Rate peak to buoy confidence and possibly home prices

Another month on hold and growing expectations the next interest rate move will be down could add to already robust housing demand and keep pressure on home prices.

Following the Reserve Bank’s widely expected decision to leave interest rates unchanged at 4.35 per cent, CoreLogic research director Tim Lawless said the call could help lift confidence and influence dynamics in the property market.

Teamed with lower inflation and a growing expectation that interest rates will fall later in the year, Mr Lawless said the hold decision should help buoy confidence.

‚ÄúHistorically we have seen a close relationship between consumer sentiment and the volume of home sales,‚ÄĚ he said.

Consumer confidence levels as captured in surveys have already been lifting off their lows, and the property market analyst said this could be accompanied by a rise in home purchasing.

‚ÄúThis could add to housing demand that has already remained quite resilient despite the higher interest rate environment and cost of living pressures,‚ÄĚ he said.

The real estate data company’s home value index gathered momentum in February, lifting 0.6 per cent after a 0.4 per cent increase in January.

‚ÄúNationally, we have seen a reacceleration in the pace of value growth through the first two months of the year, which could reflect renewed optimism amid a peak in the rate hiking cycle and progress towards the inflation target,‚ÄĚ Mr Lawless said.

Home prices have generally been moving higher due to an imbalance between supply and demand, with new supply to remain limited as home building stays sluggish.

The board came to its decision to keep interest rates on hold on Tuesday after taking stock of the economy over a two-day meeting.

With significant progress logged on inflation, economists broadly agree the next rate move will be down but the timing remains in question.

Economists highlighted the evolution in language to ‚Äúnot ruling anything in or out‚ÄĚ on the next interest rate move, a shift from a direct reference to the possibility of more tightening.

RBA governor Michele Bullock acknowledged the change and said it was in ‚Äúresponse to some data which has demonstrated to us we are still broadly on the path we thought we were on‚ÄĚ.

 

Poppy Johnston
(Australian Associated Press)

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