The rising rate of inflation could pose a challenge to homeowners trying to pay a mortgage, new data suggests.
Inflation Figures Set To Trigger RBA Cut
Property Investors: Should You Care About Inflation?
New data from the Australian Bureau of Statistics puts the overall rate of inflation for 2016 at 1.5%.Meanwhile, the price of buying a new home rose 0.5% in the December quarter. This continues the national trend of housing price growth, particularly in Melbourne.
According to the ABS’ inflation measure, new house prices increased a total of 1.9% over 2016. These increases took place despite the recent GDP contraction, predictions of a property market crash,lacklustre job figures, sluggish wage growth, and the fact that Perth is dragging down the average.
According to Martin North, principal at Digital Finance Analytics, the ABS measure “understates” the true impact of rising house costs on household budgets.
“The costs of what it really is to live in a place anywhere close to the centre of the major cities, particularly Sydney and Melbourne, is much, much higher than will be stated or imputed in the CPI [consumer price index],” North told The New Daily. “There is no doubt that everyone is now recognising that house prices relative to incomes – or relative to any other metric you can think of – are way off, they are way too high."
Industry Super Australia predicts the RBA will be forced to cut the cash rate target by 50 basis points this year. The first 25 points will be cut in the first half of the year, and the other 25 points will be cut near the end of the year.
However, these rate cuts might not benefit the average new borrower or household on a variable-rate mortgage, as the major banks are currently lifting borrowing rates despite the fact that the Reserve Bank has been in a holding pattern.
“While this 50 basis points might seem very attractive, what it’s more than likely to do is just offset what’s going on in wholesale markets,”Dr Stephen Anthony, Industry Super Australia’s chief economist, told The New Daily. “Therefore, what gets passed on to the consumer may be very little.”
Anthony believes the inflation result carries an important warning for mortgage borrowers, as the most significant risk to the Australian economy this year will be vulnerability at the postcode level.
“If I am wrong and the Reserve Bank starts raising rates, that—combined with developments in wholesale markets—probably means that the level of mortgage stress will rise exponentially, and that would be a significant risk to dwelling investment and obviously house prices would fall accordingly,” he said.
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