CBA Home Buying Index plummets in December

The Commonwealth Bank of Australia’s (CBA) latest Home Buying Index has revealed a sharp decline of 31.1 per cent per month in December in seasonally adjusted terms, leaving the index at 64.2. This decline followed a 4.6 per cent fall in November.

The index deteriorated on an annual basis as well, dropping 40 per cent year on year from the 9.9 per cent annual decline recorded in October 2023.

According to the major bank, the drop in the Home Buying Index “likely reflects” the effect of the Reserve Bank of Australia’s (RBA) November rate hike, which brought the cash rate up to 4.35 per cent following four consecutive months of cash rate holds.

The timing of the November rate hike resulted in home loan applications falling more than usual in December that pulled down the index, according to the major bank.

CBA also predicted that home prices are to continue to rise throughout 2024, however, at a slower pace than the 9.3 per cent recorded in 2023.

Additionally, the CommBank Household Spending Insights (HSI) index for December also fell by 3.9 per cent month on month in seasonally adjusted terms, offsetting the revised gain of 1.6 per cent (previously 1.8 per cent) recorded in November.

On an annual basis, the pace of increase eased to 3.1 per cent, down from a revised 4 per cent in November.

According to CBA, this has demonstrated an ongoing pattern in recent years where strength in consumer spending in November is followed by “very weak” results in December.

Eight out of 12 of the index’s underlying categories recorded declines in December, the largest of which was seen in household goods including furniture and household appliances, down by 16 per cent.

CBA senior economist Belinda Allen said that household budgets were “undoubtedly constrained with rate rises leading to a weakening of consumer spending”.

“Households in all states reduced spending in December, led by declines in Victoria, South Australia and New South Wales,” Ms Allen added.

“With the pace of economic growth in Australia moderating and the full impacts of November’s rate rise yet to flow through to the consumer, we expect a further slowdown in the pace of household spending over the coming months.

“We have also seen inflation moderate which supports our view that the monetary policy tightening cycle has come to an end and that the RBA can join the expected global shift and start to lower interest rates in September this year.”

The major bank is currently forecasting that the RBA will lower the cash rate by 75 bps over the second half of 2024 beginning in September, followed by a further 75 bps in the first half of 2025.

CBA chief economist Stephen Halmarick previously predicted that “chances are high” that the RBA will achieve its desired “narrow path” in 2024 as rate hikes slow the economy to the desired level “without pushing it into recession”.

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