Why the Commonwealth Bank (ASX:CBA) share price is up 12% in 3 months

Shares in Australia’s largest bank are outperforming the ASX 200 Index.
The post Why the Commonwealth Bank (ASX:CBA) share price is up 12% in 3 months appeared first on The Motley Fool Australia. –

The Commonwealth Bank of Australia (ASX: CBA) share price has tracked higher over the last few months. This comes despite the company last providing a financial update in mid-May, and notwithstanding the sale of its general insurance business.

At yesterday’s market close, the CBA share price finished the day up 1.48% to $99.88.

Property market continues to rise

A possible catalyst for the recent surge in the CBA share price could be a strong Australian housing market. According to Fitch Ratings, property prices are predicted to jump by 16% this year. This is particularly being driven by government support, low interest rates and a stronger than expected economic recovery, according to the report.

In the previous update released by Fitch in December, it indicated house prices in Australia would only grow between 3% to 5% for 2021. However, Fitch noted that the revised forecast is a result of people saving more due to working from home, lockdown restrictions and border closures. In effect, higher savings are allowing buyers to quickly enter the property market, pushing up demand.

Furthermore, the Reserve Bank of Australia’s (RBA) record-low interest rates have meant that mortgage credit is available for most buyers, the report said. Currently, the official cash rate stands unchanged at 0.1%, with the next RBA board meeting on 3 August 2021.

Fitch explained “low interest rates in Australia have also started to encourage housing investors into the market, potentially replacing demand from first-time buyers as they start to be priced out”.

The lack of construction of new homes, combined with higher timber prices contributed to soaring house prices. This has led to supply constraints within the housing market, as demand ramps up.

“Supply constraints are likely to persist at least into next year, due to limited construction during the pandemic”.

“…The cost of building materials has also risen in 2021, pushing up construction costs, which will be passed on to buyers through higher asking prices for future new builds”, added Fitch.

What do the brokers think?

Earlier this month, two brokers rated CBA shares with varying price points.

Australia’s largest investment house, Morgans, raised its target for the CBA share price by 4.1% to $76.00. This is still significantly lower than the current level of CBA shares, indicating the broker believes them to be overvalued.

Bell Potter followed suit to also increase its rating by a massive 17% to $105.00. At the last closing price, this implies an upside of around 5%.

CBA share price snapshot

The ASX is forward-looking, and investors appear buoyant that Australia’s largest bank will come out unscathed by the current lockdown. In response, the CBA share price has continued its positive run, to record a gain of almost 12% in the last 3 months. The S&P/ASX 200 Index (ASX: XJO) has lifted just over 4.6% in the same time frame.

Based on valuation grounds, CBA has a market capitalisation of roughly $177.2 billion, with more than 1.7 billion shares outstanding.

The post Why the Commonwealth Bank (ASX:CBA) share price is up 12% in 3 months appeared first on The Motley Fool Australia.

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More reading

Commonwealth Bank (ASX:CBA) shares higher as bank moves into broadband business
CBA (ASX:CBA) share price lags big banks as requests for deferrals surge
Lockdowns hurt, ASX falls, Wesfarmers climbs, and the Aussie set to fall? Scott Phillips on Nine’s Late News

ANZ’s (ASX:ANZ) $1.5bn buyback puts other ASX 200 banks under capital return spotlight
Do ASX 200 banks share same BNPL ambitions as Westpac (ASX: WBC)?

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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 Bruce Jackson.

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