RBA holds as households struggle, property prices ease

Homeowners and property investors were spared an interest rate rise by the Reserve Bank of Australia, but cost of living concerns, inflation and easing property prices are big household issues.

Signage outside the entrance of the Reserve Bank of Australia building
(Image source: Shutterstock.com)

Homeowners and property investors were spared an interest rate rise by the Reserve Bank of Australia, which has again used the first Tuesday of the month to keep the official cash rate on hold at 0.1 per cent.

But in less comforting news for householders struggling with skyrocketing bills, RBA governor Philip Lowe said inflation was poised to keep rising with no sign that wages were budging.

“Inflation has picked up and a further increase is expected, but growth in labour costs (wages) has been below rates that are likely to be consistent with inflation being sustainably at target,” Mr Lowe said in his monthly Monetary Policy Decision.

The next rate rise is unlikely to occur before the upcoming federal election but it was notable that the usual RBA references to “patience” were missing and the overall economic assessment was largely upbeat.

Mr Lowe said the strength of the Australian economy is evident in the labour market, with the unemployment rate falling further to 4 per cent in February.

“Underemployment is also at its lowest level in many years … and the RBA's central forecast is for the unemployment rate to fall to below 4 per cent this year and to remain below 4 per cent next year.

“Wages growth has picked up, but, at the aggregate level, is only around the relatively low rates prevailing before the pandemic,” he said.

His note that “rising prices are putting pressure on household budgets” comes as no surprise to the 56 per cent of Australian adults who said they are worried that they are now unable to afford household bills, with another 12 per cent unsure if they can cover essential expenses.

As the rates decision was announced, financial comparison site Canstar revealed the equivalent of more than 11 million people are worried they will be unable to afford household bills amid skyrocketing living costs.

Nearly one-third (29 per cent) of Australians said their biggest worry was housing costs including rent or mortgage repayments. Forking out for petrol (22 per cent) was second followed by groceries (21 per cent).

Canstar’s Group Executive, Financial Services, Steve Mickenbecker said costs keep rising for households.

“Petrol prices reached an eight-year high and supermarket shoppers are reporting higher grocery bills, but the sting is about to get worse for some,” he said.

“Anyone with a mortgage will likely feel financial pain when the Reserve Bank raises the cash rate this year as predicted by some of the major banks.

“With demand in the economy driven by government spending rather than wages growth, the federal budget leaves the Reserve Bank in a conundrum.

“If the Reserve Bank lifts the cash rate in response to inflation before wages take off, widespread household stress will follow.”

Mr Mickenbecker said home loan interest rates are likely to be close to two percent higher in a couple of years.

“There is little doubt that the banks will fully pass on the cash rate increases to borrowers, and it’s expected that multiple increases will follow.”

Rates tide is rising

In this month’s Finder RBA Cash Rate Survey, 34 experts and economists made their predictions on future cash rate moves and other issues relating to the state of the economy.

While almost all panellists (97 per cent) correctly predicted a cash rate hold in April, the majority (88 per cent) are expecting at least one rate rise this year.

A quarter of experts believe the Australian economy has already fully recovered from COVID-19. However, just over half the respondents say the economy won’t fully recover until 2023 or later.

Graham Cooke, head of consumer research at Finder, said there was no solid agreement on what an economic recovery looks like in Australia among the panel.

“The property market is cooling, but more quickly than some economists expected.

“The reality is that, despite green shoots emerging, it will be a long and bumpy road back to pre-COVID levels of economic certainty,” Mr Cooke said.

As households fall into mortgage stress and struggle to meet inflated household costs they will turn to areas of their budget where savings can be made.

The Canstar survey found that the top three expenses borrowers would give up to afford higher home loan repayments are restaurant meals and dining out (34 per cent), holidays (31 per cent) and entertainment (29 per cent). For first homebuyers, it meant delaying the savings for a house deposit.

Such spending cutbacks would inflict further pain on the hospitality and travel sectors that have already borne the brunt of a two-year pandemic.

Property prices easing

Mr Cooke said expert forecasts for property prices were getting more and more grim for homeowners.

Brisbane is forecast to have the biggest gains in terms of house price growth, according to experts, as the smaller capitals outperform Sydney and Melbourne.

In Melbourne, respondents are predicting house prices to remain the same, however apartment values are expected to drop by 1 per cent.

All other major cities (except Canberra) are expected to remain stagnant on apartment price growth.


City Median house price over the last 3 months Predicted price percentage increase Predicted price increase Predicted price by the end of 2022
Brisbane $740,000 3% $22,200 $762,200
Canberra $1,020,000 2% $17,850 $1,037,850
Adelaide $620,000 2% $15,218 $635,218
Darwin $575,000 2% $11,500 $586,500
Hobart $759,100 1% $9,661 $768,761
Sydney $1,375,000 1% $8,594 $1,383,594
Perth $545,000 1% $7,432 $552,432
Melbourne $975,000 0% $0 $975,000

Source: CoreLogic, Finder's RBA Cash Rate Survey 2022


City Median apartment price over the last 3 months Predicted price percentage increase Predicted price increase Predicted price by the end of 2022
Canberra $589,500 1% $5,895 $595,395
Hobart $556,000 0% $1,516 $557,516
Sydney $790,000 0% $1,481 $791,481
Darwin $390,000 0% $1,064 $391,064
Perth $410,000 0% $0 $410,000
Adelaide $388,000 0% $0 $388,000
Brisbane $445,000 0% $0 $445,000
Melbourne $655,000 -1% -$4,913 $650,088

Source: CoreLogic, Finder's RBA Cash Rate Survey 2022

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