Home buying slump means RBA should tread carefully - report

The coming months will be crucial

By Mary Or

13 Jul 2022

CBA has published its latest Household Spending Intentions index. While it tipped the slightest bit upward (0.9%) in June to match the record high set in March (117.3), CBA clarified that the June gain was mainly driven by the increased cost of goods. This was especially evident in the 6.7% increase seen in transport expenses – the biggest monthly increase by far – compared to home buying, which dipped by 3.6%, second only to expenses on entertainment (-3.8%).

The home buying intentions index was not just lower than previous months; it was down by 8% compared to June last year. The number of home loan applications was also lower in June compared to May 2022 and June 2021. Index data, which combined CBA payments and lending numbers with Google Trends search information, also showed that there was a decline in Google searches related to home buying compared to last month and last year.

This was hardly surprising given the recent RBA rate hikes coupled with what CBA called “clear signs of a downturn” in Aussie house prices. Increasing the cash rate by 75 basis points over the course of two months reflected in higher variable and fixed mortgage interest rates, which in turn played a major role in dragging households’ assessments of their current financial conditions to near pandemic lows according to ANZ and Roy Morgan’s latest consumer confidence survey.

Westpac chief economist Bill Evans said this heavy toll on consumer confidence was a sign for the RBA to pause for thought after what he expected would be another 50-basis-point cash rate increase next month, pointing out that buyer confidence was at levels only previously seen during recessions.

CBA likewise interpreted recent Corelogic data showing decelerating housing growth and a decrease in dwelling prices as “clear signs” that the home buying index would be “especially sensitive” to higher interest rates in the coming months.

“A more cautious approach will be appropriate once policy has moved to ‘neutral’ in August,” Evans was quoted as saying in ABC News. “We advocate and expect the [RBA] to pause to assess conditions, both domestic and global, prior to moving rates into the contractionary zone later in the cycle.”