The Reserve Bank of Australia finally hit the pause button on its aggressive tightening cycle in April, holding the cash rate at 3.60%
In the statement accompanying the decision, RBA governor Philip Lowe explained that monetary policy operates with a lag. As such, the RBA’s board is using the pause to assess the impact of the 350 basis points of tightening to date on the broader economy.
This still means rates might rise again. However, many market commentators believe we are close to topping out, with all four major banks now forecasting a peak cash rate of 3.85% (i.e one more interest rate increase to go).
But what does this mean for the property market, given that the current downturn began when interest rates started rising in May 2022?
Well, CoreLogic’s research director, Tim Lawless, believes the RBA’s rate pause could boost confidence in the market.
“We know that consumer sentiment and housing market activity have a close relationship, so any upwards movement in spirits could see more buyers and sellers returning to the market, although we would need to see sentiment lift materially before returning to average levels,” he said.
There are already promising signs this is happening after the Westpac-Melbourne Institute Consumer Sentiment index surged 9.4% in April from March, with the recovery largely attributed to the RBA’s decision.
Westpac’s survey also found confidence in the property market boomed with:
- The ‘Time to Buy a Dwelling’ index increasing 8.2%
- The House Price Expectations Index increasing 16.7%, to be only 2.8% below its level in April 2022
While only time will tell how the RBA’s decision will play out in the market, keep in mind that interest rates aren’t the only factor that can impact property prices.
CoreLogic’s March home value index is a great case in point, with national prices up 0.6% month-on-month as supply failed to meet demand.