Rates on hold, could rise sooner than expected
The Reserve Bank of Australia determined to keep the official cash rate at its current record low of 0.1 per cent at its November board meeting, but opened the door to rates rising in late 2023, earlier than its previous indications.
The RBA removed its yield guidance at its latest meeting, a signal that low rates were no longer guaranteed into 2024.
It comes as markets have begun pricing in the possibility of a rise as early as 2022, something RBA governor Phillip Lowe described as “extremely unlikely”.
Opinion is split between economists over whether a rate change will manifest in 2022 or 2023.
"The conditions for a rate hike - i.e. inflation sustainably in the 2-3 per cent target range which will likely require full employment and wages growth of 3 per cent or more - are still not met. But with recovery getting back on track they should be by 2023," AMP Capital chief economist Shane Oliver said.
"Inflation will be clearly above the RBAs target band through [the first half of] next year, and they will need to start raising rates in [the second half of next year],” Monash University Professor Mark Crosby said.
Major banks have been removing their sub-2 per cent fixed loan offerings in recent weeks.
Lending changes come into force
APRA’s tougher borrowing criteria came into force November 1.
The changes raise the buffer test lenders must use to assess a borrower’s future repayment capacity from 2.5 per cent to 3 per cent.
Despite reports that there had been a rush of new listings timed to ‘beat’ the changes, which were announced in October, Economist Saul Eslake predicted that the changes would have little impact on house prices.
“I doubt that this measure will have much impact on house prices,” Mr Eslake said.
The change is anticipated to shave 5 per cent off the maximum loan size a borrower can take out.
This would see first-home buyers most affected by the changes, as they tended to take out loans that were close to their approved maximum, though the RBA had predicted the changes would only affect a small number of first home buyers.
“Many investors will already have some existing debt, so the impact of the higher serviceability assessment rate may be larger [for them] – but of course investors’ interest payments are tax deductible whereas owner-occupiers’ are not, so that probably mitigates the impact on investors,” Mr Eslake said.
Finder home loan expert Sarah Megginson said it was important for buyers to remember that the changes only affected authorised deposit-taking institutions at this stage.
"The important thing for people to understand is that, for now, this applies to banks and not non-bank lenders," Ms Megginson said.
"A non-bank lender, they often do everything that a bank does, they can provide all different types of credit but they are not a bank. They are a financial institution, a credit union or a builder's society... They are governed by slightly different rules."
Woodards Doncaster director Stasi Adgemis said that on-the-ground reaction to the lending changes had been muted thus far.
“It’s not as big a deal as it's been made out to be [in the media] so far but I can definitely sense that people are starting to talk about it.”
More people were contemplating bringing transactions forward, but not just because of the lending changes.
“We haven’t seen a dramatic rise in people saying ‘let’s go list now,’ but people are saying ‘maybe the market in the next 12 months might not be as strong’,” he said.
Melbourne prices up 16 per cent
Melbourne dwelling prices were up 16 per cent in the year ending October 31, according to CoreLogic.
Prices rose 0.99 per cent over the month and 3.01 per cent over the quarter.
House prices rose higher than units over the year, though growth was equal (1 per cent) during October.
House prices rose 19 per cent in the 12 months, to sit at a current median of $972,659.
Unit prices rose by 9.2 per cent over the same period.
CoreLogic research director Tim Lawless said that the market was showing signs of slowing momentum.
“Housing prices continue to outpace wages by a ratio of about 12:1. This is one of the reasons why first home buyers are becoming a progressively smaller component of housing demand,” Mr Lawless said.
“New listings have surged by 47 per cent since the recent low in September and housing focused stimulus such as HomeBuilder and stamp duty concessions have now expired. Combining these factors with the subtle tightening of credit assessments set for November 1, and it’s highly likely the housing market will continue to gradually lose momentum.”
9 per cent growth predicted
Economists surveyed by comparison site Finder are predicting Melbourne house prices to grow by 9 per cent by the end of 2022, to sit at $954,800.
Apartment prices are expected to grow by 4 per cent, to sit at $663,997.
Mr Adgemis said that the opening of borders and the expected resumption of migration to Australia meant that a nine per cent rise in prices was well within scope.
“I think there's still enough room for growth,” he said.
“If you have a look at previous trends, over time it does show that once things like overseas travel and immigration start there's definitely people who want to come to Australia and come to Melbourne. I can see the population growing and house prices growing as a result of that,” he said.
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