Australia’s economic growth is expected to slow as lower house price growth weighs on consumer spending and broader economic activity, with CommBank economists saying housing is now expected to be a bigger drag on the economy than higher oil prices.
Speaking on the latest episode of the CommBank View: Economics & Markets podcast, CommBank Head of Australian Economics Belinda Allen said the shape of Australia’s slowdown had changed over recent months.
“We’ve certainly seen a shift in what’s going to cause the Australian economy to slow,” Allen said.
“We still think that’s going to happen, but it’s really the housing market that’s going to create that slowdown in the Australian economy, rather than higher oil prices.”
The slowdown in home price growth that emerged in late 2025 has now spread across Australia’s housing market, with weaker conditions for sellers evident in most major capitals.
Allen said higher interest rates and policy changes had weighed on sentiment and prices.
“That combination of factors has seen the housing market pull back, and we’ve seen in past cycles that does impact the consumer through what economists call the wealth effect,” she said.
Falling home values typically make households feel less financially secure, encouraging them to save more and spend less. Allen said that dynamic was now expected to be a key drag on economic growth throughout 2026.
Consumer spending is also showing signs of moderation.
Allen said CBA’s internal data suggested end-of-financial-year sales activity had softened compared with the same period last year.
“There are signs that consumers are pulling back,” she said.
While household savings remain relatively healthy overall, Allen said weak sentiment and softer home prices were likely to keep consumers cautious through the remainder of the year.
Commonwealth Bank forecasts Australia’s economic growth will slow from 2.5 per cent in late 2025 to 1.5 per cent by late 2026, before improving to about 2 per cent by late 2027.
Despite the housing-led slowdown, Allen said data centre development to fuel AI compute investment was creating important longer-term opportunities for the Australian economy. She cautioned that growth would be constrained by energy availability, water use and the time required to build new facilities, and that while it would help Australia’s economy, it was not going to fully make up for the slowdown in the consumer sector.
Read the full story, including CommBank’s outlook for AI investment, lower oil prices and shifting geopolitical risks, at CommBank Newsroom
