RBA survey: Only 35% of experts think now is a good time to buy property
- Experts predict up to 8% drop in property values by end of September
- Positive sentiment for housing affordability falls from all-time high of 59% in June to 44% in July/li>
- All experts expect the cash rate to remain at 0.25% this month
6 July 2020, Sydney, Australia –Experts say now may not be the best time to buy property, according to Finder, Australia's most visited comparison site.
In this month's Finder RBA Cash Rate Survey™ – the largest of its kind in Australia – 43 experts and economists weighed in on future cash rate moves and other issues related to the state of the Australian economy.
While all experts surveyed expect a cash rate hold in July (43/43), just one third of respondents (15, 35%) said that now is a good time to buy property.
Another third (13, 30%) believe that buyers should sit tight and wait for the property market to settle, while the others were unsure (15, 35%).
Clearance rates – which measure the percentage of homes that sell at auction – have fallen in Sydney and Melbourne from 77% in February to 63% and 61% respectively.
Experts predict that clearance rates for both Sydney and Melbourne should sit at around 61% by the end of September.
Graham Cooke, insights manager at Finder, said the housing market is in a very unsettled position, with reduced stock levels and lower clearance rates.
"Increasingly, auctions are topping-out at final bids well below reserve.
"With more job uncertainty on the horizon, it's difficult to see any improvement in the near future," Cooke said.
Experts were asked to make predictions about house and unit property values in the eight capital cities.
Apartments are due to be harder hit than houses, with 7-8% price drops predicted by the end of September against just under 5% for houses.
Cooke said recent reports have indicated that 1 in 10 apartment buyers who purchased off the plan are choosing to default on their loans.
"This is the most shocking report I have seen since the onset of COVID-19. It is a huge decision to default, as it means losing your deposit.
"There are two main things that would put a buyer in this position: either they've lost their job and can no longer afford the loan, or the property has dropped in value so far that the banks are not willing to issue funds.
"Both are terrible positions to be in, and paint a truly dreary picture for our economic future as it's only likely to get worse from here," Cooke said.
A Finder consumer survey from June of more than 1,000 Australians found that consumers feel more bullish than experts.
More than half of (59%) believe now is a good time to buy property – a sentiment that hasn't been shared by so many Aussies since months before the pandemic hit.
Economic Sentiment Tracker
Finder's Economic Sentiment Tracker gauges experts' confidence in five key indicators: housing affordability, employment, wage growth, cost of living and household debt.
This month, positive sentiment about household debt improved slightly, while wage growth positivity stayed at 0% for the fourth consecutive month.
Positive sentiment for housing affordability dropped from an all-time high of 59% in June 2020 back to 44% this month.
Here's what our experts had to say:
Nicholas Frappell, ABC Bullion: "The RBA have indicated that they will keep the rates low for a long period. At the moment it's too early to have a view of when the rates will tighten again, although 'sometime' in 2022 would be reasonable..."
Shane Oliver, AMP Capital: "The RBA will remain on hold. There is little to no value in taking rates to zero or negative and given the recession, high unemployment, uncertainty about the recovery and inflation running way below target, it's way too early to think about raising rates. In fact, it's unlikely to be able to raise rates for the next three years at least."
Alison Booth, ANU: "Hard to pinpoint when there might be changes, since there's so much uncertainty and the RBA will be making decisions as necessary to keep borrowing costs low and credit available."
John Hewson, ANU: "[These are the] worst economic circumstances since Great Depression."
Malcolm Wood, Baillieu: "RBA on hold until back close to full employment and underlying inflation sustainably in the 2-3% YoY band."
Rebecca Cassells, Bankwest Curtin Economics Centre: "Any decision by the RBA to either increase or lower the cash rate is highly unlikely for some time and we can expect the cash rate to remain exactly where it is now for at least the next two years. The most likely direction the cash rate will head eventually is upwards, but we will need some fairly solid and consistent signs of recovery in the labour market before the RBA starts to consider this change. Towards the fourth quarter of 2021 we should be well on our way to more positive signals here, but much will depend on the level of government support and stimulus committed to jumpstart the economy and our ability to minimise and prevent COVID-19 outbreaks. Both are very uncertain right now."
David Robertson, Bendigo and Adelaide Bank: "The RBA have very clearly flagged that rates will be on hold at 1/4% (for both official cash and the 3-year bond) until well into 2022. The next move beyond there should be up when inflation finally rises and labour markets tighten."
Sarah Hunter, BIS Oxford Economics: "The RBA have made it clear that, for now at least, they don't see negative rates as being necessary or effective. So I think the next move will be up, but it will be quite some time into the future – beyond the end of the forecast horizon in the survey (Q4 2022)."
Ben Udy, Capital Economics: "We suspect the RBA will come around to our view that inflation will be below the Bank's target for years and therefore launch more stimulus. We expect the RBA to eventually expand quantitative easing with a quantity bond target aimed at the longer-dated end of the yield curve."
Peter Boehm, CLSA Premium: "Now is not the time to move interest rates – there's too much economic uncertainty, and clarity around the federal government's existing and future planned response to COVID-19 is needed before further rate movements should be contemplated."
Saul Eslake, Corinna Economic Advisory Pty Ltd: "Could be that the RBA keeps rates on hold until after Q4 2022."
Craig Emerson, Craig Emerson Economics: "The RBA Governor has publicly stated that the cash rate will remain where it is for a long time."
Trent Wiltshire, Domain: "The RBA won't be increasing the cash rate until the unemployment rate is near 5 per cent, which is unfortunately at least a couple of years away."
John Rolfe, Elders Home Loans: "I do not believe the RBA will entertain a zero or negative cash rate. The banking industry is not in need of lower rates and even if provided, there will not be any rate reduction passed on to the customer. There are still QE opportunities to stimulate the market if needed."
Angela Jackson, Equity Economics: "There is significant uncertainty around the timing of a vaccine for COVID-19 which impacts the point at which the Australian and global economy will start to recover."
Mark Brimble, Griffith: "The economy will need monetary policy support for a long time to come."
Tony Makin, Griffith University: "If the virus is satisfactorily contained, and assuming no second wave, the economy should be recovering by the December quarter. In the context of a domestic and global recovery, the high money growth stemming from public debt monetisation should put upward pressure on the price level, necessitating a monetary policy response. Additionally, the huge issues of government bonds to fund large pandemic- related budget deficits that have not been monetised by central banks here and worldwide would normally put upward pressure on longer term world interest rates."
Stephen Miller, GSFM: "The headwinds to growth are strong and I do not think that inflation will be comfortably within the current 2-3% target range until the end of 2022. I do not think the RBA will lower rates. If they wish to ease further they will employ some other mechanism."
Alex Joiner, IFM Investors: "The RBA is going to have its current policy settings in place for an extended period of time as it needs to support the economy while the labour market repairs. It is difficult to envisage a rise in the cash rate before the end of 2022 in my view as not only do unconventional policies need to be unwound first, it is abundantly clear the RBA won't want to be ahead of other central banks in removing their huge stimulus programs and therefore putting undue upward pressure on the AUD."
Leanne Pilkington, Laing+Simmons: "We have years of low interest rates ahead of us and the banks themselves have sharpened their pencils in recent times, cutting their rates on various products to remain competitive. The pandemic continues to cast a shadow over the economy and the outlook is meagre, but for those whose income remains secure, a real estate purchase is comparatively affordable at present."
Nicholas Gruen, Lateral Economics: "It will be a long road back, especially as the government appears to be keen to reduce the extent of the stimulus."
Mathew Tiller, LJ Hooker: "It's unlikely that the RBA will drop rates further and is expected to continue to support the economy via other stimulatory measures until the full impact of the COVID crisis passes."
Geoffrey Harold Kingston, Macquarie University: "Current monetary and fiscal policies, along with abatement of the virus, will see a gradual emergence of inflationary pressures."
Jeffrey Sheen, Macquarie University: "Consistent with signalling from RBA."
Stephen Koukoulas, Market Economics: "The post COVID-19 recovery will be in place and inflation will edge up toward the RBA's target."
John Caelli, ME Bank: "The RBA have indicated they will keep rates where they are for a long time."
Michael Yardney, Metropole Properties: "The RBA have indicated it will not raise interest rates until unemployment levels fall to around 4.5%. This is many years away."
Mark Crosby, Monash University: "I don't think that further moves in the cash rate would be effective, and given uncertainty around COVID, the timing of future moves is highly uncertain, but doubtful rates will move before 2022."
Julia Newbould, Money: "I think that the government will need to see what happens when the stimulus payments end and the economy finds its new position."
Susan Mitchell, Mortgage Choice: "I expect the cash rate to remain unchanged at the Reserve Bank's next monetary policy meeting until progress is made towards the RBA's goal of full employment and the inflation target. The historic low cash rate continues to support an extremely low cost of borrowing and we are seeing a surge in the number of borrowers choosing to refinance and lock in a fixed interest rate."
Dr Andrew Wilson, My Housing Market: "Monetary policy will continue to be sidelined over the foreseeable future with no logical purpose served by a further cut to 0% and the prospect of a rise fanciful given economic conditions set to worsen."
Jonathan Chancellor, Property Observer: "Despite their signalling that rates will not be lowered, I think circumstances will warrant the decision to take rates to zero."
Rich Harvey, Propertybuyer: "Far too much volatility and uncertainty to see any movements in interest rates at the moment."
Noel Whittaker, QUT: "This is so difficult – there are so many uncertainties. But, of course, if a vaccine is found the economy may boom."
Cameron Kusher, REA Group: "As much as the RBA is insistent that the current cash rate of 0.25% is their floor, depending on the recovery from COVID-19 it may necessitate taking rates lower. Remember that just last year they were saying they didn't believe in QE's effectiveness. Even if they don't cut interest rates further, a hike in interest rates seems likely to be a long way off."
Jason Azzopardi, Resimac: "Clear guidance given by RBA the current monetary policy will remain."
Christine Williams, Smarter Property Investing Pty Ltd: "Unstable economy at the moment."
Janu Chan, St.George Bank: "RBA will keep its accommodative stance for some time while unemployment remains high. Indeed, the risk is towards additional monetary stimulus measures but the RBA will look to other measures. The cash rate is as low as it can go."
Besa Deda, St.George Bank: "The RBA has provided forward guidance about its use of unconventional policies in several speeches since March. During questions following one of these speeches, Governor Philip Lowe has indicated that the cash rate will not be lifted before the 3-year bond yield target has been lifted. In addition, he said that the bond yield target will not be removed until progress was being made towards the RBA's inflation and unemployment targets. This is estimated to be at least 3 years away."
Brian Parker, Sunsuper: "A rate hike is beyond the survey's time horizon."
Mala Raghavan, University of Tasmania: "It is difficult to predict now due to the high uncertainty surrounding the COVID-19 crisis and the subsequent economic crisis. The focus of the policymakers at this stage should be stimulating the economy, but there is not much room in the monetary policy space for that. At this stage, the government's fiscal stimulus is much needed to spur the economy."
Other participants: Duncan Macfarlane, Firstmac. John Smith, Economist.
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