Rate move to prompt more buyers and sellers to act

7 views 2022-10-10 16:55:48

The Reserve Bank’s decision to raise rates by a less-than-expected 25 basis points will kick more life into the spring home-buying season as more owners, seeing an end in sight to rate increases, will be confident to put their homes on the market, economists and real estate bosses say.

The central bank’s decision to lift the cash rate less than the expected 50 basis points, citing uncertainty in the global economy and around Australian household spending, showed that while still waging a battle to tame inflation, the RBA was taking wider circumstances into account, economist Louis Christopher said.

“The probability increased we’ll see a pause from the RBA before Christmas,” Mr Christopher, the managing director of consultancy SQM Research, said.

“Today’s statement increases the number of buyers who will look at this and believe it’s time to relook at the housing market and make a purchase.”

There are already some signs the market is stabilising. Separate Australian Bureau of Statistics figures on Tuesday showed the value of new mortgage commitments to first home buyers rose 7 per cent in August, their first increase in three months, bucking the trend of new loans to owner-occupiers and investors, which continued to fall.

SQM’s own figures published on Tuesday also showed a pickup in new listings, showing more owners were now putting their homes up for sale, and a decrease in distressed property listings across the country in the past month compared with August and compared with a year earlier.

The move does not mean an end to falling housing values, but will help stem the rate of decline, which is already slowing. CoreLogic figures this week showed the east coast-dominated dwelling values shed 1.4 per cent last month, less than August’s 1.8 per cent decline.

CoreLogic research director Tim Lawless on Monday said the housing market decline was likely to bottom out in the March quarter of next year before recovering swiftly.

In announcing its decision on Tuesday, the RBA was explicit about uncertainty both home and abroad.

“One source of uncertainty is the outlook for the global economy, which has deteriorated recently,” the bank said in its statement.

“Another is how household spending in Australia responds to the tighter financial conditions. Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments.

“Consumer confidence has also fallen and housing prices are declining after the earlier large increases.”

Housing market players took hope from Tuesday’s relatively modest 25-basis-point increase, saying it would encourage more sellers and buyers.

“People will now gain more confidence … they can now see there is an end in sight to the increases and will give them more confidence to move forward,” said Geoff Lucas, chief executive of ASX-listed residential real estate company The Agency.

Restrictive territory

“It is still going to be down on previous springs, but we will see an improvement in consumer sentiment and during the month of October we will see a lift in listings.”

Mr Lucas said he expected the cash rate, which the central bank lifted to 2.6 per cent on Tuesday, to peak about 3.1 per cent.

Mr Christopher also said he expected the benchmark rate to get to “somewhere around 3 per cent” by the first three months of next year and depend after that on how contained inflation was.

“We’ll probably see another 25 basis points again next month. December may well end up being a pause,” he said.

ANZ chief economist David Plank took a more bearish view.

“The cash rate will need to move into clearly restrictive territory of more than 3 per cent to ensure inflation does return to target,” he said.

“The slower pace of rate hikes now points to the tightening cycle extending into 2023.”

The Real Estate Institute of Australia, meanwhile, was hoping for the opposite.

“It would be prudent now to wait for the lagged response to the five earlier increases with indications that tighter monetary policy is contributing to a slowing in household spending and confidence, business investment and normalising of house prices as increased mortgage payments squeeze disposable real incomes,” institute president Hayden Groves said.

“Taking the cash rate much above this level would risk an unnecessarily abrupt slowing in growth in 2023.”

This article is from Australian Financial Review, please click the following link for the original article: https://www.afr.com/property/residential/rate-move-to-prompt-more-buyers-and-sellers-to-act-20221003-p5bmxa

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