End of interest rate hikes in sight for homeowners as inflation moderates

Homeowners can breathe a sigh of relief as the end of the right cycle comes into sight on the back of better than expected inflation data.

Property prices are rising inspite of rate increases. Picture: Julian Andrews

Renewed optimism in the housing market that the end of the rate rise cycle is coming into view risks the unexpected consequence of bumping up property prices ahead of the traditionally busy spring selling season.

Inflation fell at a faster than expected rate through the June quarter, causing economists to readjust their expectations towards an August pause when the Reserve Bank board meets next Tuesday.

The rate of inflation increases fell to 6 per cent through the June quarter on an annualised level, far slower than the 7 per cent recorded in March.

It will be good welcome news for battered mortgaged homeowners who have carried the brunt of the fastest rates increase to repayments in a generation, with thousands added to repayments.

Independent economist Harley Dale believes the RBA may have done all it needed to for the time being to wrangle inflation, given it takes some time for changes to the cash rate to filter down to household budgets.

“It’s a ticking the box for the RBA holding rates steady next Tuesday,” Mr Dale said. “I think there’s probably a 70, 80 per cent chance that they’re done … there are still some wheels to grease before we can be fully confident.”

Banking giant HSBC still believes the RBA will lift rates by 25 basis points for the final time of this cycle in August. Chief economist Paul Bloxham said: “Although we see the RBA delivering one more hike yet, given a still tight jobs market and inflation that is still above target, there is also a risk they choose to be ­patient and hold steady instead.”

The 0.8 per cent increase over the three-month period was attributed to rents – which grew at the fastest annual pace since 2009 – international holiday travel and accommodation, and property transactions.

PropTrack economist Angus Moore said changes to rent costs can take some time to flow through to inflation figures. “Inflation is clearly heading in the right direction and at a pace broadly consistent with, maybe even a little bit faster, than the RBA was expecting,” he said.

“We’ve obviously been seeing very brisk increases in advertisements on Realestate.com.au … ­realistically going on three years.

“There’s probably more (increases) baked in because as current leases roll off or come up for renegotiation, rents will rise to meet the market.” He said he believed the potential for a pause next week had risen.

Chief executive of national property sales group The Agency Geoff Lucas said the result bode well for a softer economic landing.

He is more conservative than other market commentators, suggesting prices were unlikely to rise much further if confidence rose and more properties continued to come to market.

“Irrespective of the RBA pausing is the mortgage cliff potential remains, with some 1.3 million mortgages just starting to come off between July and June next year and moving from repayments circa 2 per cent to 6.5 per cent,” he said. “That will continue to have a negative impact on housing prices and an increase in listings.”

The timing of the rate cycles end is great for the spring selling season, Mr Dale said. “If we get an increased momentum in commentary that the tightening cycle is looking like it’s over, you would suspect we’d also see increased momentum in confidence towards the residential property market and to a lesser extent towards the commercial property market as well,” he said.

Despite unemployment being stronger than expected, Effie Zahos, the money expert at financial comparison site Canstar, said the chance of a pause had jumped significantly.