No change from RBA as lockdowns slow property growth

Extended lockdowns have shifted the Reserve Bank of Australia into spectator mode, with an expected economic contraction giving it no scope to hike the official cash rate from its current record low.

RBA signage
The RBA has little room to move as extended lockdowns start to put a dent in Australia's GDP. Photo: Shutterstock (Image source:

Extended lockdowns have shifted the Reserve Bank of Australia into spectator mode, with an expected economic contraction giving it no scope to hike the official cash rate from its current record low.

The Reserve Bank of Australia made no change to its monetary policy at its monthly board meeting, reiterating its oft-repeated stance that it doesn’t expect economic conditions to warrant a rate hike until 2024 at the earliest.

Holding the official cash rate at its record low of 0.1 per cent came as no surprise to economists and property industry experts across Australia, with data starting to indicate that having around 50 per cent of the country’s population in lockdown was stalling growth in property markets.

Monthly median dwelling value data from CoreLogic showed a tapering off of house price growth occurred in July, continuing a trend of slower appreciation that started in March.

Housing finance figures released by the Australian Bureau of Statistics today showed new home lending commitments fell for the first time this year in June, slipping by 1.6 per cent to $32.05 billion.

The ABS said the drop was led by a 2.5 per cent reduction in owner-occupier borrowing, while at the same time investor lending rose for the 8th consecutive month, going up 0.7 per cent to reach $9.19 billion.

Canstar Group financial services executive Steve Mickenbecker said July home lending data would likely be softer, as foreshadowed by a reduction in the number of auctions being held, as well as a fall in clearance rates.

“First homebuyers and loans for construction have slowed over the month as incentives wind back,” Mr Mickenbecker said.

“The investment market remains more resilient, though also more subdued, and investors may view the softening in prices as a buying opportunity in anticipation of the same rebound we saw from the first lockdown in 2020.

“We shouldn’t overestimate the depth of June’s fall, with the month still up 84 per cent on a year ago, when we were in the depths of the first COVID-19 lockdown.”

All 40 experts and economists surveyed by Finder this month correctly predicted the RBA would not change the official cash rate, while more than half of them said lockdowns would slow property price growth.

Three in four of those surveyed said they don’t expect to see a rate increase until 2023.

Finder head of consumer research Graham Cooke said the coming slowdown in house price appreciation, however, was likely to be temporary.

“With people in Sydney still unable to leave their homes, look for house price growth to slow in the coming weeks,” Mr Cooke said.

“This will come as good news to first-time buyers, who have seen the entry point of the market accelerating away from them in the last few months.”

Bendigo Bank head of economic and market research David Robertson said the severe lockdown in NSW was likely to push the Australian economy into contraction, a scenario which would result in the RBA delaying its planned tapering of quantitative easing.

“Assuming the lockdowns are effective by September, the economy should then rebound in spring, especially if government support measures are increased (in line with the severity of the necessary restrictions, to protect jobs),” Mr Robertson said.

“Longer term, our recovery should be strong enough to mean the RBA will increase interest rates in FY23, but for now the focus is on the NSW lockdowns and ensuring that measures are effective to protect the community.”

CLSA Premium’s Peter Boehm said the RBA had “played its hand” in terms of interest rates and monetary policy.

“There is no scope for the RBA to adjust the cash rate given that around 50 per cent of the population is currently in lockdown,” Mr Boehm said.

“The situation in Sydney is likely to worsen before it gets better and this will prolong the negative impacts on economic activity, both in NSW and Australia more broadly.

“The RBA simply cannot move rates at this time, and has no scope to reduce rates to help boost economic activity.”

On the flipside, REA Group’s Cameron Kusher and Metropole Property Strategists Michael Yardney both said they expected rapid price growth once lockdowns are lifted.

“If lockdowns are extensive, our property market will go into hibernation for a while and then come out stronger than ever, just like they did last year,” Mr Yardney said.

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