A decline in housing prices in Australia could reduce the likelihood of another rate hike
A decline in housing prices in Australia could reduce the likelihood of another interest rate hike by the Reserve Bank of Australia (RBA). This could help mortgage holders avoid further increases in borrowing costs, according to The Guardian.
RBA Governor Michelle Bullock stated that the central bank had expected the housing market to weaken following rate hikes in February, March, and May. At the same time, she noted that the market has weakened more than the central bank had forecast in May. She attributed this to a number of factors, including recent policy changes affecting the real estate market and a general softening of sentiment in the market.
Bollock believes that the Australian economy needs to slow down even further for inflation to return to the RBA’s 2.5% target within the next 12–18 months. According to the publication, the key question for the central bank is whether this year’s three rate hikes will be sufficient or if additional measures will be needed.
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Westpac Chief Economist Lucy Ellis stated that the weakness in the housing market further confirms the tightness of monetary policy with the cash rate at 4.35%. Barrenjoey Senior Economist Jonathan McMenamin believes that while the RBA may not place excessive emphasis on the housing market in its communications, it will consider it as an argument in favor of keeping rates unchanged for a longer period.
A decline in housing prices can dampen consumer spending due to the so-called wealth effect: people may spend less when they perceive a decline in their personal wealth. In addition, a weaker market means fewer home sales and lower demand for furniture, home appliances, and other goods that are often purchased after moving. Challenger economist Jonathan Kerns noted that problems in the housing market will only have a minor impact on the RBA’s decision, but he did not rule out another rate hike.
