CBA chief Matt Comyn sees a firmer footing for housing

The boss of the nation’s largest bank has suggested the drop in house prices peak to trough could be as little as 3 per cent.

CBA CEO Matt Comyn at the Commonwealth bank offices at Darling Park in Sydney CBD.

The boss of the nation’s largest bank has suggested the drop in house prices peak to trough could be as little as 3 per cent, with the latest Reserve Bank rate cut adding to momentum and interest coming back into the market due.

Speaking to The Australian after handing down Commonwealth Bank’s first-quarter trading update on Wednesday, chief executive Matt Comyn said a firmer footing for the housing market was good for economic confidence, but that the lender would be cautious if prices accelerated too quickly.

“There’s definitely been more resilience and strength in the housing market, and I suspect that the latest rate cut will increase that momentum,” Mr Comyn said. “And based on what we’re seeing in terms of application volumes, at least at the moment, it continues to be strong.”

The upswing in housing had so far been driven by first-time buyers and owner-occupiers, unlike in 2014 and 2015, when the pace of acceleration was due to investment lending, he said. CBA this week began offering a fixed-rate home loan of 1.99 per cent on a four-year term. It followed the RBA slashing the cash rate to an all time low of 0.1 per cent earlier this month.

Of CBA’s total home loan book, 40 per cent are fixed-rate loans. Traditionally, banks have seen between 10 per cent and 15 per cent of loans written under fixed rates. Mr Comyn expects that rate to inch up further as borrowers take advantage of the sub-2 per cent rate on offer.

“Given the yields that are on offer, there is probably more interest coming back into the housing market. The stabilisation [in pricing] is good for confidence,” Mr Comyn said. On the housing market outlook for the next year, Mr Comyn said a lot would depend on the strength of the economy, fiscal stimulus, the unemployment rate and population growth.

“Our view would be that net overseas migration could rebound more strongly than current forecasts,” he said.

“So overall, the housing market is continuing to strengthen but if it really accelerated, then we’d be cautious about that over the medium term.

“We expect we’ll get a reasonable increase in flows. We’ve got 40 per cent in fixed rate at the ­moment, and I suspect that will be higher over the next couple of months. I think there’ll be a lot more interest in and around that, that four-year term, and we’ve seen a growing profile in the three-year term.”

The bank is still cautious on the economic outlook for the coming year, particularly in the second quarter of the calendar year, when support measures are due to come to an end.

Mr Comyn said CBA would continue to take a cautious approach to provisioning for potential bad loans even as the number of borrowers on repayment holidays fell 75 per cent from June 30 to October 31. The bank topped up its provisioning for in the September quarter to $6.7bn.

“This quarter we’ve seen some very positive signals from both repayment deferrals, arrears rates, overall loan and payment expenses, but we do believe that that’s insulated somewhat from some of the factors [such as support measures],” Mr Comyn said.

CBA earlier on Wednesday posted a 16 per cent drop in cash profit to $1.8bn for the September quarter as margin pressures and higher provisioning weighed on the bank’s performance even as it recorded growth in home lending, business lending and deposits.

Household deposits rose by almost $16bn in the three months, with the bank seeing “significant inflows” following the second round of government stimulus packages. Home loan growth remained above system on higher application volumes and quicker turnaround times. Domestic business lending growth was also above system, it said.

CBA’s net interest margin was lower than the second half due to reduced earnings on deposits and capital from lower rates.