By Stella Qiu <\/p>\n
SYDNEY, Sept 24 (Reuters) – For decades, whenever house prices in Australia fell, the central bank rode to the rescue with rate cuts to shore up economic demand and keep households spending. <\/p>\n
House prices are falling once again, but this time the central bank is raising rates, \u200cpotentially subjecting the housing market to its worst downturn in a generation. <\/p>\n
The Reserve Bank of Australia is expected to lift interest rates for a fourth \u200ctime next Tuesday to a 15-year high of 4.6%, according to market participants and nearly all of the economists polled by Reuters. <\/p>\n
An overseas war is complicating the near-term inflation outlook, a global investment boom in data \u200bcentres is adding to domestic demand for goods and services and government spending on defence and healthcare appears set to stay elevated, lifting longer-term borrowing costs worldwide, economists say. <\/p>\n
“I think we’re moving into a new world,” Reserve Bank of Australia Governor Michele Bullock said on Tuesday, contrasting the situation with an era of free and open trade and low inflation, when the bank’s job was to manage demand. <\/p>\n
“These shocks to the supply side of the economy are very difficult for monetary policy to deal with.” <\/p>\n
As a result, inflation will stay high \u200cfor longer than a typical downturn would suggest, meaning falling \u2060housing prices will not be sufficient on their own to push the RBA to cut rates. <\/p>\n
While many Australians are struggling financially, an unusually resilient labour market is supporting incomes, leaving households with enough spare cash to splurge on electric vehicles as oil prices surge. <\/p>\n
Keeping \u2060inflation contained will require higher rates than in the past, said Luke Yeaman, chief economist at the Commonwealth Bank of Australia, which expects a hike next week. <\/p>\n
“This means the slowing economy will not bring much in the way of immediate or major rate relief for Australian households,” he said. <\/p>\n
NOT ENOUGH TO MOVE RBA <\/p>\n
The RBA has raised interest rates three times this year, taking \u200bthe \u200bcash rate back to its post-pandemic high of 4.35%, which was enough to bring inflation down \u200bfrom a 7.8% peak. Yet heading into next week’s meeting, policymakers \u200care debating a critical question: have they done enough this time? <\/p>\n
The housing market suggests tightening is already biting, with national prices down nearly 4% from their peaks, a fall compounded by a government tax change on investment properties that has hobbled investor lending. <\/p>\n
More economists are tipping a peak-to-trough fall of 10% for housing prices in this cycle, the biggest in three decades. HSBC forecasts 13% if rates rise twice more. <\/p>\n
For policymakers, that might still not be enough. Sarah Hunter, an assistant RBA governor, played down the link between falling house prices and household spending. Earlier this month, she said house prices would need to fall by 10% on a sustained basis to have a substantial \u200cimpact on household spending. <\/p>\n
“So no recovery in house prices over a one- to two-year horizon,” she \u200bsaid. “That, at least in historical context, would be quite surprising to see.” <\/p>\n
Markets have taken the hint. Traders \u200bare fully pricing a further rise to 4.85%, with a 70% chance of \u200brates reaching 5.1%. <\/p>\n
WARS AND DATA CENTRES <\/p>\n
When the RBA held policy steady for a second meeting in August, it singled out the US-Israeli \u200cwar on Iran and the data centre boom as key inflation \u200brisks. <\/p>\n
Oil prices are back above $100 a barrel, threatening \u200bto feed through into broader price pressures, while RBA Deputy Governor Andrew Hauser recently returned from the US more worried about costs after having seen the AI-driven investment frenzy firsthand. <\/p>\n
Much of what is driving activity this year – the data centre boom, fiscal spending and immigration – is not sensitive to interest rates, unlike \u200bbefore the pandemic when households did most of the work, \u200csaid Lachlan Dynan, macro strategist at Deutsche Bank. <\/p>\n
That leaves housing to absorb what the rest of the economy will not. <\/p>\n
“You can be bearish on \u200bthe housing market and still think the RBA is going to hike,” Dynan said. “In order to bring the aggregate economy into balance, maybe you \u200bneed a larger housing downturn than otherwise.” <\/p>\n
(Reporting by Stella Qiu; Editing by Thomas Derpinghaus) <\/p>\n","protected":false},"excerpt":{"rendered":"By Stella Qiu SYDNEY, Sept 24 (Reuters) – For decades, whenever house prices in Australia fell, the central…\n","protected":false},"author":2,"featured_media":634802,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[986,242130,72,14026,163104,113,46563,2413,61,269668,5232,60,28279,20673,23260],"class_list":["post-634801","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-australia","tag-australian-households","tag-business","tag-commonwealth-bank-of-australia","tag-economic-demand","tag-economy","tag-house-prices","tag-housing-market","tag-ie","tag-inflation-outlook","tag-interest-rates","tag-ireland","tag-market-participants","tag-oil-prices","tag-reserve-bank-of-australia"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/634801","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=634801"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/634801\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/634802"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=634801"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=634801"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=634801"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}