Rate rise to add to housing challenges

House price growth has been slowing since the spike in values last year as potential home buyers face stretched affordability, rising fixed-rate mortgages and a tightening in lending criteria.

This week, first-time buyers and home owners are set to face another challenge – rising variable mortgage rates as the Reserve Bank of Australia starts lifting the cash rate from emergency pandemic levels.

It will be the first cash rate increase in more than a decade.


Financial markets are fully priced for a 0.15 per cent rise in the cash rate to 0.25 per cent when the RBA board meets on Tuesday following last week’s figures showing annual inflation surging to 5.1 per cent.

The more interest rate-sensitive underlying inflation rate also jumped to 3.7 per cent, well above the RBA’s two to three per cent target.

The anticipated modest increase in the cash rate from a record low 0.1 per cent is expected to be followed by increases of 0.25 per cent in subsequent months.

“Having a near-zero cash rate when unemployment is four per cent and inflation is over five per cent makes no sense,” AMP chief economist Shane Oliver said.

“The experience from the late 1960s and 1970s tells us the longer high inflation persists the more inflation expectations will rise making it even harder to get inflation back down again without engineering a recession.”

CoreLogic’s well-regarded home value index for April is released on Monday, capturing the state of the housing market before tighter monetary policy sets in.

While rising interest rates may have a bearing on the election campaign, as they did in 2007 when then Liberal leader John Howard lost power, Prime Minister Scott Morrison still has a falling unemployment rate as part of his economic credentials.

March’s federal budget forecast the jobless rate falling to 3.75 per cent in coming months, the lowest in almost 50 years.

Backing the decline has been persistent strong demand for workers, as seen through job advertising.

ANZ will release its latest job ads series for April on Monday.

A busy data week kicks off with the Australian Industry Group’s performance of manufacturing report for April.

© AAP 2022