The Reserve Bank of Australia (RBA) has maintained its record low cash rate at 0.1 per cent, with real estate industry leaders predicting Australia’s hot housing market will start to even out a little in the coming months.
The RBA’s decision shocked few, with economists widely predicting the cash rate, which hasn’t changed since November 2020, would remain steady.
RBA Governor Philip Lowe has repeatedly said the cash rate would not increase until actual inflation is sustainably within the two to three per cent target range.
Dr Lowe said the Delta outbreak had interrupted the recovery of the Australian economy, but the impact had been uneven, with some sectors facing difficult conditions while others were growing.
“This setback to the economic expansion in Australia is expected to be only temporary,” Dr Lowe said.
“As vaccination rates increase further and restrictions are eased, the economy is expected to bounce back. Many businesses are now planning for the easing of restrictions, and confidence has held up reasonably well.”
Dr Lowe said housing prices continued to rise, although turnover in some markets had declined more recently.
“Housing credit growth has picked up due to stronger demand for credit by both owner-occupiers and investors,” he said.
“The Council of Financial Regulators has been discussing the medium-term risks to macroeconomic stability of rapid credit growth at a time of historically low interest rates.
“In this environment, it is important that lending standards are maintained, and that loan serviceability buffers are appropriate.”
GEOFF LUCAS, THE AGENCY
He said recent CoreLogic figures showed that over a seven day period, the number of comparative market analysis reports ordered jumped 31 per cent on the same period last year.
“When that number spikes, it means agents are being called in for appraisals, and it means vendors are looking to potentially come onto the market,” Mr Lucas said.
“This is driven by coming out of lockdown and seeing the light at the end of the tunnel.
“That’s going to move the market a little bit further towards equilibrium.”
Mr Lucas said it had “very much” been a seller’s market up until this point, and buyers had struggled, but with an increase in the number of properties coming to market, the playing field should level out a bit.
“Demand will remain robust because people are now feeling more comfortable that interest rates are going to remain relatively low for a bit longer,” he said.
Mr Lucas said the rate of property price growth would slow next year.
“We expected national price growth for the calendar year of 2022 to be between four and six per cent,” he said.
“We do see a tapering of the rate of growth of prices.”
Mr Lucas said in the September quarter, CoreLogic figures showed the number of unit transactions had increased nationally by 42 per cent on the same quarter last year, while the number of house transactions had jumped 21 per cent.
“That says that end of the market is becoming more active, and that’s really also the affordability issue (coming into play) as well,” he said.
“In the period from January to July, there was also a 45 per cent increase, from a low base, in the number of investment loans by first-home buyers.”
Mr Lucas said buyers were ‘rentvesting’.
“They’re renting where they want to live and buying where they can afford to invest,” he said.
“That’s interesting because they are getting more comfortable that rates will be lower for longer, and that creates a more attractive proposition for investment properties.”
MANOS FINDIKAKIS, EVIEW GROUP
“We don’t want to see that go up too high,” he said.
Mr Findikakis said the key to the equation, regardless of interest rates, was employment, and if buyers didn’t have a job, they wouldn’t get a loan.
But he stressed that the group had not seen a lot of distressed sales.
“The biggest criteria for us, and what we really try to have our finger on the pulse of, is are people losing their jobs?” Mr Findikakis said.
“And we haven’t seen that yet.
“We haven’t seen those distress sales where people are saying, ‘Far out, I’ve lost my job and I need to sell my home’.
“If anything, people are doing really well in certain industries and they’re upsizing. They’re upsizing because they’re not spending (the money) on anything else, they’re not travelling, and they don’t anticipate travelling for the next 12 to 24 months, so they’re upsizing and making that tree change.”
Mr Findikakis said while many talked about stock levels being tight, he said the opposite was the case.
“It’s a myth,” he said.
“We’re actually up 40 per cent in turnover, the number of homes selling, on 2019.
“On average in Australia, there are 500,000 home transactions a year, and this year there’s been 600,000.
“There may not be more stock at any one point in time because they are selling so quickly, but there have actually been more homes coming to market.”
ANDREW COCKS, RICHARDSON & WRENCH
“This augurs well for the real estate market in Australia; however, the current rate of price increases being experienced in many parts of the country is clearly unsustainable,” he said.
“There is likely to be some intervention to restrict lending with the Council of Financial Regulators due to release options to cool the lending market within the next couple of months.
“This is likely to coincide with an increase in listing volumes as prospective sellers feel more comfortable about selling their property in an environment that is lockdown-free, so we’re likely to see fewer buyers and more stock occur at around the same time with the predictable consequences.”
Mr Cocks said the “big unknown” in the real estate equation would be the level of international activity, as tourism, international students, business travel and permanent migration all recommended next year.
“It’s likely that tourism activity will recover reasonably quickly, limited only by airline capacity and over-cautious government intervention, with international students, business travel and immigration levels most likely increasing more gradually over the next few years,” he said.
“The impact of any potential limitations on domestic lending are likely to be offset by strong short-term growth in the economy with the added impetus provided by the more unpredictable re-emergence of the international markets continuing to support the domestic real estate market as the overall economy rebalances.”
Mr Cocks questioned how long such conditions could be sustained and said there were already “clear signs” that the rate of price growth was backing off.
“However, the potential upside in so many sectors means that based on the current and most likely future monetary settings, there doesn’t appear to be a major correction on the horizon any time soon,” he said.
“The real test will come when interest rates start heading north again, and the size and speed of future rate increases will largely determine how the residential property market will fare as we move towards the middle of the decade.”