Reserve Bank of Australia governor Michele Bullock started a furore last week with a warning that some home-owners may be forced to sell, and experts say the comments could shape the future of Australia’s economy.<\/p>\n
Ms Bullock said borrowers struggling with repayments in the current inflationary environment may have to reassess home ownership, stating 5% of owner-occupiers on variable-rate loans are in a \u201cparticularly challenging situation\u201d.<\/p>\n
The comments came off the back of the Australian Bureau of Statistics latest quarterly figures which showed gross domestic product (GDP) increased by just 0.2% in the June quarter and GDP per capita declined by 0.4%, the sixth consecutive negative quarterly result.<\/p>\n
However, Bullock said the potential increase in borrowers unable to keep up was \u201cnot large enough to pose a material risk to the stability of the financial system\u201d.<\/p>\n
Prop Track senior economist Eleanor Creagh told Mortgage Choice the RBA\u2019s forward guidance communication strategy was key in shaping the public\u2019s market expectations and nudge up spending in the meantime.<\/p>\n
\u201cThe RBA can influence the economic behaviour of households, businesses and investors and strengthen the transition of monetary policy,\u201d she said. \u201cIf the RBA can indicate that it plans to keep interest rates low, consumers and businesses might be more inclined to borrow and invest, boosting economic activity.\u201d<\/p>\n
Real Estate Institute of Australia president Leanne Pilkington<\/strong> said the total number of home loans for owner occupiers increased in all states over the June quarter, putting more people at risk of mortgage stress.<\/p>\n Housing affordability in Australia has declined to its lowest since the REIA began monitoring prices in 1996, Ms Pilkington said, with the average repayment now at 48.1% of the median family income.<\/p>\n \u201cThe high and sustained interest rates to tackle are having an increasingly negative impact on mortgage holders,\u201d Ms Pilkington told Mortgage Choice. \u201cWe have seen savings levels drop to pre-Covid levels, spending on discretionary items is plummeting and the numbers of mortgage holders experiencing difficulties in meeting payments is rising, prompting the RBA governor’s comments last week regarding selling.\u201d<\/p>\n She said excluding the COVID-19 pandemic period, the economy is growing at its slowest rate since the early 1990s, but that even small rate cuts could bring plenty of relief to home-owners.<\/p>\n “For each drop in interest rates of 0.25%, housing affordability would improve by 0.85 percentage points,\u201d Ms Pilkington said. \u201cIf, as the financial markets are expecting, we have two reductions of 0.25 % by early next year, affordability would come back to March 2024 levels.\u201d<\/p>\n Despite financial markets and some major banks \u2013 including Australia\u2019s largest lender Commonwealth Bank of Australia \u2013 predicting downward movement on rates before the end of the year, Ms Bullock said next year was a more feasible target for a much hoped-for cut.<\/p>\n \u201cI understand that the board\u2019s message on interest rates is not what many borrowers want to hear,\u201d she said. \u201cThose with mortgages are feeling the squeeze on their cash flows not just from high inflation, but also from the increase in interest rates that has occurred in response to it.\u201d<\/p>\n Deputy leader of the opposition MP Sussan Ley clapped back at Ms Bullock\u2019s comments speaking on Channel Seven\u2019s Sunrise last Friday, pointing the finger at the RBA and noting lowering interest rates in the UK, Canada, New Zealand and even the US.<\/p>\n \u201cWhat is different? Why is this not happening here?\u201d she said. \u201cTaking responsibility is so important right now for the Australians that we know are really anxious.<\/p>\n \u201cIt is important that we have an economic plan, and that\u2019s not present.\u201d<\/p>\n Labor MP and minister for education Jason Clare also weighed in on the show, suggesting the blunt warning was \u201ceasy\u201d for Ms Bullock to say.<\/p>\n \u201cI don\u2019t want anyone to have to sell their home,\u201d he said. \u201cIt\u2019s easy to say, look, people might have to sell their home, but it\u2019s not if it\u2019s you, not if it\u2019s your life savings, not if it\u2019s your life work to save for a deposit and buy a home.\u201d<\/p>\n With May looking increasingly likely for the next federal election, Treasurer Jim Chalmers has tried to quell criticism of Labor\u2019s role in the persistently sluggish environment.<\/p>\n The treasurer smoothed out concerns of further bad blood between the government and the RBA, at a press conference in Canberra on Tuesday, reaffirming his focus on working closely with Ms Bullock.<\/p>\n \u201cWe are making progress,\u201d he said. \u201cI was making a factual point this time last week. It\u2019s a fact born out in the national accounts that higher interest rates are slowing the economy considerably, and I\u2019ve been making a similar point for months.\u201d<\/p>\n Mr Chalmers instead pivoted criticism onto ex-treasurer and one-time deputy prime minister, Wayne Swan, accusing him of second-guessing the RBA.<\/p>\n Mr Swan \u2013 who held Mr Chalmers\u2019 role during the Gillard and Rudd governments \u2013 this week said the RBA was “putting economic dogma over rational decision making\u201d.<\/p>\n \u201cI\u2019ve got a lot of respect for governor Bullock,\u201d Mr Chalmers said in response. \u201cOur objectives are actually aligned to get to the top of this inflation challenge and we need to do that without ignoring the risks to growth.\u201d<\/p>\n Mr Chalmers continued to stoke the fire, however, also saying it was \u201cself-evident\u201d and \u201cnot especially controversial\u201d to blame interest rates for the slow economic growth in Australia.<\/p>\n","protected":false},"excerpt":{"rendered":" Reserve Bank of Australia governor Michele Bullock started a furore last week with a warning that some home-owners may be forced to sell, and experts say the comments could shape…<\/p>\n","protected":false},"author":485,"featured_media":5600,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[17,21,20,16],"tags":[],"class_list":["post-5599","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-buying","category-investors","category-market-news","category-selling"],"acf":[],"_links":{"self":[{"href":"https:\/\/lsre.com.au\/granville\/wp-json\/wp\/v2\/posts\/5599","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lsre.com.au\/granville\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lsre.com.au\/granville\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lsre.com.au\/granville\/wp-json\/wp\/v2\/users\/485"}],"replies":[{"embeddable":true,"href":"https:\/\/lsre.com.au\/granville\/wp-json\/wp\/v2\/comments?post=5599"}],"version-history":[{"count":0,"href":"https:\/\/lsre.com.au\/granville\/wp-json\/wp\/v2\/posts\/5599\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/lsre.com.au\/granville\/wp-json\/wp\/v2\/media\/5600"}],"wp:attachment":[{"href":"https:\/\/lsre.com.au\/granville\/wp-json\/wp\/v2\/media?parent=5599"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lsre.com.au\/granville\/wp-json\/wp\/v2\/categories?post=5599"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lsre.com.au\/granville\/wp-json\/wp\/v2\/tags?post=5599"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}All eyes on interest rates<\/strong><\/h2>\n
Political fall-out<\/h2>\n