Low interest rates have helped push house prices up, the RBA says – but it worries jobs could be lost if they rise too soon

Low interest rates have helped push house prices up, the RBA says – but it worries jobs could be lost if they rise too soon
  • Reserve Bank of Australia deputy governor Guy Debelle today said low interest rates have contributed to high housing prices.
  • But speaking before a Senate committee, Debelle said rates were not the only “intervening factor”.
  • Scrutiny over the central bank’s cash rate settings arrived after house prices hit new record levels.
  • Visit Business Insider Australia’s homepage for more stories.

The Reserve Bank of Australia (RBA) has acknowledged ultra-low interest rates have contributed to record high housing prices, but still maintains that jobs would be endangered if rates are lifted too soon.

Appearing before the Senate Economics Legislation Committee on Thursday, RBA deputy governor Guy Debelle faced direct questioning from Greens Senator Nick McKim over the reserve’s decision to hold the cash rate at just 0.10%.

McKim, whose party recently launched a multi-billion dollar proposal to improve housing affordability, said ultra-low interest rates are partially responsible for extreme housing prices.

Debelle agreed that interest rates have contributed to continual housing price growth, but stated they not the “only intervening factor.”

The RBA’s current position is helping to “achieve overall objectives” in the broader economy, he said, while suggesting that the federal government has policy levers it could pull to address house prices.

McKim asked if the RBA planned to push for legislation which would allow it to channel funds into “productive” areas of the economy, instead of watching money pour into the housing market.

“We are not intending at the moment to direct the government to change our Act, no,” Debelle said.

The deputy governor maintained the position that accommodative interest rates have supported the return of Australian jobs after successive COVID-19 lockdowns — a position raised in the RBA’s most recent monetary policy meeting.

The RBA last month said it is monitoring the medium-term risks of high household debt to the Australian economy. However, all signs point to the reserve taking a hands-off approach to mounting house prices themselves.

Inflation the deciding factor

The most recent monetary policy meeting minutes stated the RBA is unlikely to lift the cash rate until wage growth stimulates sustainable inflation, which the reserve estimates will not occur until 2024.

But the latest consumer price index, released Wednesday, shows inflation actually jumped by 0.8% in the September quarter, pushing the core inflation rate to 2.1% — within the RBA’s 2-3% window for lifting rates.

Retail bank ANZ today tweaked its rate-hike forecast in response to those figures, suggesting the RBA could be forced to take action in late 2023.

However the deputy governor turned down the opportunity to reveal the bank’s latest inflation estimates during Thursday’s hearing, pointing to the forthcoming quarterly statement on monetary policy.

Housing prices reach record levels

As the RBA holds off on further interest rate adjustments, new housing market data shows where much of that low-interest lending is headed.

In its September quarter report, released overnight, Domain states Australia’s median house price rose to just under $1 million in the September quarter, with a slight deceleration in values unable to stop record prices across most capital cities.

Sydney’s median house price was just shy of $1.5 million — a new record for a city whose property market already stretched belief.

That figure grew 4.6% over the quarter, considerably less than the 8.6% bump experienced over the June quarter.

Daunting prices may have influenced the deceleration, Domain said.

“The sheer affordability of keeping up with rapid house price gains is proving a barrier for buyers, especially first home buyers facing spiralling deposit goals and poor interest accrued on savings,” the real estate platform said.

The inability of everyday Australians to get their foot in the door may further moderate the market, Domain said.

Slowed capital growth will be small consolation for first-time buyers, who have watched Sydney house prices rise by $6,700 a week, every week, for an entire year.

Median Melbourne house prices cracked their own record at $1.03 million in the September quarter, buoyed by a 1.6% quarter-on-quarter growth.

Again, that was slower than the June quarter, which notched a 4.1% uptick. Despite the slowdown, Melbourne’s median house price is now $150,000 dearer than just a year ago.

Extended lockdowns in Melbourne constrained some sales, but a countervailing preference for large, multi-room homes continued to push prices up, Domain noted.

The pattern continued in Brisbane, which saw median house prices reach a record $702,455.

Pointing to the instinct of remote workers to flee into Queensland, and the promise of the 2032 Olympic Games bolstering the city’s profile, the number of homes sold in Greater Brisbane has reached its highest level in six years.

Record median housing prices were registered in Adelaide, at $667,888; Canberra, at an astonishing $1,074,187, and Hobart, at $698,212.

Darwin’s median house prices continue to climb, hitting $640,068 over the quarter, some $38,000 below all-time hights.

Meanwhile, Perth was the only capital to record a downturn in median house prices, which fell 0.6% to $598,601.

With Perth now the most capital affordable city in which to buy a house, Domain again noted that buyers may be shying away from scorching home values.