The Commonwealth Bank of Australia (CBA), Australia’s largest home loan lender, thinks the downturn in Australian home prices will now be larger than it previously thought.

Like many other forecasters, it believes that the deepest falls will be seen in Sydney and Melbourne, those capital city markets which saw prices increase the most in the subsequent price upswing.

“We have downwardly-revised our forecasts for dwelling prices over 2019,” said Gareth Aird, senior economist at the CBA. He added: “This is largely due to credit growth falling by more than we had previously been anticipating and sentiment towards housing from an asset price perspective falling solidly. Sentiment is hard to forecast but has a big impact on prices because the relationship becomes self-fulfilling. That is, if households expect prices to weaken then demand for credit falls and prices will continue to correct lower. We believe that we are in that part of the cycle now.”

Aird concluded: “Our base case for property prices has them down by 5% in Sydney over 2019 and 6% in Melbourne. That would take the fall in Sydney prices from its July 2017 peak to around 15%. For Melbourne, prices would be down by around 13% from their November 2017 peak.”