House prices in Sydney are forecast to rise an unprecedented 21 per cent this year, with economists and industry experts also tipping the cash rate will remain on hold when the Reserve Bank Board meets on June 1.
In this month’s Finder RBA Cash Rate Survey, 40 experts and economists gave their predictions on future cash rate moves and other issues relating to the state of the economy, and all panelists said they expected a rate hold at the next RBA meeting.
Australia’s property market growth has surged in recent months, with values rising 10.2 per cent between September last year and the end of April, according to CoreLogic figures.
But experts believe further price hikes are on the way, with Sydney and Perth expected to see the biggest gains, at 8 per cent.
Applying this forecast to current year-to-date value increases would result in Sydney property prices rising by 21 per cent – an average of $216,300 – this year alone.
Head of Consumer Research at Finder, Graham Cooke said if the experts’ predictions were correct, Sydney property value increases for the year would be more than double the annual average wage.
“To put that into perspective, prices rose by just 4 per cent in 2020 and 2019, and dropped by 8 per cent in 2018,” Mr Cooke said.
“A 21 per cent increase would be the highest annual increase for the Sydney property market in recent history, beating the previous record of a 15 per cent rise in 2013.”
Experts also predicted a June-December gain of 7 per cent in both Canberra and Hobart, and 6 per cent in Darwin. Full-year forecasts for these cities were not available due to a lack of existing data.
Single parent deposit scheme labelled ‘too risky’
The Federal Government recently introduced a new Family Home Guarantee, whereby single parents can buy a home with as little as a 2 per cent deposit.
Sixty-eight per cent of experts said they agreed that the scheme was too risky, and may put vulnerable borrowers at risk.
Saul Eslake, of the Corinna Economic Advisory, compared the level of lending to the years leading up to the Global Financial Crisis (GFC).
“You’d think we might have learnt something from the US experience in the years before the GFC,” he said.
“There are dangers inherent to both individual borrowers and the financial system and broader economy, of encouraging people into homeownership with wafer-thin equity.”
Mr Cooke also said the lending scheme was risky.
“Encouraging homeowners to get into the property market with only a 2 per cent deposit reminds me of the 100 per cent loans being offered in Ireland in the months before the GFC,” Mr Cooke said.
“With such a small slice of equity in your home, any potential buyers would be very susceptible to falling into negative equity if prices did fall.”
Most experts believe RBA cash rate will stay on hold until at least late 2022
All 40 participants in Finder’s RBA Cash Rate survey agreed there would be no movement in the official cash rate on June 1.
There were no expectations from the experts surveyed that the cash rate would decrease any time in the next two years, however four respondents believed the cash rate could increase before the end of 2021.
Most experts (61 per cent) expected the cash rate to increase in 2023 or later.
AMP Capital Chief Economist Shane Oliver said although the economic recovery was occurring faster than had been expected, the RBA’s conditions for a rate hike are still far from being met.
“The jobs market is still a long way from full employment, wages growth at 1.5 per cent is way below the 3 per cent-plus pace necessary to sustain 2-3 per cent inflation,” Dr Oliver said.
But Mr Cooke said mortgage holders should remain vigilant, despite stagnant official rates.
“Rates may be set to sit still, but that doesn’t mean your actual home loan won’t become more expensive.
“We’ve already seen Westpac, CBA and UBank raise rates independent of the cash rate in recent times.”
Housing affordability sentiment at all-time low
Finder’s Economic Sentiment Tracker gauges experts’ confidence in five key indicators: housing affordability, employment, wage growth, cost of living and household debt.
Positive sentiment around housing affordability has hit 0 per cent, the lowest level recorded since the Finder survey began in 2018.
Conversely, positive sentiment around employment has reached 72 per cent, which is the second-highest on record.