Australia’s biggest home lender is expecting property prices to fall by 12% soon after official interest rates go up again.

The Commonwealth Bank forecast double-digit plunges in Sydney, Melbourne, Canberra and Hobert in 2023, following strong gains since the end of 2020.

Philip Lowe, the Governor of Reverse Bank of Australia, is now indicating the cash rate will be raised from a record low of 0.1 per cent in 2023 instead of 2024, as previously promised.

But the Commonwealth Bank’s head of Australian economies Gareth Aird is predicting interest rates will now be raised in November 2022, marking the first cash rate increases in 12 years.

“The Australian housing market is in the twilight of an incredible boom that has been fuelled by record low mortgage rates,” he said.

Mr Aird is now predicting the Reverse Bank will raise the cash rate to 1.25% by September 2023, a level that hasn’t been seen since mid-2019, which “lies at the heart of our expectation that home prices will contract”.

Should that predication materialize, the RBA would be raising rates five times on each occasion by 0.25 percentage points judging by previous moves.

The Commonwealth Bank is expecting Sydney’s property prices to climb 27% in 2021, before slowing to 6% in 2022 and plunging by 12% in 2023.

In the year to October, Sydney’s median house price surged by 30.04% to an even more unaffordable $1.334million, CoreLogic data showed.

CBA forecast Melbourne prices rising by 17% this year, before growing by a more subdued 8% in 2022 and diving by 10% in 2023.

Melbourne’s mid-point house price has grown by an annual pace of 19.5% to $972,659 as Canberra’s equivalent value rose by 29% to $985,040.

Canberra was also tipped to see double-digit falls, following a 26% rise in 2021, a 7% gain in 2022 before a 10 per cent plunge in 2023.

Hobart prices were tipped to surge by 29% in 2021 followed by 5 per cent growth in 2022 and a 12 per cent plunge in 2023.

Since October 2020, house values in the Tasmanian capital have climbed by 27.2% to $726,955.

Australia wide, property prices were tipped to grow by 22% in 2021, 7% in 2022 before plummeting by 10%. in 2023.

In the year to October, house and apartment values nationally rose by 21.6%, marking the sharpest annual increase since early 1989.

By comparison, wages in the year to September edged up by just 2.2%.

The mid-point national property price of $686,339 is now so dear someone earning an average, full-time salary of $90,329 would owe the bank six times their salary, even with a 20%.

The Australian Prudential Regulation Authority considers a debt-to-income ratio of six or more to be risky.

Mr Aird said strong property price growth could not be sustained as wages growth remained weak.

“As home prices move higher, affordability becomes stretched,” he said.

“That can be improved via a reduction in mortgage rates or higher income.

“But at some point the tailwind of lower mortgage rates on prices wanes unless there are further cuts in interest rates.”

The Commonwealth Bank is expecting house prices across Australia to rise by 25% in 2021 before slowing to 6% in 2022 and falling by 11% in 2023.

Apartment values were expected to rise by 14% this year, 9% next year and fall by 7% in 2023.

Australia’s biggest banks have already raised their fixed rate home loans multiple times in a matter of weeks, gradually ending the era of 2 per cent mortgage rates.

“The phenomenal lift in prices is not over yet given dwelling prices are still rising briskly in most capital cities,” Mr Aird said.

“But near term indicators of momentum coupled with the recent move higher in fixed rate mortgages suggest that conditions will moderate from here.”

Regional areas have done even better than capital cities, with prices rising by 24.6% compared with 24% in the capital cities during the past year.

Before the pandemic, younger first-home buyers willing to commute could buy a house on the Central Coast, an hour’s drive north of Sydney. However, mid-point house prices there have surged by 35.4% in the year to October to $954,330 as more people were able to work from home.

Woy Woy, on the Brisbane Water and near a train station, is even more expensive at $962,538.

Queensland’s Sunshine Coast saw a 32.5% increase, taking median house prices to $946,405, making it much dearer than nearby Brisbane’s $731,392.

Victoria’s Mornington Peninsula had a 33.5% increase, taking its mid-point price for a home with a backyard to $979,554, making it marginally more expensive than greater Melbourne’s $972,659.

Image: Getty Images

This article first appeared on Over60.