Finder RBA Cash Rate Survey: Experts predict 12% rise in property prices by 2023

Posted: 1 March 2021 7:27 am
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Property prices will jump across Australia over the next two years, according to a Finder survey of property experts and economists.

In this month's Finder RBA Cash Rate Survey™, 40 experts and economists weighed in on future cash rate moves and other issues related to the state of the Australian economy.

The panel predicts that the average property price across the country will increase by 12% on average over the next 2 years.

Graham Cooke, Head of Consumer Research at Finder, said with Australia's property market on the rise, first-time buyers with a deposit saved would be well advised to pounce sooner than later.

"With more than $120,000 set to be added to the value of the average Sydney home over the next 2 years, the brief period of 'affordable' prices appears to be ending.

"ABS lists the median Aussie income at $49,805,* so homeowners in the Harbour City will be earning 22% more than the average income, just by living in their homes for 2 years," Cooke said.

House prices in each capital city

CityNovember 2020 median sales price last 3 monthsPredicted increase in pricePredicted price after 2 years
Sydney$1,010,000$121,200$1,131,200
Melbourne$780,000$93,600$873,600
Canberra$767,000$92,040$859,040
Brisbane$575,000$69,000$644,000
Hobart$565,000$67,800$632,800
Perth$526,250$63,150$589,400
Darwin$513,500$61,620$575,120
Adelaide$510,000$61,200$571,200

Source: Finder, CoreLogic

*Average of predictions from 28 economists

Leanne Pilkington of Laing+Simmons said the RBA has doubled down on its view that rates will remain low for some time to come.

"This stated unwillingness to tinker with rates will provide confidence to home buyers and continue to support rising property prices in the near term," Pilkington said.

Economists also forecasted that for a bubble to form in the market, property prices would have to increase by at least 23% on average, over the next 2 years.

Luckily, only 2 participants (7%) predict that property prices will increase by 20% or more by the end of 2022.

Cash rate expected to hold at 0.10%, majority expect stagnant rate in 2021

Experts and economists are united in their view that the RBA will hold the cash rate this month, with only one prediction for any movements at all in 2021.

Tony Makin of Griffith University, believes the rate will increase this year due to the economic effects of the COVID-19 vaccination rollout.

"Global economic activity will pick up as countries are vaccinated. Given the expansion in money supplies, other things equal this will put upward pressure on inflation. Otherwise, macroeconomics textbooks need to be rewritten.

"At the same time, record-breaking levels of public debt worldwide will continue to exert upward pressure on bond yields," Makin said.

Shane Oliver from AMP Capital said that while the economy has recovered faster than expected, the RBA is still a long way away from meeting its inflation and employment goals.

"A rate hike is still a long way away.

"That said, the faster than expected recovery will likely see the first hike occur earlier than the RBA's expectation of 'no increase before 2024'. It could come late next year or early 2023," Oliver said.

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 both housing affordability (3%) and cost of living (3%) reached the lowest level ever recorded since the Finder survey began in 2018.

Employment continued to be the highest indicator measured with 55% expressing positive sentiment, down from its record-high of 73% last month.

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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*https://www.abs.gov.au/statistics/labour/earnings-and-work-hours/personal-income-australia/latest-release

Here's what our experts had to say:

Nicholas Frappell, ABC Bullion: "2021 looks likely to see a reflation move that sees the end of RBA yield curve management and sets the stage for a review of the existing ultra-low rate environment."

Shane Oliver, AMP Capital: "While the economy has recovered faster than expected, the RBA is still a long way away from meeting its inflation and employment goals so a rate hike is still a long way away. That said the faster than expected recovery will likely see the first hike occur earlier than the RBA's expectation of no increase before 2024. It could come late next year or early 2023."

Rebecca Cassells, Bankwest Curtin Economics Centre: "There's an increasing prospect of interest rates being lifted earlier than the 2024 timeline that the RBA has offered up in recent statements. This could be as early as the second half of 2022 if the labour market continues to respond and prices continue to push upwards - particularly through the housing market. Whether this activity will be enough to reach the 2% inflation threshold will remain to be seen, but it's certainly more likely now than it was a month ago."

David Robertson, Bendigo Bank: "The official cash rate should start to rise by 2023. The welcome recovery for jobs is evidence that monetary policy has combined effectively with fiscal and health policies, so assuming the vaccine rollout goes smoothly, this recovery can build pace through 2021."

Sean Langcake, BIS Oxford Economics: "The RBA have been explicit that they don't expect to raise the cash rate until 2024. Their hand may be forced a little sooner than that, but the first rate hike is still a couple of years away."

Ben Udy, Capital Economics: "While we are upbeat about the economic outlook the RBA has announced it will extend its asset purchases when they end in April and we think they will extend again through to the end of 2021."

Peter Boehm, CLSA Premium: "The RBA has strongly indicated that interest rates will remain at their current levels for the foreseeable future and there has been no economic data to suggest otherwise. We'll need to see the impact of the end of JobKeeper in March, but if the economic recovery continues on its current recovery trajectory, it is highly likely we'll see interest rates begin to rise early next year."

Stephen Halmarick, Commonwealth Bank: "The RBA forward guidance is clear that the cash rate will not be increased until actual (not forecast) inflation is sustainable within the 2%-3% target range - which they put at 2024."

Saul Eslake, Corinna Economic Advisory: "Because they have said so explicitly ("2024 at the earliest") although I am surprised they haven't left themselves some "wriggle room" for the possibility that the unemployment rate falls to less than 5% before then."

Craig Emerson, Emerson Economics: "The RBA has indicated it won't change the cash rate until inflation is well into the 2-3% range and unemployment is low."

Mark Brimble, Griffith University: "Another 12 months plus of stimulus/monetary policy support is likely to be needed. All going well with the vaccine, global macros and confidence, the second half of next year may see the winding down of this."

Tony Makin, Griffith University: "Global economic activity will pick up as countries are vaccinated. Given the expansion in money supplies, other things equal this will put upward pressure on inflation. Otherwise, macroeconomics textbooks need to be rewritten. At the same time, record-breaking levels of public debt worldwide will continue to exert upward pressure on bond yields."

Alex Joiner, IFMinvestors: "The RBA has absolutely no justification based on the current economic environment to wind back any of its stimulus measures. I don't expect it will contemplate such moves until the unemployment rate is at or below 5%."

Michael Witts, ING: "The pace of the recovery appears to be quickening such that the preconditions set by the RBA for a rate increase may occur earlier than their 3-year horizon."

Leanne Pilkington, Laing+Simmons: "The economy appears to be recovering faster than expected but the RBA has doubled down on its view that rates will remain low for some time to come. This stated unwillingness to tinker with rates will provide confidence to home buyers and continue to support rising property prices in the near term."

Nicholas Gruen, Lateral Economics: "It will be a long time before we raise rates."

Mathew Tiller, LJ Hooker: "Recent statements by the RBA suggest that they will continue to hold rates at their current level until the economy strengthens."

Geoffrey Kingston, Macquarie University: "Inflation is likely to pick up sooner than the official family thinks."

Michael Yardney, Metropole Property Strategists: "The RBA will wait for unemployment to fall, wages to rise, and inflation to fall within its desired range before it raises rates"

Mark Crosby, Monash University: "The RBA has now clearly flagged no rate increases this year or next. Despite the debate over the expansion of QE the RBA is rightly resisting, given the limited impact of further QE and already existing distortions."

Julia Newbould, Money magazine: "The RBA has already indicated that it is unlikely to lift rates before the end of the year. "

Susan Mitchell, Mortgage Choice: "I expect the RBA to continue to hold the cash rate. Economic indicators reveal a strong bounce back in the domestic economy. The housing market is booming, fuelled by an extremely low-interest-rate environment and fiscal stimulus. Unemployment has recovered from its pandemic peak and consumers are confident. The rollout of the COVID-19 vaccine will bolster consumer confidence in the months ahead. All these factors would encourage RBA Board members to maintain the cash rate at its record low for the foreseeable future"

Dr Andrew Wilson, My Housing Market: "Although it is unlikely the RBA will increase rates until the jobless rate falls below 5%, it may be prudent to at least consider a tightening policy prior to achieving that rate to provide capacity for traditional monetary policy initiatives."

Rich Harvey, Propertybuyer: "The RBA have said that the rates are on HOLD for the next 3 years!"

Matthew Peter, QIC: "Although the labour market is improving and global commodity prices are lifting headline inflation, full employment remains a long way off. Until then, wage growth will remain tepid and underlying inflation will be weak. The RBA will keep rates at 0.1% until the unemployment rate gets to 5%, which is at least two years away."

Noel Whittaker, QUT: "I am sure they won't go up – and doubt they will take them down any more at this stage."

Cameron Kusher, REA Group: "Based on the RBAs guidance I see no reason why they would change direction and cut rates and [there is] no sign they will lift rates any time soon."

Jason Azzopardi, Resimac: "I believe a period of stable interest rates is required to provide confidence and stimulate growth."

Sveta Angelopoulos, RMIT: "It's unlikely that the economy will experience excessive inflationary pressures for some time given the existing conditions."

Brian Parker, Sunsuper: "Because it will take a considerable time for wage and price inflation to be high enough for the RBA to raise rates."

Jonathan Chancellor, Urban.com.au: "There will be bumps in the economic recovery that will prompt the central bank to keep rates on hold for the next two years as they watch for inflationary pressures."

Dale Gillham, Wealth Within: "Whilst the vaccine rollout is now underway, I think our economic recovery will be slow as many industries will not get back to full speed for quite some time."

Other participants: John Hewson, ANU. Angela Jackson, Equity Economics. Jeffrey Sheen, Macquarie University. Stephen Koukoulas, Market Economics. Alan Oster, NAB. Christine Williams, Smarter Property investing. Clement Tisdell, University of Queensland. Bill Evans, Westpac.

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