Housing slump as RBA rate moratorium fuels speculation

Westpac chief economist Bill Evans said the recovery was largely due to the Reserve Bank’s decision to suspend a string of 10 consecutive cash rate increases due to a monetary moratorium at its April policy meeting. The Reserve Bank kept the cash rate unchanged at 3.6% for the first time since starting the most aggressive tightening cycle in a generation.

of the 20 economists surveyed Australian person financial revieww, 6 believe Australian house prices have bottomed out.

Michael Blythe of PinPoint Macro Analytics noted that immigration went from zero to 400,000 a year at the same time as construction slowed. Approvals to build new homes have fallen to their lowest level in more than a decade.

“It’s a sad comment, but the rapidly rising cost of building homes has pushed many construction firms into a wall, and experts hope there will be more,” he said. is the decline in new housing supply.”

not as tragic as i thought

Market Economics’ Steven Koukourus predicts the real estate downturn is over, with historically high levels of population growth boosting demand and the slow pace of housing construction to weigh on the negative impact of interest rate setting. claims to exceed.

In addition to the improving outlook for the housing market, there are hopes that the central bank has ended its tightening cycle. Economists are divided on whether the central bank will resume raising interest rates, but financial markets say the job is done.

Bond traders are only implying a one-in-four chance that the Reserve Bank will raise the cash rate to 3.85% in May, leading to a rate cut by early next year and a We expect the cash rate to drop to 3.1%.

“Low interest rates are always a good way to revitalize the housing market,” Bryce said. He expects first-time homebuyers to jump into the market. Especially for those who believe that not only have interest rates peaked, but the cuts are on the card as well. “(They) may think now is a good time to get involved. The fear of missing out lives on.”

monetary lag

A hot rental market is the main reason renters and investors buy homes, and demand is expected to drive prices higher. Rents soared, with 57 suburbs up 20% or more in just one year, and vacancy hit a record low of 0.9% across the capital in his February.

RBC Capital Markets revised the peak-to-trough decline in house prices to 9% on Tuesday from a previous 16%. RBC Capital Markets Australia Chief Economist Su-Lin Ong said: “Australian house prices across the country are likely to bottom out in the second quarter of this year. It’s a quarter early,” he said.

But many economists believe there is still room for a downturn in the real estate market as the impact of rising interest rates all flows into mortgages, rising unemployment and slowing the economy.

“Historically, home prices have tended to bottom out six to 12 months after interest rates peak. The bottom is still ahead of us, The Economist at Vanguard.

The $400 billion of fixed-rate mortgages is shifting to variable rates, which is the main reason UBS expects house prices to fall further.

UBS economist Nick Guesnon said the sell-off was due to fixed-rate mortgage maturities accelerating from 2% to 6% (at interest rates) as the unemployment rate climbs to 4.5% next year. will strengthen,” he said. He now expects the peak-to-valley decline to be 15%, up from 17% previously.

AMP expects the current rise in home prices to be short-lived. Demand from bargain hunters will run its course, and sales will suffer as economic conditions deteriorate. AMP chief economist Shane Oliver said, “We continue to see average home prices fall again in the second half of the year.”

Goldman Sachs argues that the RBA’s monetary moratorium is likely to prematurely ease financial conditions and backfire on growth and inflation in the second half of the year.

“To prevent this, the RBA needs to raise interest rates to put downward pressure on house prices and keep GDP growth negative,” said Andrew Bork, chief economist for Australia at Goldman Sachs. He projects home prices to fall 11% below their cyclical peak by Christmas.

Warren Hogan, an economic adviser to Judo Bank, is the most pessimistic, predicting an 18% to 20% drop. He has declared the current period of stability to be temporary before prices start to fall again in the second half of the year.

“The next phase of price decline will be triggered by rising real interest rates, a weakening labor market and tightening credit conditions in 2024,” he said.