The Commonwealth Bank of Australia (CBA) recently forecast that home prices will continue to decline in the near future, based on indicators such as housing finance demand, auction clearance rates, foreign residential demand, and consumer sentiment about price expectations.

“The evidence suggests that dwelling prices will continue to deflate in the very near term. There will be significant variations between capital cities and indeed suburbs within the same cities, but the broader trend should be one of continuing mild price declines, “said CBA Senior Economist Gareth Aird.

The first evidence considered was the flow of housing credit, which according to the Australian Bureau of Statistics (ABS), continues to drop. On top of this, the pace of the decline has hastened. This acceleration was associated with the falling number of lending to owner-occupiers.

Tighter lending standards have played a part, but they “are not the primary driver of the acceleration in the downward trend of housing finance.”

“Rather, the demand for credit has declined because momentum in the market has come off and household expectations of property price appreciation have declined,” Aird said.

Second, the country’s auction clearance rate has been on a downward trend throughout 2018, dropping recently to between 40-45%. According to Aird, the recent auction clearance rates imply that dwelling prices in Sydney and Melbourne will weaken further over the very near term.

Foreign investment in Australian property has similarly cooled over the past two years. This was due to a hike in state government-levied stamp duty to foreign investors, as well as tighter capital controls out of China.

As such, it is projected that values will track lower considering the gathered data, which state that the decline in foreign investor demand is consistent with a further easing in dwelling price.

Aird added that currently, there are no signs of foreign investor demand rebounding anytime soon.

“If households expect prices to weaken, then demand for credit will fall and prices will correct lower. The reverse is also true when households expect price growth to accelerate,” Aird explained.