Resurging inflation and low chances of interest rates are likely to hurt prospective first-time buyers’ hopes of breaking into the housing market, a new report has shown.
Fresh research from property analytics firm Cotality showed the recent jump of inflation, which lifted to 3.8 per cent in the 12 months to October, and the corresponding lower chances of a rate cut will weigh on the housing market.
Trimmed mean inflation – the middle 70 per cent of price changes core to the Reserve Bank of Australia’s rate decision – rose to 3.3 per cent and sits well outside the centrals bank’s 2-3 per cent target band.
Many major banks have changed their rates forecasts with Commonwealth Bank of Australia and NAB both ruling out a cut next year.
Cotality’s research director Tim Lawless said inflation’s rise reinforced the idea that rates would be on hold for the foreseeable future.
“With inflation once again above the RBA’s target range and rates potentially on hold for the foreseeable future, it’s likely housing sentiment will suffer,” Mr Lawless said.
“With housing affordability already stretched and worsening, it stands to reason that fewer borrowers will be able to access credit as serviceability barriers become more prominent.”
Housing prices received a boost after the RBA cut rates three times since the beginning of the year as inflation fell back into the 2-3 per cent target band.
The RBA lowered the cash rate to 3.6 per cent, but is likely to keep it on hold in a blow to prospective homeowners looking to secure more credit.
Stretched mortgage affordability means many Australians are flocking to cities such as Perth or Adelaide rather than Sydney where the median dwelling value is $1.27m.
Perth dwelling prices rose 2.4 per cent in November while Brisbane, Darwin and Adelaide all experienced 1.9 per cent climbs.
Mr Lawless said many of the dwelling prices in these cities have jumped as the nation experiences growth in housing values skewed towards lower price points of the market.
“Over the past three months, most of the state capitals have seen values across the lower quartile of the market rising the fastest,” he said.
“Melbourne, where housing affordability isn’t quite as stretched, is the one exception, with the city’s broad middle of the market is seeing the fastest lift in values.”
The median dwelling value in Melbourne is the third lowest amongst all major cities in Australia.
At $823,495, dwellings in the Victorian capital sit just above Hobart and Darwin in terms of price.
It comes as Melbourne dwelling values lifted 0.3 per cent in November and 4.2 per cent over the past year.
November was the third month in a row where Australian home values lifted one per cent or more.
Another issue weighing on the housing market is the Australian Prudential Regulation Authority on Thursday announcing it will limit the number of loans a bank or lender can issue with a debt-to-income (DTI) ratio or six or more to 20 per cent.
This rule kicks in from the beginning of February and follows a pickup in riskier lending over the past few months as interest rates have fallen, housing prices have jumped and credit growth has lifted above its long-term average.
Currently about 10 per cent of loans to investors are above six times DTI while just four per cent of lending to owner-occupiers is above the rate, according to APRA.