Strong household savings and a moderate lift in interest rates have clear implications for Australia’s housing market, says RBC Capital Markets Chief Economist Su-Lin Ong.
Ong, who is also Managing Director and Senior Relationship Manager at RBC, told the Australia Property Institute’s 2022 National Property Conference that those two factors suggested “a moderation in housing rather than significant weakening”.
“We expect, at an aggregate level, house prices to begin to moderate in the second half of this year, with greater declines in 2023, down about 7.5% next year, and a little further in ‘24,” Ong said.
“What’s clear is that high wages and income growth will temper the move in house prices and so that will be, I think, a key factor to watch out for over the next 12-18 months.”
Ong said the strong labour market, the border reopening and the assumption of net migration was expected to support the housing market too.
RBC forecasts the unemployment rate to decline to 3.8% by the end of this year and then 3.6% by the end of 2023.
Ong said housing construction would moderate as well due to the looming interest rate rises and reduced borrowing capacity.
“We do expect residential activity to continue to contribute to growth this year, not to the same extent as 2021 where we had a lot of measures that were designed to lift that sector,” Ong said.
“Home builder was the biggest one. We’ve got quite a lot of construction in the pipeline that will continue to support activity this year.
“We are looking at some moderation in construction and you can see it already in some of the leads that are starting to moderate, whether it’s housing finance, building approvals data – it is all signalling a bit more of a moderate story.”
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