Finance experts tipping rate rise

Housing market confidence not diminishing, despite predictions of higher mortgage costs

The Reserve Bank of Australia has predicted that interest rates will remain at just 0.1 per cent until 2024. But that’s not a sentiment shared by financial experts and businesses across Australia, according to new research. The latest ANZ Property Council Survey has found that confidence in residential and commercial property is on the rise, with confidence in the residential sector surpassing the last major peak in 2013.

But the 830 respondents in the survey, including property owners, developers, agents, managers and consultants and government from across all regions, also believed that a rate rise is on the cards by as early as 2022 – two years ahead of the RBA’s prediction of 2024. The survey found that respondents from all states and territories believed there will be an interest rate increase over the next 12 months.

ANZ’s head of economics David Plank says that although the RBA has indicated the cash rate is unlikely to move before 2024, the market is now starting to price in a rate rise as soon as next year.

However, a potential rise in interest rates isn’t affecting the confidence of the property industry as a whole. While a rate rise may be a concern for those who over-indulged financially, it may also help property investors who are looking for house prices to start to stabilise.

The ANZ Property Council Survey shows that confidence in the property industry doesn’t look like waning any time soon.

“While the economy still faces significant challenges, the property industry is clearly buoyed by the speed of our turnaround and the strong demand they are seeing, particularly in the residential and industrial sectors,” says Property Council of Australia Chief Executive, Ken Morrison.

The survey, taken between March 15 and 31, found that sentiment in the residential sector is leading the way with confidence in this sector at an all-time high. The industrial property sentiment was the strongest overall while commercial property too, recorded another increase in confidence.

Although COVID-19 had a significant impact on confidence previously, the latest survey showed that only three per cent of businesses believed things were going to get worse.

“Property sentiment has improved again, reflecting stellar economic performance, a large pipeline of work for the coming year and a strong outlook for property prices,” says ANZ Senior Economist, Felicity Emmett.

“The combination of record low mortgage interest rates and targeted stimulus is clearly supporting the housing sector, where confidence is now at record levels. Price expectations are at all-time highs, while the HomeBuilder scheme, along with state and federal government initiatives, has brought forward a large chunk of demand.”

It is that demand for new builds which has kept the residential sector outlook strong. In the latest survey, measures of confidence rose in all three categories – pricing, staffing levels and forward work schedule – which were all at record highs. In fact, 87 per cent of firms expected price gains over the next year and 61 per cent expected construction to expand in the next 12 months – the highest level of confidence since March 2015.

Evidence of this confidence is reflected in the value of new finance commitments for new home builds which increased nearly 170 per cent between June 2020 and February 2021, and suggests there will be more gains in building approvals in the next few months.

And while initiatives such as HomeBuilder helped to get the ball rolling, many respondents in the survey believe now that it has finished new finance commitment will not be detrimentally affected as they are confident debt will be easier to access (26 per cent up from 19 per cent in December).