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Investors eye market opportunities as RBA mulls rate hike
As cash rate hikes loom, following a tightening of labour data, investors could soon seize on more opportunities as first home buyers hesitate and other owner-occupiers are priced out of the market.
Data from the Australian Bureau of Statistics (ABS) has shown unemployment has fallen lower than expected, prompting speculation that the Reserve Bank of Australia (RBA) could hike rates in the coming months.
The Labour Force data showed that unemployment in December fell to 4.1 per cent from 4.3 per cent in November.
The tightening of the labour market was also reflected in the number of people employed, which rose by 65,000, while participation rose to 66.7 per cent.
The results come just two weeks before the RBA’s next cash rate meeting on February 3, with various market indicators, including job data, to shape the board’s decision.
Finni Mortgages principal, Eva Loisance, said that if the cash rate is hiked, investors could take advantage of market pressures as mortgage holders struggle to make repayments and first home buyers second-guess themselves.
“[This might] make first home buyers hesitate a bit more to enter the market itself. Some that would be like, ‘it's just going to be too hard I can't afford this’,” she told REB.
“[Investors might think], ‘well, that's great. People can't afford to buy properties anymore, or they will sell. I will buy those properties and rent them up’.”
Loisance said investor competition would surge, particularly in more affordable areas, especially the unit market, which has been lagging in growth.
She added that Melbourne would be a prime spot to invest in, given that house prices were beginning to pick up.
“I'd say that's where it's going to happen – this year would be Melbourne's year.”
She said that ultimately, investors shouldn’t be too fixated on interest rates, given that they're tax-deductible and can be offset by negative gearing.
“That's definitely not something that would stop them; they might even see it as an opportunity if they really understand the whole economical market behind it.”
In light of the new data, Westpac has forecasted that the RBA will tighten policy and hike rates in February and May.
The bank said that the labour market was previously one of the only data points not particularly concerning for the RBA, but now the central bank would be scrutinising the data ahead of its rate decisions.
“They will now add it to the list of things that are tracking stronger than their expectations as they finalise their February forecasts (subject to Q4 CPI data next week),” it said.
“Where the RBA may have felt there was a gradual uptrend in unemployment that risked further increases, they will now need to put more weight on the risk of retightening, from a starting point where they already assessed the labour market as too tight.”
Similarly, the Australia and New Zealand Banking Group (ANZ) has projected that a rate hike could come as early as February, saying both the unemployment and employment figures had been well above its expectations.
“While there appears to be some noise in the December labour force survey (namely the increase in employment of 15–24-year-olds, a part of the data that has been volatile recently), the decline in the unemployment rate does make a February rate hike more likely at the margin,” it said.
However, the bank said that the outcome depended on the Q4 trimmed mean CPI figure to be released next week, saying that if it remained at 0.8 per cent q/q, the RBA was expected to hold.
“On a 0.9 per cent q/q outcome, a rate hike would now appear a little more likely than not (pending the detail of the CPI),” it said.