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CBA Shares Hit Record High on Projected 5% Home Price SurgeCommonwealth Bank of Australia (ASX: CBA) shares reached a new 52-week high of $115.98 during early trading on Tuesday. As of now, the CBA share price is up by 0.72% to $115.69, while the S&P/ASX 200 Index (ASX:XJO) has risen by 0.7%. This milestone follows the release of CBA's 2024 economic outlook, where the bank's economists forecasted trends in the property market for the upcoming year.
The positive performance of CBA shares adds to the upbeat momentum seen in ASX financial stocks. The broader financial sector's strength is evident as the S&P/ASX 200 Index shows a 0.7% increase, reflecting optimism in the market. Investors are keenly observing the economic outlook and property market trends outlined by Commonwealth Bank, as these factors play a significant role in shaping investment decisions within the financial sector.
Senior CBA economist Belinda Allen stated that the Australian housing market is expected to moderate in the first half of the year before rebounding in the second half, driven by anticipated interest rate cuts. CBA's economic team predicts that the Reserve Bank will start cutting interest rates in September, with a total reduction of 75 basis points by Christmas.
The strong demand, fueled by an expected 2.3% final population growth in 2023, along with an ongoing housing shortage, contributed to higher property prices in 2023 despite rising interest rates. The supply and demand dynamic is expected to remain tight in 2024, with a population growth forecast of 1.8% and only a slight increase in new home commencements.
Despite many factors driving prices higher, affordability constraints and rising advertised supply are expected to limit home price growth in the first half of 2024. CBA's overall prediction is a 5% increase in home prices across the eight capital cities this year.
Here are CBA's property price growth predictions for 2024:
- Perth: 9%
- Adelaide: 9%
- Brisbane: 8%
- Sydney: 3%
- Melbourne: 2%
While Perth and Adelaide led in price growth in 2023, with 15.2% and 13.1% respectively, CBA expects a considerable divergence in market activity among the capital cities in 2024. The first half of the year is expected to see moderation and small monthly falls in Sydney and Melbourne, while Brisbane, Perth, and Adelaide may experience slower monthly growth. Interest rate cuts starting in September are anticipated to spur faster monthly home price growth in the latter part of the year.
Belinda Allen mentioned that affordability constraints would impact market activity in Sydney and Melbourne. The tight rental market in Australia, with rents rising by just under 10% year-on-year to November, is pushing more people into home ownership. Lending for housing, especially to first home buyers, has been on the rise, and CoreLogic data indicates that the median weekly rent in Australia has surpassed $600 for the first time.
As Australia's largest home mortgage lender, a strong property market is a positive factor for CBA shares. As of June 30, 2023, CBA reported $577 billion in home loans, with over 70% on a variable rate. The bank's FY23 report revealed an increase in borrowers experiencing negative equity, rising to 1% as of June 30, 2023, compared to 0.5% in December 2022 and 0.4% in June 2022. Mortgagee-in-possession loans held steady at 2% of CBA's home lending portfolio over the 12-month period.
In conclusion, CBA's outlook suggests a complex landscape for the property market in 2024, with various factors influencing different capital cities and a potential rebound in the second half of the year driven by anticipated interest rate cuts.
