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The recent rate increases and the unprecedented upswing in inflation seem to have already dampened Australians\u2019 appetite for property.\u00a0<\/p>\n
Both CommBank’s Household Spending Intentions (HSI) Home Buying Index and Westpac Melbourne Institute Index of Consumer Sentiment both reported declines over the past month.<\/p>\n
While CBA\u2019s overall HSI increased marginally over the month, the home buying spending index declined by 3.6% monthly and 8.1% annually in June.\u00a0<\/p>\n
CBA chief economist Stephen Halmarick said there were monthly and yearly declines in the number of home loan applications and in the volume of Google searches related to home buying over the month.<\/p>\n
\u201cThe softness in home buying intentions in June is unsurprising given the recent RBA rate hikes and clear signs of a downturn in dwelling prices in Australia,\u201d he said.<\/p>\n
The cash rate increased by 50 basis points in July, bringing it to a new high of 1.35%.<\/p>\n
\u201cThe Home buying index is, therefore, likely to be especially sensitive to higher interest rates in the months ahead,\u201d Mr Halmarick said.<\/p>\n
This sensitivity is already reflected in dwelling prices, which, according to CBA\u2019s forecast, would end the year 6% lower and strike a further 8% fall in 2023.<\/p>\n
Weak sentiment a clear message about housing<\/h2>\n
Westpac chief economist Bill Evans said the \u2018time to buy a dwelling\u2019 index lifted in July, but remains at a weak level overall, around 39% below the recent peak in November 2020.\u00a0<\/p>\n
\u201cThe monthly gain was due to large increases in Queensland and Western Australia, with homebuyer sentiment still very weak in NSW,\u201d he said.\u00a0<\/p>\n
Meanwhile, the house price expectations index declined a further 5.6% in July, with sentiments dipping into the negative territory in New South Wales and Victoria. This means that more consumers are expecting prices to decline over the next twelve months.\u00a0<\/p>\n
Mr Evans said those who own their homes outright are particularly downbeat with their outlook for house prices.\u00a0<\/p>\n
\u201cPerhaps, these experienced homeowners, who have seen cycles in the past, are more attuned to the damage sharp increases in interest rates can have on housing markets,\u201d he said.\u00a0<\/p>\n
Rates to increase next month<\/h2>\n
Mr Evans said the RBA is expected to make another 50bps hike in August, bringing the cash rate to 1.85%, which is near the top of the \u201cneutral zone\u201d of 1.5% to 2.0%.\u00a0<\/p>\n
\u201cThe move will come after a June quarter CPI update, due on July 27, that is expected to show a significant further lift in inflation \u2013 we expect annual underlying inflation to come in at 4.5%, up from 3.7%, and annual headline inflation to hit 5.8%, up from 5.1%,\u201d he said.\u00a0<\/p>\n
Mr Evans said the RBA will continue with its hikes as part of its commitment to contain inflation over the medium term.\u00a0<\/p>\n
\u201cTo deliver on this, and to contain inflation expectations, it will need to continue taking strong actions with policy, pushing the cash rate from a very stimulatory starting point to something well into the neutral zone,\u201d he said.\u00a0<\/p>\n
However, Mr Evans said the RBA will likely be wary of the \u201cheavy impact\u201d of the back-to-back rate hikes, especially given how fragile consumer confidence is in the current setting.\u00a0<\/p>\n
\u201cThe cash rate has increased at a faster pace than we have seen in any cycle since 1994 and this is clearly unsettling for consumers also facing a sharp rise in the cost of living,\u201d he said.\u00a0<\/p>\n
\u201cA more cautious approach will be appropriate once policy has moved to \u2018neutral\u2019 in August \u2014 we advocate and expect the RBA to pause to assess conditions, both domestic and global, prior to moving rates into the contractionary zone later in the cycle,\u201d he said.<\/p>\n
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Photo by @ericjamesward on Unsplash<\/em><\/p>\n<\/p><\/div>\n