Call for rate rise pause

PEAK bodies in the housing construction and real estate sectors have called on the RBA to pause interest rate rises. The Housing Industry Association described the December 25bp rate hike “unnecessary”.

HIA chief economist Tim

Reardon said the Reserve Bank of Australia will not restore the economy to stable growth by putting the housing industry through boomand-bust cycles.

“Home buyers exited the new home market rapidly following the first increase in the cash rate in May,” he said.

“The RBA should have paused to observe the impact of the fastest increase in a generation and not continued to raise rates.

“Home building was already set to slow significantly in 2023 and this rate rise will exacerbate the downturn.”

Real Estate Institute of Australia president Hayden Groves has urged the RBA to exercise caution going into 2023.

Mr Groves said that the RBA is providing mixed signals to homeowners and aspiring homeowners.

“The RBA is expecting to further increase interest rates but is also saying that the lag effect has not yet kicked in. So they are aggressively pursuing rate rises knowing the impact from previous rate rises is yet to happen,” he said,

“The RBA should have waited to see the impact of the past increases before the next Board meeting — it takes time for the past increases to impact on demand and prices.

“The rise in interest rates on a $750,000 mortgage has added more than $1400 in monthly mortgage repayments, further adding to the decline in housing affordability.”

Meanwhile, PropTrack senior economist Eleanor Creagh said with inflation remaining high and increasing evidence of labour market tightness, the RBA has continued to raise the cash rate to ensure inflation expectations remain “anchored.”

“The fastest rise to the cash rate since the 1990s has quickly rebalanced the housing market from last year’s extreme growth levels, with prices falling in most parts of the country,” she said.

“Prices nationally are now sitting 3.81 per cent below their March peak after falling for the eighth month in a row amid headwinds from monetary tightening.

“With additional rate rises on the horizon, borrowing costs will continue to increase and maximum borrowing capacities will be further reduced, shrinking buyers’ budgets.”

Ms Creagh said prices are likely to continue to fall.

However, if interest rates peak in 2023, she said price falls should ease, with values stabilising as interest rate uncertainty reduces.

“The downward pressure from rate rises will be countered to a degree by positive demand effects that stem from tight rental markets and rental price pressures, rebounding foreign migration, stronger wages growth, and over the long run, housing supply pressures.”