Reserve Bank boss issues bleak warning for every homebuyer - as grim new record is set in Australia
- Reserve Bank chief says rate rises will buoy house prices
Australia's most powerful banker has predicted interest rate cuts will push up house prices - with the average new mortgage hitting a record high.
The Reserve Bank on Tuesday cut interest rates again, taking the cash rate back to 3.6 per cent for the first time since May 2023.
The futures market is forecasting two more cuts by early 2026, which would see it drop to 3.1 per cent and add to the 75 basis points of relief since February.
RBA Governor Michele Bullock said more rate cuts would most likely drive up house prices.
'Yes, we would expect to see it happen - we hope it happens in a nice, measured way,' she told reporters in Sydney.
'We do know that historically, as interest rates fall, then activity in the housing market picks up.
'That's exactly what we'd expect, and it is one of the channels through which monetary policy works.'
The Reserve Bank's two rate cuts in February and May have enabled the banks to lend more, and a third cut in six months on Tuesday is tipped to further boost property prices.
Australia's most powerful banker has predicted interest rate cuts will push up house prices - with the average new mortgage hitting a new record high (pictured is a Sydney auction)
As a result, Australia's average new mortgage for owner-occupier borrowers hit a record $678,000 in June, up from $660,000 in March, new Australian Bureau of Statistics data released on Wednesday showed.
With a 20 per cent mortgage deposit, that would buy an $848,000 home in suburban Adelaide or Perth.
But in New South Wales, the average new mortgage was even higher at a new record high of $816,000, up from $795,000.
This would buy a $1.020million house in outer south-west Sydney with a 20 per cent mortgage deposit.
Australia's median capital city house price of $1.044million would require a working couple, with a deposit, to earn a combined income of $160,000 to get a mortgage.
Pay levels are also failing to keep pace with soaring property prices, with the ABS on Wednesday also revealing a 3.4 per cent annual increase in the wage price index in June.
This was well below the 4.1 per cent growth in national house prices in the year to July, based on Cotality data.
Wages growth was also well below the 6.8 per cent annual increase in Adelaide house prices and the 6.7 per cent increase in Brisbane prices.
RBA Governor Michele Bullock said more rate cuts would most likely drive up house prices
Ms Bullock said an undersupply of housing during a time of high population growth was more likely to lead to higher house prices.
'Ultimately, we don't forecast property prices, we can't control what happens there because property prices are about supply and demand,' she said.
'As housing prices rise, it increases people's wealth, so that improves their feeling of wellbeing and that also increases consumption.'
But for those who already own a property, or several, higher house prices would make them more inclined to spend, boosting economic activity.
'It works through people obviously getting a bit more confidence that they can purchase a house because interest rates are coming down,' she said.
'As housing prices rise, it increases people's wealth, so that improves their feeling of wellbeing and that also increases consumption. So, we are watching that.'
Westpac senior economist Justin Smirk said the latest wage price index data would be unlikely to stop the Reserve Bank from continuing to cut interest rates.
'Wages are tracking much as we, and the RBA, have been expecting,' he said.
'The WPI is a very stable series and as such is unlikely to surprise and presents no risk to the medium-term outlook for inflation and thus interest rates.'
Adjusted for the 2.1 per cent headline inflation rate, the 1.3 per cent increase in real wages in the year to June was the strongest since June 2020 during Covid.
