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Property industry braces for rate rises

Industry sentiment around residential housing has slipped, with looming cash rate rises expected to be the dominant weight dragging house prices.

ANZ and the Property Council of Australia have released their real estate industry survey for March, revealing sentiment around housing had been dragged by fears around interest hikes.

“The prospect of a significant lift in interest rates over the next two years is clearly starting to weigh on the outlook, with the price and construction outlooks both declining,” the report stated.

However, the level of confidence remained elevated compared to historic readings from ANZ and the Property Council.


ANZ senior economist Felicity Emmett told Property Council members that the survey had revealed the highest anticipation of rate increases since 2010, with 83 per cent of property industry firms agreeing it would happen over the next 12 months.

Despite the Reserve Bank of Australia suggesting a 2 per cent rise to the cash rate over the next two years would drag house prices by around 15 per cent, the sector is still optimistic.

“I think this survey suggests as well, that the property sector is going to be able to manage the rising interest rates that’s coming,” Ms Emmett said during a webinar on Thursday (14 April).

“Certainly when we look at households, they’re in very good shape to manage higher interest rates. And we know that the number of people ahead on their mortgages have doubled.

“Over the past couple of years, we know that households have built up around $280 billion extra of household deposits. I think owner-occupiers are paying off 2.5 per cent of their income over and above their regular repayments, which gives them a really large buffer to manage higher rates in the years ahead.”

The survey showed a fall in the proportion of firms expecting property price gains, down to 40 per cent. NSW and Victoria had the lowest expectations, while sentiment remained higher in Queensland, South Australia and Western Australia.

“Those smaller capital cities are still doing very, very well at the moment and while we expect that they will slow, we think it will be a little while before they turn negative,” Ms Emmett said.

“Prices will eventually turn negative. Interest rates will prove to be the dominant driver there. It’s just a matter of timing when that happens, but we do expect to see falls in house prices over the next couple of years.”

Similarly, a consumer survey from Westpac last week showed a decline in mortgage holder confidence, amid concerns over the cash rate.

Economists from the big four banks have all suggested the cash rate will begin to ascend from June, following the Reserve Bank of Australia’s (RBA) last monetary policy decision and statement.

As noted by Westpac chief economist Bill Evans, the RBA board is “no longer emphasising patience”.

Eyes on Canberra

Housing supply and affordability were considered to be the most critical issue by respondents, for both state and federal governments.

“This is not surprising, given what we’ve seen with house prices over the past 18 months, or even if we look over the past three years or so – very large rises in house prices at a time when income growth has been quite slow,” Ms Emmett said.

“And also, when we look at those who are most impacted by the pandemic, it has been younger people. So aspirational, first home buyers are finding it much, much harder to get into the property market.”

However, the economist stated there is unlikely to be any change to the property outlook regardless of the federal election outcome on 21 May.

Mulling the recent report resulting from the parliamentary inquiry into housing affordability, she commented there had been some good and “innovative” recommendations, including the call for the federal government to incentivise states to raise density and supply.

But more is needed, she said.

“Supply will help. But there are other things we need to as well and one of those is some of the issues around tax, around shifting stamp duty towards more broader-based property taxes and perhaps addressing some of the other taxation issues around investors,” Ms Emmett asserted.

“But we probably need to think more and more about rental affordability, given that a higher proportion of people are renting and they’re renting until much older in their lives than has historically been the case.”

[Related: Looming rate rises knock borrower confidence: Westpac]

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