Most industry experts predict a reduction in money rates next week, but a scenario in which the Reserve Bank of Australia waits a month longer would not be surprising, according to CoreLogic analyst Cameron Kusher Research.
"While me (and the futures market of interest rates and the overwhelming majority of economic commentators) think that [a slash on rates] is still the most likely outcome [of the next monetary policy meeting] I see a scenario in which the RBA would again maintain rates on hold, "he said.
In recent weeks, several positive changes in the housing market have taken place.
First, there was no change of government in the federal election. The Labor Party's proposed amendments to the Negative Offset and Capital Gains Tax created uncertainty in the sector – and with the Coalition's winning victory in recent national polls, the level of confidence seemed to be coming down. the market.
"The decline in housing values ​​was already slowing, but lenders are now reporting much higher levels of mortgage demand and auction liquidation rates have reached their highest level since the mid-1990s. May of last year. In Sydney, they have reached a record level since last April, "said Kusher.
Second, the Australian Prudential Regulatory Authority announced that it was considering changing the calculations of the service status of new mortgages. Although there is a four-week consultation period, it is likely that these changes will continue, according to Kusher. Once set up, easier access to mortgage loans could boost market activity and help establish a floor below housing prices.
Third, the RBA suggested that interest rates would be reduced. RBA Governor Philip Lowe recently revealed his biggest clue that rates will be cut in June.
"Interest rate cuts have helped the money saver to make money. If a person has difficulty repaying their mortgage, they can contact their bank and request a reduction in repayments (assuming the lenders pass on a very likely discount), and for those who choose not to reduce their repayments, they repay more of the principal of the loan, thus repaying the debt faster. In addition, a lower cash rate usually means lower interest rates on savings accounts, which reduces incentives to save and encourages them to spend, "said Kusher.
Housing is the country's largest asset class, according to Kusher. With the outlook for the sector, the need to reduce rates is becoming an issue. However, he said that the reduction does not specifically concern housing. Instead, it is tied to economic growth and inflation.
Headline inflation remained stable in March and rose only 1.3% during the year. The preferred measure of the RBA for core inflation is moving further and further away from the target range of 2% to 3%.
Underlying inflation has been below the target range since December 2015 and has not reached the midpoint (2.5%) since September 2014.
Gross Domestic Product (GDP), or economic growth, was 0.2% in the December quarter, its lowest growth rate since September 2016.
On an annual basis, GDP grew 2.3%, making it the lowest growth rate since June 2017.
"So we have low inflation and slow economic growth, which has been the case for some time, but both have weakened further in their latest releases. The RBA has repeatedly reiterated that the strength of the labor market was the main reason for not reducing interest rates. However, it has also weakened, "Kusher said.
On a seasonally adjusted basis, the unemployment rate reached 5.2% in April 2019. This is the highest unemployment rate since August 2018.
Although the unemployment rate rose, annual employment growth reached 2.6%, its fastest rate of growth since June 2018. The participation rate was 65.8%, its highest since January 2018.
"So while the unemployment rate has weakened, more people are working or looking for work and job creation has accelerated. It should be noted that unemployment is generally a lagging indicator and that measures of job offers show a slowdown in recent months, "Kusher said.
Kusher still thinks that a reduction in interest rates on June 4 is the most likely scenario, but it would not be a shock if the RBA was tempted to wait a month or more
"Waiting one more month will allow the RBA to gather evidence on the real improvement of the housing market and allow them to view the GDP figures for the month of March, published the day after the meeting of their board of directors (June 5). , "He said.
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