Homebuyer sentiment likely to improve with extended rate pause

The latest decision by the Reserve Bank of Australia (RBA) to keep the cash rate on hold for the second month in a row in August could help improve the sentiment among consumers, particularly homebuyers.

CoreLogic research director Tim Lawless said the cash rate staying at 4.10% for two months already is a welcome reprieve for many consumers.

“For the housing sector, the decision to hold interest rates over the past two months is positive news; a growing expectation that interest rates have peaked, or are near a peak, should help to lift consumer sentiment from the recession-like lows that have persisted over the past nine months,” he said.

“Consumer confidence and housing activity go hand in hand — generally, when sentiment is low, home sales are low and vice versa; so, any lift in sentiment is likely to be accompanied by a rise in active buyers and sellers.”

However, Mr Lawless said this does not necessarily mean an end to the rate hiking cycle, considering that the central bank is working with a “mixed bag” of key data sets.

For instance, there is the lower-than-expected inflation outcome for the June quarter and the broad-based decline in retail sales.

On the housing market front, price growth has decelerated, dissipating RBA’s concerns about asset value growth.

Meanwhile, labour market conditions remained persistently tight, with unemployment at just 3.5% alongside strong jobs growth, low productivity growth, and wages that are rising at well above the decade average.

“Highlighting the uncertainty ahead, some economists have already called a peak in the rate hiking cycle, others believe there will be one more hike in the coming months, while others are pricing in two more rate hikes on the basis of tight labour market conditions potentially feeding wages growth and keeping inflation higher for longer,” Mr Lawless said.

Judo Bank chief economic advisor Warren Hogan said it might be possible for the RBA to make another increase in September, the final month of Dr Philip Lowe as RBA governor, given the release of the economic results from July.

“And we know on the one July, that's the important time for price increases in this economy, because it's the start of the new financial year in Australia,” he said in a recent podcast episode of the Savings Tip Jar.

“Bank PMIs for July picked up price increases across the whole services manufacturing sector, they're going to see that and they're going to realize that they're just too skinny at 4.10%,”.

Longer pause to stabilise property and mortgage markets

PEXA chief economist Julie Toth said this month’s hold will allow property and mortgage markets to stabilise and recover, following an unusually rapid sequence of rate rises over the preceding 12 months.

“National property market indicators suggest prices and transaction volumes have been recovering from their recent trough, since around March,” she said.

“This extended pause in monetary policy tightening will help to inject a greater degree of confidence and stability into housing markets, for sellers, buyers and builders.”

Ms Toth said the current credit pricing and conditions are prompting greater numbers of loan-holders to seek better financing options within Australia’s competitive mortgage market.

According to PEXA data, refinancing activity has risen strongly since April 2023, with the index hitting a new record high by the end of July.

“While our data shows national refinancing volumes hit new highs this quarter, our latest property insight also confirms that monthly property settlement numbers — and in many locations, property sale prices — have been recovering from their recent slump, from around March 2023 onwards,” Ms Toth said.

Ms Toth said there is a possibility of another rate rise later this year as RBA prioritises to bring the local inflation to its target.

“The probability that we are now at or near the peak in this tightening cycle is growing because the rate rises to date have already been enough to help bring headline inflation down to 6% year-on-year in the June quarter, and to just 3.5% year-on-year on an annualised basis — this is already within sight of the RBA’s upper target range of 3%.”

“If this path is maintained, then the more damaging impacts on households from high inflation and rising interest rates will begin to dissipate.”

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Important Information and Comparison Rate Warning

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