Dwelling commencements ‘to remain soft’: CBA

CBA has warned dwelling approvals could reach lows not seen since 2011.

Commonwealth Bank of Australia (CBA) has forecast dwelling investment and building commencements to remain weak despite the belief that the monetary policy has peaked.

In its recent Global Economic and Markets Research, the major bank forecast that dwelling investment would decline by 3.5 per cent in 2023 and register flat or only slightly positive growth for 2024.

CBA said while the RBA stated both material shortages and supply chain issues were primarily resolved, labour shortages of key trades remained a “significant constraint” to the industry and were likely to continue the slow rate dwelling completions.

The major bank confirmed that it expected the current cash rate of 4.1 per cent to be the peak of the tightening cycle but rate-cutting forecast to not commence until the first quarter of 2024, with policy easing to stimulate building activity.

Given the rapid tightening cycle of the monetary policy, the major bank said it was unsurprising that approvals dropped from their high in 2020 and 2021, which was fuelled by the reduction in monetary policy at the time.

CBA said 183,000 dwellings were commenced in 2022, with it forecasting the number to fall to 164,000 this year and 166,000 in 2024.

However, if dwelling approvals maintained the average CBA saw for the first six months of 2023, it would only reach 157,000 by the end of the calendar year, which would be down at levels not seen since 2011.

Despite significant population growth and tight rental markets, the major bank said neither had provided enough upward pressure on approvals to offset other factors so far.

it said the higher cost of building and borrowing for new dwellings had been a central headwind for building activities, with the costs for consumers having surged due to inflated input prices during the pandemic and “exceptionally strong demand meeting constrained supply”.

People need professional help

Kurt Ackermann, head of finance at recently launched brokerage Leo Loans & Finance, said individuals needed professional help “now more than ever” to help them “secure the best mortgage product for their own circumstances”.

He said: “We are due to see migration increase further from the 400,000 migrants who came to Australia in the last year. The knock-on effect for the property market will be significant, with increased demand on an already tight housing supply a promising sight for future growth for investors.”

The softening in the market due to the rapid tightening of the monetary policy was already beginning to ease, according to Mr Ackermann.

“Despite initial uncertainty and softening this created within the market, confidence has increased in recent months, reflected by strong auction clearance rates in our major capitals,” he declared.

Mr Ackermann said the brokerage wanted to see a “comprehensive approach to improving the housing industry that addresses regulatory barriers, including financial incentives, infrastructure development, and community involvement to deliver affordable and accessible housing for all”.

“We encourage more building to accommodate our growing population and ease the housing crisis. Quite simply, we are facing a critical shortage in housing supply that needs to be addressed and it is crucial for the government to drive policy to support future housing development,” he added.

Leo Loans and Finance was recently launched by real estate agency Patrick Leo, which describes it as a boutique mortgage broking firm focused on connecting borrowers with competitive finance options across Australia.

The brokerage said it would cater to the “pent-up demand for refinancing from owner-occupiers and investors across Greater Sydney”.