CBA shares hit new record amid higher revised predictions for home price growth

CBA shares are outperforming the ASX 200 on Tuesday.

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Commonwealth Bank of Australia (ASX: CBA) shares reached a new all-time record high price of $128.97 per share on Tuesday. The ASX 200 bank stock is now fetching $128.75, up 1.8% for the day.

CBA shares are outperforming the S&P/ASX 200 Index (ASX: XJO), which is up 0.88%.

Australia's biggest home loan lender has released revised growth predictions for home prices.

Let's check them out.

CBA shares going in the same direction as home values

In a note released last week, CBA increased its forecast growth for home values in the calendar year 2024.

CBA senior economist Belinda Allen said:

We have held a long-term view that national home prices would lift by 5% this calendar year.

In recent months we have highlighted upside risks to this forecast based on acute housing shortages, strong demand and below average listings on the market.

As a result of these factors and monthly home price rises remaining stronger than expected we revise our forecasts to expect a 7% lift this year.

As we recently reported, the national median home value, which reflects all types of property in a single data point, rose by 8% in FY24 (total returns of 12.2% with rental income), according to CoreLogic data.

But the strongest markets recorded far greater growth than the national median.

Perth home values screamed 23.6% higher in FY24. Brisbane values leapt 15.8% and Adelaide values weren't far behind at 15.4%.

The key reason for these cities' outperformance was tight supply and demand.

The number of homes for sale is significantly below the long-term averages for each city. Plus, demand is high given these markets offer much greater affordability than Sydney, Melbourne and Canberra.

What about interest rates?

Allen said higher interest rates — which mean higher mortgage repayments and limitations on credit availability for new buyers — along with cost-of-living pressures would normally slow the pace of home prices or even push them lower. But that's not happening due to the tight supply and demand.

"… the leading indicators such as new lending, auction clearance rates and even sentiment continue to point towards gains in home prices," she said.

The possibility of an increase in interest rates due to sticky inflation may limit the upside risk to home values and slow the pace of price growth, she added.

CBA predicts an interest rate cut in November, and Allen said this could provide a tailwind for home values. Her economics team sees further price gains ahead in 2025.

She said:

Our first look at home prices for 2025 sees further gains nationwide, although significant capital city divergences remain.

An expected easing cycle by the RBA and still acute supply shortages should see prices rise, but growing affordability challenges should limit the size of these gains.

We expect a lift of 5% over calendar year 2025 with the mid-tier capital cities again outperforming Sydney and Melbourne.

Property price predictions for 2024 and 2025

Here are CBA's forecasts for home values growth in the calendar years of 2024 and 2025.

Capital city Growth prediction 2024Growth prediction 2025
Perth 22%12%
Adelaide14%9%
Brisbane13%7%
Sydney5%4%
Melbourne0%4%
Source: CBA

What's next for CBA shares?

The outlook for CBA shares among brokers is varied.

Goldman Sachs is bearish.

Goldman describes CBA shares as "in uncharted valuation territory" based on the premium they usually trade for relative to their return on equity (ROE) forecast.

The broker has a sell rating on CBA and a 12-month share price target of $82.61.

This implies about a 35% fall from today's CBA share price.

UBS also expects CBA shares to fall but not by as much as Goldman.

The broker has a 12-month share price target of $105, implying about an 18% downside risk from here.

Braden Gardiner from Tradethestructure recently told The Bull that traders in CBA shares "may want to consider locking in some gains if the share price falls below $116".

Motley Fool contributor Bronwyn Allen has positions in Commonwealth Bank Of Australia. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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