Economists split over chance of August rate rise as Australian property price rebound slows

The Reserve Bank's decision on interest rates in August is highly uncertain, as analysts have different opinions on whether there will be another increase. This disagreement arises from recent indications that the resurgence of property prices is starting to lose momentum.

The decision of the central bank's committee will be released at 2.30pm AEST on Tuesday. A group of fifteen experts anticipated that the interest rate would be elevated by an additional 25 basis points to 4.35%, marking the thirteenth increment since last May. However, eleven analysts forecasted that the Reserve Bank of Australia (RBA) would prolong the pause observed in July for another month, as per a survey conducted by Bloomberg.

The financial markets have disregarded the possibility of a near-term increase in interest rates. According to ASX, investors have assigned a 14% probability of another hike occurring this month.

George Tharenou, the top economist at UBS, who accurately predicted the last twelve rate hikes by the Reserve Bank of Australia, is one of many experts foreseeing yet another increase this month. Another individual sharing a similar viewpoint is Jarek Kowcza, a reputable senior economist at St George.

"However, we acknowledge that it will be another tricky decision, with an equal chance of going either way," Kowcza stated. "In the end, the board's understanding of the risks at hand will be the deciding factor in which direction things go."

These perils fluctuate from the possibility of prolonged high inflation or the RBA excessively implementing strict monetary measures, which could push the economy into a distressing recession.

ANZ and NAB, both headquartered in Melbourne, anticipate that the Reserve Bank of Australia (RBA) will keep the interest rates unchanged. In contrast, CBA and Westpac, located in Sydney, predict that there will be an increase in interest rates.

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The inflation data released last week, pertaining to the second quarter of June, revealed a reduction in price burdens. However, this decline was not observed in the service industry. Furthermore, the unemployment rate for June experienced a dip to 3.5%, marking its lowest point in nearly fifty years.

Indications of a struggling economy can be seen in an unexpected decline in sales activity within the retail industry this month. This decline suggests that previous increases in interest rates have been negatively impacting consumer spending.

New information released on Monday showed that the past increases in interest rates were having a negative impact on the progress of the property market's recovery. RateCity, a company that provides data, stated that if the interest rate were to be raised by another 25 basis points, it would result in an extra $15 to be paid every month towards the mortgage for every $100,000 borrowed.

According to data from the Reserve Bank of Australia (RBA), there was a decline in borrowing by investors for housing in June, marking the first time this measure has retreated on a monthly basis in three years, as reported by CBA.

According to Stephen Wu, an economist at CBA, there was no growth in credit for owner-occupied housing in June. Wu mentioned that the annual growth rate is currently at 5.3%, which is significantly lower than the high rate of 9.3% observed earlier in 2022.

According to Wu, as certain households grappled with the burden of paying off mortgages, there were also those who were intensifying their efforts to settle their debts. These payments have now reached levels that are nearly on par with the highest recorded during the pandemic.

In the meantime, the repayments for housing debt surged significantly in June, almost reaching unprecedented levels. According to CBA, this increase is believed to be a direct result of the rise in interest rates. pic.twitter.com/2KkTVC4Acr

According to CoreLogic, a different data company, the housing market continued to improve in July, marking the fifth month in a row of recovery. The index measuring home values increased by 0.7%. Since February, the index has risen by 4.1%, reclaiming nearly half of the 9.1% drop it experienced from its highest point in April 2022.

However, the recovery has slowed down slightly, dropping from a growth rate of 1.2% in May due to an increase in the number of sellers listing their properties for sale.

According to Tim Lawless, the research director at CoreLogic, the rate at which Sydney housing values are increasing each month has decreased by half. In May, it was at a high of 1.8%, but now it has dropped to 0.9% in July.

Lawless stated that Sydney has also experienced a notable increase in the quantity of new properties available for sale. This increase is 9.9% higher compared to the same period last year and 18% above the average of the previous five years. The influx of fresh listings has resulted in a greater selection for potential buyers, which in turn might alleviate some of the pressure and urgency they previously felt.

Brisbane and Adelaide defied the norm, as prices surged by 1.4% in both cities in the previous month. The worth of properties in the capital of South Australia, as well as in Perth, reached an all-time high.

According to CoreLogic, during the month of July, Canberra was the sole capital city that experienced a decrease in property values, with a decline of 0.1%. On the other hand, Hobart did not experience any change in property values. Melbourne, on the other hand, saw an increase of 0.3% in its property values for July, reducing the overall decline from the previous year to 4%.