Ten months in a row, the Reserve Bank of Australia has raised the cash rate, which is now at 3.6%. This has made it harder to get a mortgage, which has caused economic instability.
Economists aren’t sure if the central bank will raise the cash rate again at its meeting tomorrow. There are early signs that consumer spending is slowing and inflation is going down, which could mean that the central bank won’t raise the cash rate.
Mr. Lawless said, “It looks more and more like we’re probably at the peak of the rate-hiking cycle or almost there.” “This will help a lot of buyers and sellers feel more confident in the market, and maybe activity will start to pick up a little bit, making up for the usual slowdown we see in the winter.”
The head of Australian economics at the Commonwealth Bank, Gareth Aird, is leaning towards a pause in rates on Tuesday. However, he still thinks the RBA will raise the cash rate to 3.85% before they are done.
But even if rates don’t go up tomorrow, Mr. Aird said the ones that have already gone up should have caused home prices to drop more. “Given what happened in March, our prediction that home prices will fall by about 15% from peak to trough seems a little pessimistic, but we’re sticking with it for now,” he said.
“The RBA’s cycle of rate hikes has so far cut the ability to borrow by almost 30%, even though the average standard variable rate has gone up by less than the cash rate because lenders are competing for borrowers.”
Last but not least, Mr. Lawless said that the return of migration, which is now above what it was before the pandemic, is making the already tight rental market even tighter.
He thinks that makes some new immigrants want to buy a home right away if they can afford to, if they can afford it. Mr. Aird agreed that the unusually high rate of movement is a big factor. “Any standard model of home prices says we should expect more drops,” the economist said. “But in many ways, these are unusual times.
The number of new homes being built is going down at the same time that the number of people living in the country is going up because of net movement from other countries. “Because of this, the rental market is red hot, and vacancy rates across the country are very low. This is a sure way to keep house prices up and makes it harder to predict the future.
The Australian Bureau of Statistics released data on Monday morning that showed national home loan agreements (not including refinancing) dropped 0.9% in February to $22.64 billion in terms that take into account the weather. The number of first-time buyers entering the market continued to drop at a sharp rate of 3.5%.
Fewer loans were also given to owners and people who lived in their own homes, but the rate of decline was slowing. There were some differences in the data. For example, the number of loans in NSW went up, which senior economist at BIS Oxford Economics Maree Kilroy said was because the First Home Buyer Choice plan would start in late 2022.
“This is helping to speed up sales and keep prices stable on the Sydney market,” she said. “The sharp rise in borrowing costs is likely to push a growing number of households into mortgage stress, which will lead to a higher rate of forced sales that will outweigh the good signs of recent price stabilisation in the second half of this year.
“This is likely to make the national price drop last longer. Prices are expected to go down until the end of 2023.”
In big cities, rents are still going up.
One-third of Australians rent, which is bad news according to CoreLogic’s figures. It shows that the worst rent increases seem to be over, but prices are still going up in important places like Sydney and Melbourne.
The biggest jumps seem to be in apartment prices in big cities. In the past year, unit rents have gone up by 18.1% in Sydney, 16.1% in Brisbane, and 14.6% in Melbourne.
Mr. Lawless said that the lack of places to live is one of the main reasons why rents are going up. This means that renters don’t have as many places to choose from, even if they have to pay more for their present lease.
“The vacancy rate dropped to a new record low of 0.9% across all capital cities in March,” Mr. Lawless said. “I think any renter would rather stay in their lease for longer than try to find a new place in the very tight rental market.”
