ANZ predicts no rate cut this year, but housing boom continues

Three pieces of research, all from the ANZ Bank, paint a very good picture of the opposing forces driving the Australian economy and the nation’s housing market.

While consumer confidence is very low, particularly for Australians with a mortgage or who own their own home outright, the bank is upbeat about home price growth over the next two-and-a-half years, largely because demand will continue to exceed supply.

This is despite the bank predicting that interest rates will stay higher for longer, causing more mortgage pain.

Interest rates

ANZ has become the first of Australia’s “big 4” banks to forecast that there will not be a cut in the Reserve Bank of Australia’s cash rate this year.

With rates at a 12-year high of 4.35%, after no less than 13 RBA hikes to contain an inflation outbreak, most economic forecasters predict the next move in interest rates will be down.

ANZ agrees, but is pushing back its forecast for rate cuts to start from November this year to February 2025.

“It’s not that monetary policy isn’t working,” says Adam Boyton, ANZ’s Head of Australian Economics, “It is.” 

“The economy has clearly slowed….it’s for this reason that we think a rate hike remains unlikely.

“However, getting an appropriate balance between the level of demand and supply is likely to take a little longer than expected,” he says. 

Mr Boyton cites the latest GDP figures, which he says showed less weakness in household demand than expected, relative strength in the labour market and plenty of government spending supporting economic growth and employment. 

“Accordingly, we now expect the first cash rate cut (of 0.25%) in February 2025,” he says, with “a follow-up easing shortly thereafter (most likely in April, although May is possible).” 

ANZ also predicts there will be another 0.25% cut in the final three months of 2025.

The other three large banks, Commonwealth Bank, Westpac, and National Australia Bank, are all still predicting that rate cuts will start in November this year, forecasting no less than five cuts of 0.25% each by the end of next year.

Consumer confidence

Each week, ANZ and Roy Morgan Research issue their measure of Consumer Confidence in Australia.

The latest survey shows the largest weekly fall of the year - with their index dropping below 80 for the first time in six months to just 77 points.

As a point of historical comparison, the long-term average of the survey is 110 points.

Any point above 100 indicates that consumers are overall optimistic about the future, their personal financial prospects, and the Australian economy.

However, the index hasn’t been in positive territory since mid-2021.

“Households were particularly wary about the year ahead,” says ANZ Economist Madeline Dunk about the latest survey release, “with subindices for the 12-month outlook for the economy and households’ own financial situation recording their largest weekly declines of the year.

“Across the housing cohorts, confidence is at a 2024 low for households with a mortgage and those who own their home outright, but not for renters, despite a 6.3 point fall in confidence last week.”

Home prices

Despite this consumer and homeowner gloom, ANZ remains bullish about Australian home prices, although it says growth will be slower than last year’s astonishing rise in the face of higher and higher interest rates.

“We expect capital city housing price growth of 6-7% in 2024 after 9.3% growth in 2023, as price growth slows in Sydney and Melbourne,” says Senior Economist Blair Chapman. 

“We expect price growth to slow to 5-6% in 2025, as population growth slows alongside an increase in available housing.” 

As for growth in 2026?

“Around 5%,” is Blair Chapman’s view.

Mr Chapman expects Brisbane, Perth, and Adelaide to continue outperforming the other capitals due to a chronic shortage of available homes. 

“Housing prices continue to reach new peaks in these cities, with strong growth in lending to investors in these cities supporting price growth,” he says.

Nationally, demand is mostly still outpacing supply, with residential construction activity “at very low levels despite strong demand, with population growth remaining elevated.”

However, the supply/demand imbalance is better in some parts of the country.

One of the ANZ’s most surprising findings is when it comes to home prices in Victoria.

Melbourne has been a laggard in price growth over the last couple of years, with many blaming the hangover from extended COVID-19 lockdowns and high state government taxes for creating a dampening effect on property prices.

However, Blair Chapman and the team at ANZ suggest there’s another reason.

“Price momentum is weaker in Melbourne, where housing construction relative to population growth appears to have been the strongest since the onset of COVID,” he says.  

“Victoria’s dwelling stock has, we estimate, grown faster than the state’s population since early 2020 and faster than other state/territory, except the Australian Capital Territory.” 

“This is putting less pressure on housing prices to increase in Victoria.” 

Interestingly, Blair Chapman says New South Wales estimated dwelling stock has also outpaced population growth but to a lesser extent than Victoria.

This is particularly good news for first-home buyers and those looking to get into the property market.

And although the Victorian government this week has all but officially abandoned its aim of building 80,000 homes for each of the next ten years, it turns out the southern state might just have something to crow about in the housing stakes after all.