Grim outlook for first homebuyers: property prices set to rise further in 2015

Bad news for first home buyers! 

While the Reserve Bank Survey,  expects the Reserve Bank to keep the cash rate on hold at its last board meeting of the year on Tuesday, December 2, 2014, property prices are tipped to rise further in 2015.

What will happen to interest rates?


Interestingly, three of the 37 panellists (8 percent) are forecasting the cash rate to drop further next year, including Andrew Wilson (Domain Group), Stephen Koukoulas (Market Economics) and David Scutt (Scutt Partners).

The remaining 34 experts (92 percent) are forecasting the next cash rate movement will be an increase.

Regardless of the direction, the vast majority (94 percent) of experts are expecting the cash rate to move next year, with just two experts (6 percent) forecasting the next move to be in 2016 – James Bond (Financial Services Council) and Noel Whittaker (QUT Business School).

cash rate graph

Michelle Hutchison, Money Expert at, said the survey showed that wider economic pressures were impacting the cash rate predictions.

“Of the 37 experts, many raised several key issues that influenced their predictions including the need for stability, a slow economy, a weakening Australian Dollar and no unexpected movements in the past month.

“It was also interesting to find some experts in the survey discussing the reality of a rate cut next year, with factors that could occur such as a falling housing market and slower growth in China and other foreign economies.

“There is a definite shift in the direction that the cash rate could take, with last month’s survey results showing all 33 experts were forecasting the cash rate to rise next year, including one expert (Andrew Wilson, Domain Group) predicting a rate cut before an upward cycle begins.

“But now there are three experts on the panel who are betting on a rate cut and others citing a possibility of a drop.”

Despite most of the experts betting the cash rate will rise next year, 69 percent believe property prices will continue to climb.

“If you’re a first home buyer struggling to get into the property market this year, next year isn’t looking to get any better.

“Most of the experts in the survey are expecting property prices to continue rising however, they don’t expect the higher costs will dramatically impact the first home buyer market. Two in three (64 percent) are expecting the same level of first homebuyers next year compared to this year, with only five expecting fewer first home buyers.

“There were also 14 percent of respondents who expect property prices to stabilise, while 17 percent are betting on property prices to fall next year.

“With the national median property price across our capital cities hitting $545,000 in October – 8.9 percent higher than the previous year – it’s a good time to jump into the property market if you are prepared. But there’s no point in rushing in you’re not ready, because overstretching your budget could have serious consequences if interest rates rise next year. Reading a first home buyer guide can be a great way to assess if you can actually afford to take out a home loan before rates move.”

corelogic graph

What the experts had to say:

  • Melissa Browne, A+TA: A period of stability is needed. Aussie Dollar is still high and other than the property market still potentially overheating in some areas, this isn’t enough to raise rates.
    With a growing demand for property by SMSF, I can only see a continued climb in house prices.
  • Garry Shilson-Josling, AAP: The economy is growing too slowly to consider raising the cash rate to cool the housing market, but cutting the cash rate now would help much over the time frame the economy will be slow.
    The next move in rates is likely to be up, but there’s a small but very real chance of a cut if the housing market tanks, or China hits a rough patch.economy
  • Shane Oliver, AMP: Nothing has changed since the last meeting to justify a move. Property remains strong but growth remains subpar and inflation benign. While home prices are likely to keep rising in 2015 the pace of increase will likely slow, particularly in Sydney and Melbourne.
  • Warren Hogan, ANZ: The economy is playing out largely as expected and the level of interest rates is appropriate for the outlook for the economy.
  • Peter Munckton, Bank of Queensland: Below trend growth means low rates but lower currency and higher house prices means no rate cut.
  • Steven Pambris, Bank of Sydney: The economy continues to be soft.
  • Scott Pape, Barefoot Investor: The Reserve Bank has said that they aren’t going to be doing anything with the cash rate. They are sitting on their hands. I don’t think they will do anything for six months, however things can change.
  • David Bassanese, BetaShares: We have a firm property market and weakening Australian Dollar.
  • Richard Robinson, BIS Shrapnel: Employment and economic growth are weak, unemployment is rising (or stable above 6%) and inflation is well contained.
  • Andrew Wilson, Domain Group: No impact from any change until next year. House price growth will track around inflation depending on local demand and supply drivers.
  • James Bond, Financial Services Council: Inflation is under control, productivity is rising and real wages are falling.
    This is giving the RBA the bandwidth to focus on other issues, and at the moment that is the exchange rate.
  • David De Ferranti, FXCM: Subdued inflation expectations and a soft local labour market are likely to keep RBA policy highly accommodative over the near term.
    Yet concerns over the risks posed by rampant speculative lending in the housing market may continue to keep a cut off the cards.
  • Scott Morgan, Greater Building Society: There has been nothing this month to create a shift in the RBA’s well-documented commentary on the need for a period of stability in rates.
    real-estate-world-economy-global-markets-companies-tech-travel-health-112757The RBA is cognisant of a potential build-up in asset prices and the flow on risks that causes. Concern about these risks, an upward move in US rates and improving economic indicators in the Australian Economy around GDP, unemployment and retail sales are all factors that provide scope for rate increases inside the next nine months.
  • Paul Williams, Heritage Bank: RBA has signalled it is on hold for an extended period.
  • Paul Bloxham, HSBC: Growth is still below trend and inflation is well contained.
  • Michael Witts, ING Direct: The economy remains in transition and if anything there are increasing signs that the economy is strengthening on a broad basis.
  • Paul Clitheroe, IPAC Securities: No compelling evidence for a move. With property slowing, the RBA would be tempted to drop to a lower Dollar, but on balance does not want to reheat the property market.
  • Grant Harrod, LJ Hooker: There have been no major unexpected economic movements over the past month.
    The rate of house price growth has begun to slow thanks to listings rising to meet buyer demand.
    This should see the RBA carry its neutral policy position into the New Year.
    This takes pressure off the RBA and provides it with more room to move should it need to further stimulate the economy.
    We expect house prices to rise due to ongoing demand and low interest rates, but prices will rise at a slower rate to what was recorded over 2014.
  • Stephen Koukoulas, Market Economics: The RBA is very slow to acknowledge the subdued nature of the economy at present and has an unhealthy obsession with Sydney house prices.
  • John Caelli, ME Bank: The RBA is unconcerned about inflation, unemployment is still high and the Dollar remains high.
  • Glenn Levine, Moody’s Analytics: The economy is still weak outside of housing.
    The labour market is loosening and wage growth has slowed.
    Yet there is no scope for a rate cut as it would reignite the housing market, which may now be slowing.
  • Lisa Montgomery, Mortgage & Consumer Finance Expert: It is likely that the RBA will keep interest rates low for some time to come. Job ads are up, retailers are predicting a solid Christmas sale period, most economists are forecasting a softening Aussie Dollar and consumer confidence continues to rise slowly.
    All positive signs for the economy as we head into a new calendar year.
  • Huw Bough, My State Bank: Whilst the transition away from resource-related, investment-driven growth is underway, a number of sectors remain lacklustre, in particular non-mining business investment, and households remain fairly cautious.
    This points to a situation where rates will most likely be on hold for another 6-12 months.
  • Alan Oster, NAB: …Despite its decline, the Australian Dollar was still regarded as well above most estimates of its fundamental value, particularly given the further declines in key commodity prices in recent months.
    economyThe RBA still believes that a period of stability in interest rates is the most prudent policy for the time being.
    We still expect no change in the cash rate until the end of 2015.
    While there are tentative signs of an improvement in household spending, they do not yet signal a sustained change in household and business conditions.
    In the absence of any major surprises, the cash rate is unlikely to rise until late next year as monetary policy commences its return journey to normality.
  • Peter Boehm, Not the right time for contractionary measures – unemployment 6%+, GDP forecast to be below long-term average, mixed consumer and business confidence and inflation within the RBA’s comfort zone.
    Interest rates may rise in the second half of next year once we get a clear line of sight on the economy and if inflation starts heading north.
  • Jonathan Chancellor, Property Observer: The RBA has a definite wait and see policy.
  • Noel Whittaker, QUT Business School: No reason to move.
  • Angus Raine, Raine & Horne: The RBA will want to digest higher Australian unemployment figures, and consider what is going on globally, with the Japanese and European economies still looking soft.
    However, on a domestic level the China-Australia Free Trade Agreement (ChAFTA) will provide a boost for rural markets, while falling fuel prices should also mean Aussies have more money to spend in places other than the fuel pump.
  • Nathan McMullen, RAMS: Inflation remains well within the RBA’s prescribed range.
  • Angelo Malizis, RESI: No economic reason to move at this stage.
  • David Scutt, Scutt Partners: The Australian Dollar remains overvalued, labour market conditions are soft, key commodity export prices have continued to decline and the economy is expected to grow below trend until at least 2016. They should be easing now but won’t, at least in December.
    With house price appreciation slowing and targeted macroprudential tools still a strong possibility, if current domestic and international economic conditions remain subdued, the RBA will have little to prevent them easing early in the New Year.
  • Janu Chan, St. George Bank: The RBA’s ongoing signal of stability in interest rates.
    While the performance of the domestic economy remains patchy, interest rates settings are already low enough to do what they can to support growth.
  • Gavin Smith, State Custodians: Comments from RBA Governor, Glenn Stevens indicated that the cash rate would remain at current levels for an extended period of time.
  • Scott Haslem, UBS: With GDP only a little below trend, and recent data improving, there is little reason to cut, despite a subdued jobs market. Nor is data strong enough to hike, while inflation has been easing.
  • Nicki Hutley, Urbis: Economy still has spare capacity and inflation outlook remains positive for the near-term.
    The economy is currently in a relatively sweet spot, but more investment needs to occur to shift growth to a more robust level as mining investment diminishes.
    Current ‘very low’ rates supports this.
  • Bill Evans, Westpac: N/A

[1] Experian Hitwise 2013, 2014
[2] There are 38 panelists in the Reserve Bank Survey, 37 of which participated in the survey this month.


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'Grim outlook for first homebuyers: property prices set to rise further in 2015' have 1 comment


    November 28, 2014 Ian Payne

    First Home Buyers have a curious generational influence – the way they get news.
    These days they so often get news via a phone, a tablet or a laptop. What that means is a complete change from a newspaper.
    When you see a page of a newspaper there are a range of stories, you choose what to read more about, then you get the full story if you want to read it all. Essentially you are in control.
    By comparison, the electronic media are crowded with a mass of headlines and ads screaming at you, competing for your attention. The coverage of any story is scant, offering few in-depth articles, and mostly sensationalizing the most dire interpretation of the few facts. The journalist who gathers the full story is not as important to the media as the headline writer!
    Affordability for First Home Buyers is just one such story. When there are so many headlines telling prospective buyers that they have no hope it becomes credible. They don’t even seek real information about whether it is true for themselves.
    Another powerful generational influence is the perceived need for young people to have a variety of “experiences”. This means spending money in an ever increasing array of things being marketed to them. It also means overlooking the experience of getting their financial house in order.
    They also face another challenge relating to home sizes.
    A mere generation or two ago we assumed a typical house was a 3 bedder of about 12 to 14 squares (about 110 to 130 sq m). However if you look at builders’ display homes now they are twice that size and more! Costing more of course, and less affordable.
    They are so often told they should expect to “have it all”. However it’s easier to buy the old concept of a first home as a first home. If those same prospective First Home Buyers would just look at something smaller they are obviously far more likely to find an affordable one.
    Interestingly they can have a huge impact on the property market. There are three main groups of buyers – first home buyers, other home buyers and investors. The second and third of these sectors have stayed active, while activity from the first lot has paled into insignificance. They represent a huge potential demand from a force that could wake up to the truth and play a big part in the game – a real sleeping giant!
    If they think the market is rising too fast now, it could go ballistic if they all jump in. Truly, first to take the plunge would be best off, riding a boom.


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