Australia’s housing market faces its toughest test in a generation as the Reserve Bank of Australia (RBA) prepares to raise the cash rate for a fourth time this year. Market participants and a Reuters poll of economists say the rate will climb to 4.6%, the highest level in 15 years.
Why the RBA is tightening
Governor Michele Bullock warned that the economy is confronting “new world” shocks, including an overseas war that is keeping inflation elevated, a booming data‑centre sector that is driving domestic demand, and sustained government spending on defence and health. These supply‑side pressures make it difficult for monetary policy to bring inflation down quickly.
Chief economist Luke Yeaman of the Commonwealth Bank of Australia said higher rates will be necessary to keep inflation contained, noting that the labour market remains unusually resilient and many households still have spare cash for big‑ticket purchases such as electric vehicles.
Impact on home prices
Housing prices have already slipped nearly 4% from their peaks, a decline worsened by recent tax changes that have limited investor lending. Some economists forecast a total fall of 10% to 13% in this cycle – the steepest decline in three decades.
Assistant RBA Governor Sarah Hunter cautioned that a sustained 10% drop in house values would be required before households significantly curb spending, suggesting that the market may not see a quick rebound.
Market expectations
Traders are pricing in a further rise to 4.85% with a 70% probability that the rate could reach 5.1% later this year.
Analysts such as Lachlan Dynan of Deutsche Bank note that many of the forces driving the economy – the data‑centre boom, fiscal spending, and immigration – are less sensitive to interest‑rate changes than they were before the pandemic. This leaves the housing sector to absorb much of the tightening impact.
What’s next
The RBA’s decision next Tuesday will signal how aggressively policymakers intend to combat inflation, even as the housing market endures a deep correction. Home‑buyers and investors will be watching closely for any signs that the central bank might pause or reverse its tightening trajectory.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
