbourne and Canberra — the nation’s most expensive cities — prices are already falling.

The Commonwealth Bank is now forecasting annual falls of 6 per cent nationally for this year and as much as 11 per cent in Sydney and 10 per cent in Melbourne. It expects Perth prices to grow over 2022 by 2 per cent, and 6 per cent in both Brisbane and Adelaide.

For next year, it expects falls across the board: as much as 11 per cent in Adelaide, 10 per cent in Brisbane and 9 per cent in Hobart, Darwin and Canberra. Perth and Melbourne are tipped to slip 8 per cent and 7 per cent in Sydney.

It comes after record growth in 2021 of 21 per cent nationally — 13 per cent in Perth and as much as 27 per cent in Brisbane. The forecast fall doesn’t wipe out the average gains experienced last year, which means buyers hoping for discounted prices may be left wanting next year.

Elsewhere, the Commonwealth Bank expects real consumer spending to be dramatically cut because of higher interest rates.

“Higher than anticipated energy prices will put downward pressure on real consumer spending, particularly discretionary consumption for lower income households,” Mr Aird said.

“Consumer confidence is already in deeply pessimistic territory and we do not see that picture turning around anytime soon.”

He said low unemployment would continue for some time and would helpto push up wages for workers on individual agreements.

Mr Aird urged governments to pull policy levers to help address supply side issues on gas and electricity, which are ballooning across the rest of the country and putting enormous pressure on household budgets.

He said it was not the job of the RBA alone to address inflation.

“The cash rate is a very blunt tool to address some of the supply side issues in the domestic and global economies right now that are contributing to higher inflation,” Mr Aird said.