Finder’s RBA survey: Experts predict property prices to cool as rate rise looms

Posted: 5 April 2022 5:54 pm
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Soaring property prices are finally set to ease, with little price growth expected in 2022, according to experts.

In this month's Finder RBA Cash Rate Survey™, 34 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

While almost all panellists (97%, 33/34) correctly predicted a cash rate hold in April, the majority (88%) are expecting at least one rate rise this year.

Interestingly, a quarter of experts who weighed in* (24%, 5/21) believe the Australian economy has already fully recovered from COVID-19.

However, half of the respondents (52%, 11/21) say that the economy won't fully recover until 2023 or later.

Graham Cooke, head of consumer research at Finder, said there was no solid agreement on what an economic recovery looks like in Australia among the panel.

"The property market is cooling, but more quickly than some economists expected.

"The reality is that, despite green shoots emerging, it will be a long and bumpy road back to pre-COVID levels of economic certainty," Cooke said.

Predicted house and apartment values at the end of 2022

Brisbane is forecast to have the biggest gains in terms of house price growth, according to experts.

In Melbourne, respondents are predicting house prices to remain the same, but apartment values are expected to drop by 1%.

All other major cities (except Canberra) are expected to remain stagnant on apartment price growth.

Graham Cooke said expert forecasts for property prices were getting more and more grim for homeowners.

"Our panel was predicting 10% or higher growth towards the end of last year on average and now they are forecasting 2%.

"Even if prices don't increase significantly, rate rises from lenders will make home loans more expensive.

"Several lenders have increased their fixed loans from 2.24% to 2.99%. This will cost a homeowner on these loans $3,175 extra this year – and that's before any official cash rate rise," Cooke said.

Houses

CityMedian house price over the last 3 monthsPredicted price percentage increasePredicted price increasePredicted price by the end of 2022
Brisbane$740,0003%$22,200$762,200
Canberra$1,020,0002%$17,850$1,037,850
Adelaide$620,0002%$15,218$635,218
Darwin$575,0002%$11,500$586,500
Hobart$759,1001%$9,661$768,761
Sydney$1,375,0001%$8,594$1,383,594
Perth$545,0001%$7,432$552,432
Melbourne$975,0000%$0$975,000
Source: CoreLogic, Finder's RBA Cash Rate Survey 2022

Apartments

CityMedian apartment price over the last 3 monthsPredicted price percentage increasePredicted price increasePredicted price by the end of 2022
Canberra$589,5001%$5,895$595,395
Hobart$556,0000%$1,516$557,516
Sydney$790,0000%$1,481$791,481
Darwin$390,0000%$1,064$391,064
Perth$410,0000%$0$410,000
Adelaide$388,0000%$0$388,000
Brisbane$445,0000%$0$445,000
Melbourne$655,000-1%-$4,913$650,088
Source: CoreLogic, Finder's RBA Cash Rate Survey 2022

Superannuation as security for a home loan

The majority of experts aren't convinced that first home buyers should be able to access their superannuation as security for a home loan – only 2 in 5 (39%, 9/23) agree this should be allowed.

Mark Crosby of Monash University said allowing Aussies to use their super for housing would only increase prices.

"Housing affordability has to tackle supply," Crosby said.

Dr Angela Jackson of Impact Economics and Policy said the measure undermines our retirement income system.

"It only adds to demand for housing without addressing structural issues caused by tax concessions and poor planning," Dr Jackson said.

However, Nicholas Gruen of Lateral Economics is one expert who agrees with the scheme.

"It's unconscionable to force [homebuyers] to save, donate a management fee to the finance industry and then have a giant super lobby prevent them from getting access to their own money.

"It's also microeconomically extremely inefficient.

"At a time when people are being forced to save early in their lives (when their spending needs are greatest) they should at least be able to invest their savings in the asset they need next in their lives – a home," Gruen said.

Leanne Pilkington of Laing+Simmons concurs.

"Owning property is an important wealth creation strategy and we should be helping first home buyers as much as we can," Pilkington said.

Only one-third of experts (32%, 6/19) say the scheme could happen within the next 12 months, following the parliamentary inquiry into housing affordability.

*Experts are not required to answer every question in the survey

Here's what our experts had to say:

Stephen Koukoulas, Market Economics (predicted a rate rise): "[The decision will be driven by] high inflation and a need to [move] policy towards neutral."

Nicholas Frappell, ABC Bullion (HOLD): "The CPI figures are likely to be at a level and sustainable so, that prompts a tightening response from the RBA."

Shane Oliver, AMP (HOLD): "The RBA's objective of full employment has been reached, wages growth is picking up and inflation is pushing well above target with a rising risk that inflation expectations will start to rise in which case it will become self-feeding, and the Budget will add in more stimulus this year. So the conditions for a rate hike will be in place by June."

Annette Beacher, ausbiz (HOLD): "There is a big difference between what the RBA should do and what it will do. They 'should' move sooner rather than later while price pressures are hot, but they are likely to counsel patience for a while."

David Robertson, Bendigo Bank (HOLD): "The RBA are set to increase the cash rate by August, and potentially as soon as June if CPI data released next month exceeds their forecasts. The tightening cycle should pause next year at around 1.5% (lower than market expectations) and falling unemployment will help to soften the blow from higher rates."

Sean Langcake, BIS Oxford Economics (HOLD): "The RBA will 'look-through' inflation caused by supply disruption – raising rates in response to higher oil prices would be counter-productive. They want to wait for stronger wage growth to emerge – although higher inflation expectations may trigger an earlier rate hike."

Peter Munckton, BoQ (HOLD): "The cash rate is inappropriate for the level of inflation and unemployment rate."

Ben Udy, Capital Economics (HOLD): "Inflation is surging and the labour market is approaching full employment. The RBA, therefore, needs to act. We expect the RBA to hike rates in June, following the federal election in May."

Saul Eslake, Corinna Economic Advisory (HOLD): "While I think there is a legitimate case for the RBA to start raising rates as early as the next meeting, I don't make that decision, the Board of the RBA does: and the Board of the RBA has made it quite clear that they're not satisfied that 'underlying' inflation is "sustainably" within their 2–3% target band; moreover the principal criterion that they've stipulated for becoming satisfied that 'underlying' inflation is "sustainably" within their target band, namely, wage inflation of at least 3%, is still some way from being met. So, I remain of the view that the first increase will come after the June quarter CPI – which means the August meeting. And if that means that the A$ weakens against the US dollar because the Fed may have raised its fund rate by another 50–75bp by then, I think the RBA will welcome that."

Craig Emerson, Emerson Economics (HOLD): "The RBA will hold off until there is evidence that real wages are rising sustainably."

Mark Brimble, Griffith University (HOLD): "While rate rise expectations have come forward, the RBA will be keen to continue to support the economy through the current Ukraine crisis and obtain a clearer picture of the degree to which inflation pressures are transitory in nature. There is also value in keeping the currency subdued with the strength of export markets at the moment."

Tim Nelson, Griffith University (HOLD): "Inflation pressures are building. RBA will seek to get ahead of further inflation given monetary policy lags etc."

Dr Angela Jackson, Impact Economics and Policy (HOLD): "There is an outside chance of an earlier move if CPI surprises on the upside in March Quarter release and if employment growth continues, but still likely they will wait until seeing June Quarter CPI and move in August."

Sarah Hunter, KPMG (HOLD): "The economy is now operating close to full employment and momentum remains positive, notwithstanding the downturn in confidence associated with the conflict in Ukraine; it's worth noting that the increase in commodity prices has actually increased national income (via export revenues), and it will give the Federal government space to help ease cost of living pressures in the upcoming budget."

Leanne Pilkington, Laing+Simmons (HOLD): "Increasingly, the discussion around an interest rate rise seems to consider it a case of when, not if. However there is also a case to be made for the RBA to persist with the status quo, given delicate cost of living factors and global uncertainty."

Nicholas Gruen, Lateral Economics (HOLD): "Because inflation will be picking up (esp given the Ukraine war) and the Bank will start feeling the need to test the waters of increased interest rates."

Mathew Tiller, LJ Hooker (HOLD): "Inflationary pressures have already seen other central banks raise interest rates and (given the latest data shows the same pressures are at play here) the RBA will follow suit later this year."

Geoffrey Kingston, Macquarie University (HOLD): "The RBA will be looking at the first available date after the election."

Jeffrey Sheen, Macquarie University (HOLD): "The inflation rate had been below target for 5 years until recently. The current raised inflation rate is more to do with supply rather than demand shocks. A higher cash rate now is not an obviously appropriate response."

Michael Yardney, Metropole Property Strategists (HOLD): "Even though there is external pressure on the Reserve Bank to raise interest rates, they are being patient and waiting for significant "real" income growth before they pull the trigger."

Mark Crosby, Monash University (HOLD): "Now likely to see strong evidence of inflation persistence in coming months warranting a rise by Q3 this year."

David Zammit, Mortgage Choice (HOLD): "The economic stimulus provided by the measures announced in the 2022 Federal Budget might bring forward the RBA's tightening cycle; however, I don't expect a change to the cash rate in April. Meanwhile, competition in the home loan market is heating up with some lenders offering generous cashback incentives to lure borrowers into switching their loans. While fixed rates continue to rise, variable rates remain an extremely attractive option."

Malcolm Wood, Ord Minnett (HOLD): "RBA waiting for 3%+ wages growth as a precondition for raising the cash rate."

Rich Harvey, Propertybuyer (HOLD): "Financial markets are pricing in a few rate rises this year, but the RBA won't pull the trigger till they see consistent wages growth. Increasing overseas migration may temper wage rises depending on the volume of skilled workers gaining entry."

Matthew Peter, QIC (HOLD): "Despite central banks tightening policy elsewhere, Australia is not under the same extreme inflation pressure as the US, UK and Europe. The RBA will wait until September to raise rates, at which point they will have June quarter wage data that will confirm the need for tighter monetary policy."

Noel Whittaker, QUT (HOLD): "This is such a tough question. I can't see how they can raise rates when the price of petrol and food and rents are going through the roof. It would produce unnecessary pain. But I guess they will take the lead from the USA and raise it at some stage. It's a quandary."

Jason Azzopardi, Resimac (HOLD): "I agree with RBA view underlying inflation is inflated temporarily and they will await a consistent period of inflation within target band before moving."

Sveta Angelopoulos, RMIT (HOLD): "Assuming pressure on prices continues as a consequence of external factors and federal budget impact."

Christine Williams, Smarter Property Investing (HOLD): "Unemployment has stagnated, cost of living has risen."

Jonathan Chancellor, The Daily Telegraph (HOLD): "The Reserve Bank won't move until they conclude the economic factors warrant that decision."

Jakob B. Madsen, University of Western Australia (HOLD): "The supply shocks have pushed inflation up. However, I believe that the core inflation will start increasing as the inflation builds into expectations and wage aspirations given the overheated labour market within certain sectors. This will bring the core inflation beyond the 2–3% RBA inflation target and spur an interest rate increase."

Dale Gillham, Wealth Within (HOLD): "This month the Australian dollar is moving up against other major currencies should this continue it will reduce the costs of imports, especially oil which has been a large factor driving up CPI. It is also likely that oil prices may have also peaked and should start to fall, this will relieve some of the pressure to raise interest rates."

Brodie Haupt, WLTH (HOLD): "With continued uncertainty and rising pressure from inflation, I think it is likely there will be a change to the cash rate this year at some point. Monetary policy typically lags in taking effect on the economy."

Other participants: Alan Oster, NAB (HOLD).

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