Uncertainty over whether rates will hike next week
Weak housing data has decreased the likelihood of an interest rate rise when the Reserve Bank of Australia (RBA) meets next week, but the cost of financing property is still likely to rise, and soon.
Media conjecture and economic commentary in recent weeks has pointed to another rise in the official cash rate when the RBA meets on Tuesday October 5.
A slump in house prices however, as well as an ongoing decline in building approvals, has placed pressure on the central bank to leave the cash rate on hold.
According to the Sydney Morning Herald, financial markets have cut the odds of a rate rise to 50 per cent, compared to 65 per cent on Wednesday.
“The recent conjecture that Australia faces a burning requirement for an imminent rate hike has got way ahead of itself,” Housing Industry Association (HIA) chief economist Harley Dale commented yesterday.
“Building approvals, new home sales, and new home lending figures are unequivocally pointing to renewed weakness in home building… and that’s with interest rates remaining at their current levels.”
But while the exact itinerary of the RBA’s rate hikes remains uncertain, the consensus is the cash rate will continue to rise.
Westpac chief economist Matthew Hassan recently told First Property Buyer the cash rate was likely reach 5 per cent by September next year with variable mortgage rates to reach 8.15 per cent.
Furthermore, many analysts are expecting the major banks to increase home loan interest rates out of step with the RBA.
Chris Williams, an analyst with UBS, told The Daily Telegraph today he expected the RBA to lift the cash rate by 0.25 per cent on Tuesday, with the banks likely to “piggyback” that rise with an extra 0.15 per cent.
Dean Rushton, CEO of brokerage group Loan Market, said the group considered that at least one of the majors would move out of sync with the RBA “at some stage”.
With this in mind, it’s important that potential home buyers take into account the current rate cycle and be prepared that taking on a (variable rate) mortgage now will require larger repayments as interest rates rise.