Finder’s RBA Cash Rate Survey: Positivity around employment at record high, housing affordability nosedives

Posted: 3 February 2021 8:56 am
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Property prices will go up, housing affordability will go down, and it's a great time to be looking for a job, according to experts.

In this month's Finder RBA Cash Rate Survey™ – the largest of its kind in Australia – 41 experts and economists weighed in on future cash rate moves and other issues related to the state of the Australian economy.

While all experts and economists that were surveyed correctly predicted the cash rate to hold at 0.10% (41/41), nearly 3 in 4 (73%) expressed positive sentiment about employment – a record mark since Finder first started collecting monthly data on the topic in March 2018.

Finder's Economic Sentiment Tracker gauges experts' confidence in five key indicators: housing affordability, employment, wage growth, cost of living and household debt.

Positive sentiment around employment plummeted to 0% in April when the lockdowns first began, but the nation's stronger-than-expected economic recovery has resulted in a rosier outlook for the job market.

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Graham Cooke, Head of Consumer Research at Finder, said the swing in positivity around employment is significant.

"There was a lot of fear during the first three quarters of 2020 that certain sectors within the jobs market would not survive without government support.

"It now looks like experts are fairly confident that the market is robust enough to ride out COVID-19.

"Affordable housing, however, may be quickly evaporating, with house prices on track to increase this year in every capital city," he said.

Record house prices have led to a 12-month low in sentiment about housing affordability.

Only 10% of experts are optimistic, down from a high of 62% in September 2020.

"A combination of record low interest rates, reduced supply, government stimulus and bolstered savings has pushed sale prices north and climbing.

"Potential buyers who have been sitting on the fence should act sooner rather than later based on these results," Cooke said.

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Only 36% of experts support spending vouchers to boost the economy

Just over one-third (10, 36%) of experts agree that economic stimulus measures like the government's spending vouchers are required to boost the economy.

Angela Jackson of Equity Economics said vouchers would be helpful to counter a shock to consumer confidence, but that is not the current issue.

"If the recovery needs more fuel post-March stimulus withdrawal, direct support for jobs through government spending such as increased funding for aged care or infrastructure," Jackson said.

Tony Makin of Griffith University agrees, saying that the recovery is much stronger than expected because the supply side is springing back.

"There is already too much fiscal 'stimulus', which is contributing to unsustainable budget deficits and public debt," Makin said.

On the other hand, Rich Harvey of Propertybuyer said that some sectors, including tourism, the arts and hospitality, will need much further assistance to withstand the remainder of the pandemic.

Mala Raghavan, economics professor at the University of Tasmania, emphasised the importance of shopping locally during this time.

"It is essential to support local businesses during these turbulent times, as it helps to bring some of the ideal workforce (youth) back into employment," Raghavan said.

Here's what our experts had to say:

Nicholas Frappell, ABC Bullion: "The RBA is likely to play out the yield curve control program until Q3-Q4 2021 before considering a change in the cash rate."

Shane Oliver, AMP Capital: "The economy has recovered faster than expected and the deployment of vaccines should aid further recovery so I have brought forward the timing of the first rate hike from 2023 to late 2022… but there will still be lots of spare capacity in the economy for a long time, which will keep underlying inflation down, so a rate hike is still a long way off."

Rebecca Cassells, BankWest Curtin Economics Centre: "The Australian economy has generally experienced a V-shaped recovery. There are more gains to make to achieve a full recovery and to progress beyond where the economy was in March 2020, but we are heading in the right direction. The RBA has committed to raising interest when the inflation target of 2-3% is achieved. We are unlikely to get there this year, but the heat in the property market may speed things up."

David Robertson, Bendigo and Adelaide Bank: "The RBA has been clear in its message that the official cash rate will remain at its current level for some years, although progress to full employment may occur more quickly than the market is currently pricing. An increase in rates in around two years is quite plausible."

Sean Langcake, BIS Oxford Economics: "It will be quite some time before the RBA's stated conditions for a rate increase are met."

Ben Udy, Capital Economics: "We expect the RBA to end its asset purchases in April as the labour market continues to recover faster than most expect."

Peter Boehm, CLSA Premium: "There is no reason for the RBA to move interest rates at this stage. In fact, current market sentiment indicates that the Cash Rate will remain at its current level for the foreseeable future. This observation is reflected somewhat in forward interest rates and, for example, the banks' medium-term fixed-rate mortgages, which are at some of the lowest levels this century. It is hard to envisage the Cash Rate moving during the remainder of 2021. The economy needs stability, certainty and growth stimulus, and tinkering with the Cash Rate is unlikely to achieve this."

Saul Eslake, Corinna Economic Advisory: "The RBA has repeatedly committed to not raising rates before November 2023, and I am still inclined to take it at its word, but the risk is increasing that it may have to recalibrate that and prepare for the possibility that it might need to contemplate raising rates before then."

Malcolm Wood, EL&C Baillieu: "It will take some time to reach full employment and then inflation moving sustainably into the target range."

Craig Emerson, Emerson Economics: "The RBA will maintain the current cash rate until inflation actually enters the 2-3% range and stays there for a while."

Angela Jackson, Equity Economics: "As indicated, the RBA is unlikely to drop rates further but will keep rates low as long as required. However, the timing of an increase is highly uncertain until we know when international borders will reopen and the path to recovery for the international economy."

Mark Brimble, Griffith University: "Significant uncertainty and strong economic headwinds remain. Thus the economy will need monetary policy support for some time yet."

Tim Nelson, Griffith University: "Fiscal stimulus is likely to continue to do the heavy lifting."

Tony Makin, Griffith University: "The RBA reacts to international monetary developments. Given the expected strong economic recovery in China and the US (and less so in Europe), two factors would normally put upward pressure on world interest rates within the next year or so. First, inflation pressures should begin to build, and second, increased government borrowing will be required to fund huge budget deficits."

John, Hewson: "The economy will be flatter longer than expected and the next change could be after Q4 2022."

Tom Devitt, Housing Industry Association: "Record stimulus to date plus expected new Federal Budget announcements in May 2021 will be having a sustained impact on inflation before 2023."

Alex Joiner, IFM Investors: "The RBA will have no justification to raise rates until the unemployment rate is at or below 4.5% in order to get wage growth. We know fiscal policy will become more contractionary when the unemployment rate is below 6%, leaving monetary policy to do the rest of the work to stimulate economic growth and drive the unemployment rate lower."

Leanne Pilkington, Laing+Simmons: "The low interest rate environment is a major factor contributing to house price growth across the board and this is an important element in the nation's overall economic recovery. The Reserve Bank is well aware of the impacts of a rate change on house prices and has suggested rates may stay steady for the next few years."

Nicholas Gruen, Lateral Economics: "It's pure guesswork at present when recovery will have taken hold."

Mathew Tiller, LJ Hooker: "RBA expected to hold the cash rate at its current level until inflation rises and employment strengthens."

Geoffrey Kingston, Macquarie University: "As suggested by rises in inflation, breakevens and asset prices, worldwide inflation is a couple of years off and will need to be dealt with."

Stephen Koukoulas, Market Economics: "A full recovery and rising inflation will see the RBA move to hike rates in late 2022."

John Caelli, ME Bank: "The RBA has stated that rates will be on hold for at least three years."

Michael Yardney, Metropole Property Strategists: "The RBA will be pleased that the initiatives it took last year are working, our economy is recovering and jobs are being created."

Julia Newbould, Money: "There are still so many unknowns, and what will happen when moratoriums are lifted on bank loans and JobKeeper ends will have a great impact on the economy and how the Reserve Bank proceeds with its next rate change."

Susan Mitchell, Mortgage Choice: "I expect the RBA to continue to hold the cash rate, with the next move at least three years away. Recent economic data has been positive, supporting a hold decision. The latest data from the ABS showed a recovery in the labour market. Despite a decline in January, consumer sentiment has also strengthened in recent months. The housing market has also had a strong start to the year, as the momentum we saw in the second half of last year continued into January."

Rich Harvey, Propertybuyer: "The RBA-stated rates are likely to stay on hold for the next three years while dealing with coronavirus fallout."

Matthew Peter, QIC: "Notwithstanding the strong March quarter inflation report, the RBA will stick to its policy of 0.1% cash rate and three-year bond yield until inflation is well entrenched within its target range of 2-3%."

Noel Whittaker, QUT: "It's anybody's guess, but I still think rates are in a downturn."

Jason Azzopardi, Resimac: "The RBA is providing market confidence of a long term low rate environment."

Christine Williams, Smarter Property Investing: "Globally, the cash rate will increase due to COVID-19 vaccines being distributed, therefore the markets will ease and settle into a positive position."

Mala Raghavan, University of Tasmania: "According to RBA Governor Philip Lowe, the board is not expecting to increase the cash rate for at least three years. He said that the RBA will consider increasing the cash rate only when the inflation is comfortably above 2%."

Jonathan Chancellor, Urban.com.au: "The RBA will be keeping a close watch on emerging inflationary influences in the economy, and especially house price growth, but is not likely to move the cash rate upwards anytime soon. And the central bank's past form would suggest they do so more likely a little too late."

Dale Gillham, Wealth Within: "There is still a lot of uncertainty around COVID-19, stimulus packages and measures, travel, and so many other areas likely to affect business confidence and growth. As such, individuals are preferring to save money rather than spend, which only makes any recovery slower than it need be."

Other participants: Michael Witts, ING Bank. Andrew Wilson, Jeffrey Sheen, Macquarie University. Mark Crosby, Monash University. My Housing Market. Clement A. Tisdell, University of Queensland. Bill Evans, Westpac.

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