(Australian Associated Press)
An expected 10 per cent fall in Sydney and Melbourne house prices could delay the Reserve Bank’s next rate hike, economists at ANZ have warned.
ANZ shifted its rates forecast after factoring in a longer than expected decline in house prices, which it expects will wipe around 10 per cent off the peak value of Sydney and Melbourne homes, and smaller amounts in other cities.
ANZ’s economists said continued falls in prices could impact the RBA’s thinking, and they now expect the cash rate to rise from its current level of 1.5 per cent in August, 2019, three months later than it had previously predicted.
The change was made ahead of the release on Tuesday of minutes from the RBA’s June 5 board meeting, which showed little change in the central bank’s expectations for a gradual increase in wage growth and inflation.
The Australian Bureau of Statistics also released data showing average capital city house prices dropped 0.7 per cent in the first three months of 2018, driven by a 1.2 per cent fall in Sydney.
ANZ’s economists said house price falls will not derail the economy, as they reflect tighter lending standards, while wages growth and tax cuts will deliver economic benefits.
“While the RBA does not specifically target house prices, we think it will be reluctant to start tightening policy if house prices are still falling,” they said in a note.
The RBA minutes included a relatively positive assessment of the housing market, including a note that Sydney and Melbourne prices are still 40 per cent higher than they were at the beginning of 2014.
Tighter lending standards and softer demand for credit had helped contain the build-up of risk on household balance sheets, the RBA said.
“While there might be some further tightening of lending standards in the period ahead, the average mortgage interest rate on outstanding loans had declined over the previous year,” the minutes said.
Commonwealth Bank senior economist Kristina Clifton said the RBA appeared relatively comfortable with the correction in house prices so far, and positive on the Australian and global economy.
“We have rates on hold until February 2019 at the earliest,” she said.