Rates stay at record low as home values start to soar

The Reserve Bank is holding firm and reiterated that it does not anticipate hiking interest rates until 2024, as analysts suggest that Australia’s rising house prices may force the central bank’s hand sooner than anticipated.

RBA signage
Rising house prices have not yet swayed the RBA on interest rates. Photo: Shutterstock (Image source: Shutterstock.com)

The Reserve Bank is holding firm and reiterated that it does not anticipate hiking interest rates until 2024, as analysts suggest that Australia’s rising house prices may force the central bank’s hand sooner than anticipated.

RBA governor Philip Lowe today said the RBA was committed to keeping the official cash rate at its record low of 0.1 per cent until its goals around inflation and wages growth are achieved.

“This will require significant gains in employment and a return to a tight labour market,” Dr Lowe said in a statement.

“The board does not expect these conditions to be met until 2024 at the earliest.”

Dr Lowe said the current settings were continuing to support the Australian economy by keeping financing costs and the Australian dollar low, and ensuring households and businesses had ample access to credit. 

“Together, monetary and fiscal policy are supporting the recovery in aggregate demand and the pickup in employment,” Dr Lowe said.

“Lending rates for most borrowers are at record lows and housing prices across Australia have increased recently.

“Housing credit growth to owner occupiers has picked up, but investor and business credit growth remain weak.

“Lending standards remain sound and it is important they remain so in an environment of rising housing prices and low interest rates.”

Despite the RBA’s firm stance, Finsure managing director John Kolenda said there had been increasing conjecture around the prediction that economic conditions would not warrant a rate rise before 2024.

“It is appearing more likely that we will see a rise in interest rates before the predicted 2024 forecast as pressure mounts on global funding costs,” Mr Kolenda said. 

“The Australian dollar’s continued upward movement also has many questioning the RBA’s 2024 prediction.  

“Economic results over the next two quarters will provide greater clarity on when interest rates will rise, with markets predicting something could happen over the coming 12 months.” 

Canstar Group's Steve Mickenbecker shared Mr Kolenda’s view. 

Mr Mickenbecker said the RBA was likely to find itself under property price pressure a lot sooner than expected, with housing markets across the country rapidly heating up.  

“The Reserve Bank doesn’t expect to raise the cash rate for three years or more, but unless property prices can be slowed it will have to start looking for some way to apply the brakes,” Mr Mickenbecker said. 

“First homebuyers and new construction are leading the charge for property buying rather than investors, so the Reserve Bank can’t enlist APRA to target investors with lending caps as it has done previously.” 

Mr Mickenbecker described the current market conditions as a “perfect storm” for house prices, with stock being absorbed as soon as it hits the markets and owners wary of putting their house up for sale because of the uncertainty around finding another property. 

“Property demand has run way ahead, with the fear of missing out becoming a powerful psychological driver as government incentives and low interest rates have encouraged first homebuyers and home builders into the market in a rush,” he said. 

“Arguably the result of slow supply and increased demand is a timing mismatch. 

“New construction will lift national housing stock and first homebuyers will be vacating rentals, which must eventually find their way onto the market in the face of likely continued slow population growth from reduced migration, student intake and tourism. 

“But it is likely the supply will be in out-of-favour inner city apartment dwellings.” 

Demand for units is unlikely to rebound any time soon, according to experts and economists recently surveyed by Finder, with those investments seen three times more risky than houses in some capital cities. 

Finder’s monthly RBA Cash Rate survey showed 68 per cent of the experts surveyed believed units in Melbourne and Brisbane were a risky investment, with Sydney not far behind at 61 per cent. 

Graham Cooke, Finder’s head of consumer research, said investors would be wise to heed the warnings of those experts around investing in apartments. 

“Property prices are on an upward trajectory in a big way,” Mr Cooke said. 

“Not only has the median house price in Sydney passed $1 million for the first time since 2017, but owner-occupier borrowing hit $20 billion for the first time in history in December. 

“Despite this boom, rent prices have struggled. 

“There are a number of factors for this, including millions of renters who lost jobs or had hours reduced and a lack of long-term international visitors and students. 

“If you have a deposit saved and are deciding between investing in a unit or a house, it’s worth keeping this outlook in mind.”

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