Property leaders cagey on 2023’s first rate hike

Tuesday’s decision was the ninth consecutive meeting in which the RBA opted to raise the official cash rate to combat inflation, signalling a continuation of Australia’s fastest and largest rate-hiking cycle and further compounding the financial woes experienced by many Australian households.

CoreLogic’s research director, Tim Lawless, declared the latest cash rate increase “was largely expected” but noted, “The trajectory of interest rates over the coming months remains highly uncertain and is tied to the outlook for inflation, which in itself is shrouded in uncertainty.”

Despite the previously mentioned headline inflation rate of 7.8 per cent registering below the RBA’s forecast for December, he revealed that “the more important [was] the core inflation reading,” which increased 1.4 per cent in 2022’s final quarter as part of a 6.9 per cent annual rise.

Global and domestic inflationary pressures are showing signs of easing, with Mr Lawless explaining that the housing component of the CPI decreased sharply throughout 2022’s last quarter.

He expects “some evidence of rising mortgage stress will start to emerge in 2023 under such substantially higher interest rate settings, with the potential for a more noticeable lift as further fixed rate borrowers migrate over to variable mortgage rates.”

“However, any material rise in mortgage arrears is unlikely unless labour markets loosen substantially,” he clarified.

The latest cash rate increase adds $77 to the monthly repayments of a $500,000 variable-rate owner-occupier mortgage and $116 per month to a $750,000 mortgage. Since April, on the same loan amounts, monthly repayments have jumped by $821 and $1,232, respectively.

Mr Lawless added that for Australia’s housing market, increased interest rates “represent a further downside risk to purchasing activity and values.”

In HIA chief economist Tim Reardon’s estimation, “a return to stable economic growth will not be achieved by putting the housing sector through boom-and-bust cycles.”

He said declining rates of new lending and new home sales “is as a consequence of the fastest increase in the cash rate in a generation.”

“The decision by the RBA to increase rates further in 2023 will further erode market confidence and accelerate the downturn that is already evident.”

Mr Reardon explained, “The impact of last year’s rate increases won’t be fully apparent until late this year.”

“There are significant lags between a change in the cash rate and its impact on the economy. In this cycle, it will take up to 18 months before the impact of the May 2022 rate increase fully slows through to employment in the sector.”

Hayden Groves, who called for a cash rate freeze in early January, said the RBA’s latest cash rate decision “will further impact negatively on households and confidence.”

Citing the RBA’s own estimates of 800,000 fixed loan contracts expected to expire this year, he exclaimed the central bank “[is] aggressively pursuing rate rises knowing the impact from the previous rate rises is yet to happen,” adding the RBA’s decisions are “further adding to the decline in housing affordability.”

In a similar vein, Geoff Lucas, managing director and chief executive officer of The Agency Group, said “buyers have just gone through the greatest rate of interest rate increases many have ever seen, and this has created uncertainty and a reluctance to transact — whether that be buying or selling.”

He described “material friction” within the Australian residential marketplace, which includes “interest rate uncertainty and stamp duty.”

“The removal of interest rate uncertainty reduces the marketplace friction to some degree, and we believe this will lead to a greater propensity to transact in the second quarter of 2023,” he said.

Mr Lucas forecasts national price reductions of between 4 per cent and 6 per cent, with these declines predominantly occurring over the next six to nine months before a market stabilisation occurs, “which will be aided by immigration, most notably from China, and consequently a more robust last quarter.”