Housing experts react to RBA rate pause

"Another rate hike can't be dismissed," one says

Housing experts react to RBA rate pause

The Reserve Bank has decided to hold the cash rate steady at 4.1% for a second consecutive month this week – a move two experts from PEXA and CoreLogic said would lift consumer confidence and improve housing market stability.

Julie Toth (pictured above left), PEXA chief economist, said the rate pause was welcome news for mortgage holders and property buyers, and “has increased the likelihood that borrowers may be experiencing the peak in the current rate-rising cycle.”

“This longer pause will allow Australia’s property and mortgage markets to stabilise and recover, following an unusually rapid sequence of rate rises over the preceding 12 months,” Toth said.

“National property market indicators suggest prices and transaction volumes have been recovering from their recent trough, since around March. This extended pause in monetary policy tightening will help to inject a greater degree of confidence and stability into housing markets, for sellers, buyers, and builders.”

Despite RBA continuing to flag the possibility of another rate hike later this year, Toth said the probability Australia is now “at or near the peak in this tightening cycle is growing” because “the rate rises to date have already been enough to help bring headline inflation down to 6% y/y in the June quarter, and to just 3½ %y/y on an annualised basis,” – already within sight of the RBA’s upper target range of 3%.

Toth said this reduction in inflation has been achieved without unwanted side effects such as rising unemployment and loan defaults. 

“If this path is maintained, then the more damaging impacts on households from high inflation and rising interest rates will begin to dissipate,” she said.

Tim Lawless (pictured above right), CoreLogic research director, agreed the rate pause was positive news for the housing sector, as a growing expectation that interest rates have peaked, or nearing its peak, should help increase consumer sentiment, and in turn, lead to a rise in active buyers and sellers.

However, Lawless said the move “doesn’t necessarily signal an end to the rate-hiking cycle” and that the mixed bag of key data that guide their decision-making indicated that “another rate hike down the track remains a possibility.”

“On one hand, we have a lower-than-expected inflation outcome for the June quarter supporting the hold decision, with headline inflation lower than RBA forecasts at 0.8%, the lowest quarterly change since Q3 2021,” he said. “Retail sales posted a broad-based decline in June, down 0.8%, and economic conditions weakened with GDP growth of just 0.2% in Q1. Regarding the housing market, the RBA previously expressed concerns about asset value growth, but those worries may have diminished as we’ve seen price growth decelerate in the past two months.

“On the flipside, we have persistently tight labour market conditions, with unemployment at just 3.5% alongside strong jobs growth, low productivity growth, and wages that are rising at well above the decade average. Although inflation is coming down, services inflation is ‘sticky,’ with annual growth tracking at the highest annual level of growth since 2001.”  

Lawless said the quarterly Statement on Monetary Policy to be published on Friday will provide more detail on RBA’s economic perspectives, but given the aforementioned opposing trends, “another rate hike can’t be dismissed.”

“The range of cash rate forecasts reflects the sheer uncertainty in the economy,” he said. “The RBA itself has once again left the door open for rate hikes, noting some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but this depends on the trajectory of inflation and labour market outcomes.”

Refinancing volumes up

For mortgage holders, current credit pricing and conditions are prompting a great number of them to seek better financing options within Australia’s competitive mortgage market, Toth said.

PEXA’s Refinance Index showed loan refinancing volumes have hit a new record high of 203.2 points in the week ending July 30, in seasonally adjusted terms. That figure was up by 4.1% from the previous month, up by 19.8% from the same week in 2022; and double the volume of refinancing activity during the lowest periods in April-May 2020 and Feb-March 2021.

“While our data shows national refinancing volumes hit new highs this quarter, PEXA’s latest Property Insights Report for FY23 also confirms that monthly property settlement numbers (and in many locations, property sale prices) have been recovering from their recent slump, from around March 2023 onwards,” Toth said.

“The 2023 financial year finished strongly with more than 66,000 property settlements recorded in the month of June – up from 58,000 in May and 48,000 in April – and signalling a rebound in settlement volumes. In total, more than 665,000 property settlements were recorded nationally in FY23, which was 18.6% lower than the previous boom year of FY22 (754,352) but 11% higher than immediately prior to the COVID pandemic in FY20.”

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