Finder’s RBA survey: 73% of experts say rental prices will increase significantly
In another blow for Australian renters, rental prices are set to increase dramatically as the nation's borders reopen, according to experts.
In this month's Finder RBA Cash Rate Survey™, 37 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.
While all panellists expect a cash rate hold in December, the majority (73%, 22/30) who weighed in* expect rental prices to increase significantly as Australia opens its international borders.
Graham Cooke, head of consumer research at Finder, said renters should start preparing for higher housing costs.
"The pandemic turned the rental market on its head in some areas, with vacancy rates increasing in major capital cities like Sydney and Melbourne.
"As international students and backpackers return to our shores, we're going to see demand quickly flow back," Cooke said.
Experts split on rate rise next year
While there is no expectation that the cash rate will increase before the year ends, almost half (46%, 17/37) of all experts expect a rate increase in 2022.
Cooke said there had been a seismic shift in expectations for a rise in 2022.
"Only a few months ago, there was little expectation of any movement until 2023. Now half of the experts are predicting a rise next year."
Nicholas Frappell of ABC Bullion said despite multiple risks through 2022, he was still leaning towards an earlier-than-expected tightening.
David Robertson of Bendigo Bank said with economic recovery underway, together with rising inflation, we'll see pressure on the RBA to increase official interest rates by next December.
"Although there is uncertainty around the new Omicron variant – assuming vaccines and boosters are effective for Omicron, the recovery should continue and higher rates should be expected through financial year 22/23."
More than two-thirds of experts (71%, 22/31) expect to see lenders raise their interest rates out of cycle before the RBA increases the cash rate.
"Those who think their rate will stay low just because the cash rate is holding would be wise to be prepared for an out-of-cycle hike," Cooke said.
Housing market unlikely to deflate in 2022, but employment and wage growth look strong
Finder's Economic Sentiment Tracker gauges experts' confidence in 5 key indicators: housing affordability, employment, wage growth, cost of living and household debt over the next 6 months.
Both housing affordability and cost of living have seen month-on-month declines.
Cooke said while there had been some forecasts of price drops in 2022, Finder's panel was largely in disagreement.
"Over 80% of experts think it is unlikely that property prices will fall by 5% or more next year, as has been suggested in some quarters. Expect a robust but unspectacular 2022.
"Not only will property values continue to rise, albeit perhaps more slowly, rental prices are also set to jump significantly."
Additionally, positive economic sentiment towards employment is now the highest it's been over the last 12 months, sitting at 77%.
Cooke said that a surge in positivity around employment and wage growth over the last few months shows confidence in the jobs market.
"This shows experts are confident that lockdowns are behind us and the jobs market could be set to heat up.
"Opening of international borders will be a big factor here," Cooke said.
*Experts are not required to answer every question in the survey
Here's what our experts had to say:
Annette Beacher, ausbiztv: "While uncertainty reigns for now, the RBA has one eye on local data and the other on the US Federal Reserve. Taking the cash rate off 'emergency levels' in the absence of an emergency is a no-brainer, it's just down to timing. November 2022 is my pick [for a rate increase]."
Nicholas Frappell, ABC Bullion: "I still lean towards an earlier-than-expected tightening despite multiple risks through 2022."
Shane Oliver, AMP Capital: "The combination of slightly-higher-than-expected inflation than the RBA is anticipating, a decline in unemployment to around 4% over the next 12 months and a faster-than-expected pick-up in wages growth taking it to near 3% are expected to see the RBA start raising interest in November next year."
David Robertson, Bendigo Bank: "The economic recovery underway (together with rising inflation) will see pressure on the RBA to increase official interest rates by next December, although there is uncertainty around the new Omicron variant. Assuming vaccines and boosters are effective for Omicron, the recovery should continue and higher rates should be expected through financial year 22/23."
Sean Langcake, BIS Oxford Economics: "The RBA clearly thinks markets have jumped the gun on their expectations for higher rates. Headline inflation will ease, but housing construction costs present upside risk to the RBA's dovish profile."
Peter Boehm, CLSA Premium: "The market is signalling interest rates will rise sooner than the RBA's official position, and with central banks in other countries starting to lift rates, the RBA may be forced to move sooner than anticipated. The key will be the period over which the RBA increases rates to their neutral position of between 2.5% and 3.0%, and by what increments. Even a 0.25% increase could have negative impacts on the economy. The RBA will want to ensure any rate increases don't lead to material asset price deflation and/or recessionary impacts."
Stephen Halmarick, Commonwealth Bank: "Underlying inflation to be at mid-point of target range by mid-2022."
Saul Eslake, Corinna Economic Advisory: "I think the RBA's right that the data and forecasts don't 'warrant' an increase in the cash rate in 2022 – but I think one will be 'warranted' by Q2 2023. The RBA won't be influenced by other central banks including the Fed moving sooner; indeed, they'd likely welcome the further fall in the A$ which would result from that."
Craig Emerson, Emerson Economics: "The RBA will wait until underlying inflation is above 3% and wages growth is sustainably strong before acting."
Angela Jackson, Equity Economics: "There is significant uncertainty around the outlook, especially for inflation, and whether the RBA will need to move to tighten monetary policy earlier than currently indicated."
Tim Nelson, Griffith University: "Inflationary pressures are starting to build and supply chains are constrained."
Tom Devitt, Housing Industry Association: "Current supply chain issues are still expected to be temporary and not feed into ongoing inflation, which means it will still take a while for the tightening labour market to generate sustained stronger wage growth and inflation."
Alex Joiner, IFM Investors: "The RBA is wanting to see improvements in the labour market lift wages growth and drive inflation. I expect it will want to gauge the state of the economy through 2022 as tailwinds fade and borders reopen before concluding it is on a sustainable path to achieving this objective."
Michael Witts, ING Bank: "Difficult to be precise given the latest developments relating to COVID. Time is required to get some clarity on Omicron. While inflation may be an emerging issue time is on the side of central banks."
Leanne Pilkington, Laing+Simmons: "Interest rate noise is getting louder but the Reserve Bank has been clear in its communication that rates won't go up unless economic and inflationary pressures take an unexpected turn. The consistency of this position is appropriate."
Nicholas Gruen, Lateral Economics: "The Bank will become wary about inflation faster than it's still saying it will. I hope I'm wrong, and I may well be, as they do seem to have changed their thinking, but until I see the leopard change its spots, I won't revise my expectation that they will not."
Mathew Tiller, LJ Hooker: "Despite increasing inflationary pressures and ongoing property price growth, the RBA will continue to hold rates steady over the short term. The RBA is expected to raise rates once it is comfortable the Australian economy is back on a strong footing and the Omicron variant of COVID-19 doesn't present a risk to growth."
Geoffrey Harold Kingston, Macquarie University: "The RBA will probably lag the Fed in raising rates, by several months. The Fed will probably raise rates late next year."
Jeffrey Sheen, Macquarie University: "Despite significant uncertainty about the persistence of inflationary pressures, I expect that normalisation of the cash rate will only begin to occur in 2023 at the earliest."
Michael Yardney, Metropole Property Strategists: "The RBA won't increase rates until inflation is well entrenched and wages have risen and will keep growing. At present one-off factors are driving up inflation."
Mark Crosby, Monash University: "The RBA will respond to entrenched inflation by the second half of next year."
Julia Newbould, Money magazine: "I think with the property market still overheated there will be attempts at cooling it earlier than thought."
Susan Mitchell, Mortgage Choice: "In its final meeting of 2021, I don't expect the Reserve Bank board to make any changes to the official cash rate. Despite this, we have seen a lot of recent movement to home loan interest rates. Interest rates remain low by historical standards but I think we can expect to see further changes in the New Year, especially with fixed interest rates."
Andrew Wilson, My Housing Market: "Inflation and wages highly unlikely to meet the sustained RBA target ranges prior to 2024 as reiterated by the Bank in most recent meeting."
Alan Oster, NAB: "It will take time for wages to reach the level to sustain core inflation around 2.5% or higher."
Malcolm Wood, Ord Minnett: "Condition for a rate rise of wages > 3% and underlying inflation sustainably in target band not met until the first half of 2023."
Rich Harvey, Propertybuyer: "Likely to see a rate rise in Q4 of 2022 due to inflationary pressure and positive economic recovery."
Noel Whittaker, QUT: "I think the timing of any rate rise is anybody's guess. But I think it will be sooner rather than later."
Cameron Kusher, REA Group: "I believe much of the inflation, in Australia at least, is transitory and will settle down as supply chains reopen next year. The RBA still has a lot of work to do to sustainably achieve their inflation and employment targets and that will take time."
Jason AZZOPARDI, Resimac: "Long-term inflationary settings will not warrant until late next year."
Jakob B. Madsen, University of Western Australia: "The RBA has previously indicated a firm commitment to fixed-rate in the foreseeable future. Now they indicate that they may increase the rate in 2022."
Jonathan Chancellor, Urban.com.au: "The central bank often goes a little too late, and for all its monitoring, will likely leave any rate change until 2023 given the numbers are bouncing around."
Dale Gillham, Wealth Within: "The RBA has come out and said that whilst inflation is up they believe it is only temporary. The current shortages and supply chain issues are putting pressure on inflation not strong economic growth, and so I would think raising interest rates would not be on the agenda for a while."
Brodie Haupt, WLTH: "With continued uncertainty and rising pressure on the economy, I don't think there will be a change to the cash rate until 2023. I feel it will take some time to meet the sustained 2-3% target range."
Other participants: Mark Brimble, Griffith University. Christine Williams, Smarter Property Investing. Bill Evans, Westpac.