RBA expects COVID property price surge will end but no recession


RBA expects governor Philip Lowe has made it clear the central bank’s board still plans to keep the cash rate on hold until 2024, while acknowledging record-low interest rates are pushing up housing prices.

RBA expects COVID property price surge will end but no recession

RBA expects : National housing prices are expected to jump by as much as 20% this year, although Mr Lowe and economists expect factors such as affordability constraints will start to slow the pace of growth.

Mr Lowe on Friday predicted the price boom still had a bit further to go.

“While I hesitate to provide forecasts for the housing market, I think it’s quite likely we’ll see further increases in the next little while,” he told a federal parliamentary committee hearing.

“It’s a global story. It’s not just in Brisbane or Sydney or Melbourne where prices are rising, it’s almost in every city around the world, and it’s largely because interest rates are low and they’re likely to stay low.”

Mr Lowe said low interest rates continue to push prices up, but noted there were now factors at play that could start working in the other direction.

“We’re building a lot of dwellings and the population is not growing as quickly, and every day the prices go up it’s harder for people to afford. RBA expects

“Ultimately there’s some point at which these things will start equilibrating and the big price rises come to an end, but I’m afraid I can’t forecast when that actually happens.”

The RBA board kept the cash rate on hold at a record low 0.1% after its monthly meeting on Tuesday.

Mr Lowe on Friday repeated the RBA board will not increase the cash rate until inflation is sustainably within its 2-3% target range and it does not expect that condition to be met before 2024.

“It will not be enough for inflation to just sneak across the 2% line for a quarter or two,” he said.

“We want to see inflation well within the target band and be confident that it will stay there.”

Greater Sydney’s extended lockdown has made the RBA’s position on rate changes even clearer, according to realestate.com.au economist Paul Ryan.

Mr Ryan did not expect an early rate move before 2024, even before the latest lockdowns.

“It was very unlikely before, and now I would say it’s definitely not going to happen,” Mr Ryan said.

“There’s the capacity for these lockdowns to have pushed out interest rate rises even more than expected.”

COVID lockdowns ‘unlikely’ to cause recession

Mr Lowe said Australia’s stronger-than-expected economic recovery has been interrupted by outbreaks of the highly infectious Delta strain of the coronavirus, especially in NSW.

Greater Sydney’s long lockdown, Victoria and south-east Queensland’s current snap lockdowns and the earlier short shutdowns in Victoria and South Australia are expected to send the economy backwards in the September quarter. RBA expects

But Mr Lowe believed another double-dip recession – defined as two consecutive quarters of negative gross domestic product – was unlikely, after Australia experienced its first recession in 29 years in the first half of 2020.

“I think it’s quite unlikely that we’ll have two quarters of negative GDP,” he said.

Mr Lowe predicted GDP will decline by at least 1% in the September quarter, with a bigger fall possible depending on whether there are further lockdowns, and how long the existing ones last.

“But by the end of the year, many of us will be vaccinated, one hopes the restrictions are being eased from late in this quarter and then into next quarter, and as the restrictions are eased the economy should start its recovery.

“We can’t rule out two quarters of negative GDP if the health situation deteriorates but I think it’s quite unlikely at this stage.”

Mr Lowe said significant parts of the Australian economy remain on the positive trajectory that was in place before the recent outbreaks, which was quite different to the situation in the first half of 2020 when the whole of Australia was in lockdown.

“It is important not to lose sight of the fact that not all of Australia is affected,” Mr Lowe said.

He said the experience in Australia, and elsewhere, is that once restrictions are lifted, spending recovers strongly and the economy bounces back quickly.

“While the exact timing of the bounce-back is difficult to predict, it is likely to start well before the end of the year,” he said.

“The vaccination program is ramping up and governments are providing significant targeted income support to help businesses and households get through this difficult period.

“This means that there is a pathway out of the current difficulties this year.”

Housing market strong but regulators not concerned

The RBA’s latest Statement on Monetary Policy released on Friday noted housing prices have been rising in all major markets, after declining during the initial COVID outbreak last year.

“Strong price growth continued through July, including in Sydney, such that national housing prices were around 15% higher than the start of the year,” the RBA said.

The RBA also noted growth in housing credit has picked up and demand for finance from investors has also increased recently, on top of the strong demand from first-home buyers and existing owner occupiers.

Economists at three of the four big banks have just lifted their forecasts for Australian dwelling prices in 2021 after a stronger-than-expected surge in the first half of the year, with price growth expected to slow down in 2022.

Commonwealth Bank of Australia economists now expect national prices to jump by 20% this year, while National Australia Bank and Westpac economists forecast gains of 18.5% and 18%, respectively.