Finder’s RBA survey: Homeowners welcome rate reprieve as cash rate holds

Homeowners can breathe a sigh of relief as the RBA holds the cash rate in July.

In this month's Finder RBA Cash Rate Survey™, 39 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

A very slim minority of panellists (49%, 19/39) correctly predicted the cash rate would hold in July at 4.10%. This is just the second meeting out of 14 that has resulted in a hold since the RBA began raising the rate in May of 2022.

Graham Cooke, head of consumer research at Finder, said the decision could have gone either way.

"The latest inflation figures made a strong case for the RBA to pause its series of rate hikes.

"However, the RBA repeatedly states that its intention is to get inflation all the way to the target rate of 2–3% and we aren't there yet.

"While homeowners have been given a break this month, they should buckle up for further hikes this year," Cooke said.

According to Finder's Consumer Sentiment Tracker, 2 in 5 (41%) Aussie mortgage holders – equivalent to 1.35 million households – say they struggled to pay their home loan in June.

This is the highest proportion recorded since Finder began tracking the question in 2019.

Interestingly, 4 in 5 experts who weighed in* (80%, 28/35) believe the cash rate will peak between July and November this year.

On average, the panel forecasts that inflation would have to return to 3.25% before the RBA would consider cutting interest rates.

1 in 5 mortgage holders unable to refinance their home loan

New Finder research reveals 1 in 5 mortgage holders (19%) were knocked back when they tried to refinance their home loan over the past 12 months.

That's an estimated 652,260 borrowers who are no longer able to switch banks.

Almost 1 in 10 mortgage holders (8%) were knocked back over serviceability concerns – because they didn't earn enough money.

Graham Cooke said a refinance rejection would be a crushing blow to stretched mortgage holders.

"Thousands of homeowners are sinking under the weight of their home loan but have nowhere left to go.

"Lenders are turning away borrowers in droves who can't comfortably service a new loan despite being more affordable than the one they are stuck with."

More than 4 in 5 panellists (82%, 18/22) expect the number of households in mortgage prison to grow.

Malcolm Wood from Ord Minnett said, "Many mortgagees would be unable to meet a new stress test at current mortgage rates."

Stephen Miller from GSFM agreed, noting, "The criteria for [refinancing] will get harder as rates rise and regulators (maybe inadvertently or maybe deliberately) are making it harder for mortgagees to access refinancing."

The majority of experts (76%, 16/21) do not believe a fixed rate home loan in the current economic climate is a good idea for households; however, some homeowners may fix just to keep their rate from growing further.

Philip Lowe unlikely to retain his position

The majority of panellists (80%, 20/25) believe Philip Lowe will not remain the RBA governor by the end of the year.

Peter Boehm from Pathfinder Consulting said there is a general lack of trust and support for the current governor.

"He has shown through poor decision making and various public statements he does not understand the human impact of the rate rises he has instigated," Boehm said.

Nalini Prasad from UNSW Sydney said the RBA Review noted policy errors that occurred while Philip Lowe was governor.

"It's hard to change the culture of the organisation without changing its leader," Prasad said.

Rising property prices could come to a halt

CoreLogic data shows that despite average home prices being down 6.8% year on year in June 2023, monthly home prices rose 1.2% from May.

As such, more than 1 in 2 experts (55%, 12/22) forecast that home prices will peak between now and the March quarter of 2024.

However, more than half (54%, 14/26) do not expect average home prices to keep rising this year if there are more cash rate rises.

Panellists who forecast that home prices would not rise, said recent and future interest rate rises would constrain how much buyers could borrow.

Mark Crosby from Monash University said, "Drivers of recent price rises are likely to be short-lived with mortgage rates likely to increase by at least another 50 basis points."

However, Rich Harvey from Propertybuyer was one of a group of panellists who felt home prices would continue to rise due to increased demand via immigration and low unemployment.

"Despite rapid-fire interest rate increases at warp speed, the significant shortage of listings (down circa 30%) and the massive migration wave (with 400,000 migrants coming), means the supply of property has dwindled.

"With demand continuing to rise for property, prices must also rise," Harvey said.

*Experts are not required to answer every question in the survey

Here's what our experts had to say:

Mathew Tiller, LJ Hooker Group (Hold): "Latest data shows that inflation continues to fall. This should see the RBA hold and monitor the effect of the most recent rate rises on the economy."

Stephen Miller, GSFM (Hold): "Australia has stubborn inflation and a set of wage arrangements inimical to its containment. The RBA still needs to 'chop a lot of wood' to get ahead of inflation."

Jonathan Chancellor, The Daily Telegraph (Hold): "The RBA can afford to hold again as its private research behind the publicly available data must be showing that the economy is contracting as it sought it to do."

Noel Whittaker, QUT Business School (Hold): "It's a line ball but the RBA copped so much flack lately. I think they might pause – Michelle Bullock has said recently they are aware of lead times. But more rate rises in the future for sure"

Harry Murphy Cruise, Moody's Analytics (Hold): "The economy is in a tug-of-war. On one side, price rises are pulling cost-of-living pressures higher. On the other, the Reserve Bank of Australia is hiking rates more aggressively than at any point in its history. Households and businesses are caught in the middle. As it stands, the RBA has its nose ahead in the contest. The economy is slowing, spending is going sideways, and firms are cutting their hiring plans. All that is helping to bring down inflation. But the RBA isn't willing to take any chances. The board struck a notably hawkish tone at its June meeting, flagging that more rate hikes are a distinct possibility. With data since then showing unemployment dropped back to 3.6% in May, additional tightening is likely. We expect one further rate hike in coming months, taking the cash rate to 4.35%."

Shane Oliver, AMP (Hold): "A +0.25% hike in July or August is a close call. The bigger than expected fall in inflation in May gives the RBA scope to pause in July to better allow for the lagged impact of past rate hikes, but still too high underlying inflation and worries about wages growth point to a further increase in rates in the months ahead."

Jeffrey Sheen, Macquarie University (Hold): "The probability has significantly increased of the economy slowing down (and maybe experiencing a recession) by the end of 2023. Since monetary policy has long lags, now is the time to stop raising the cash rate. Inflation appears to have peaked with the monthly headline rate in April down to 5.8%."

Evgenia Dechter, UNSW Sydney (Hold): "The decline in monthly CPI, the sluggish growth, as well as other indicators, suggest that the RBA should pause. Given that we haven't yet seen all the impacts of the recent monetary policy on the economy as it passes through with a delay, the RBA should tread slowly to assess the full effects."

Tim Nelson, Griffith University (Hold): "Rate of change in relation to inflation is falling. As such, the previous tightening appears to be starting to have an impact. The RBA is likely to wait to see how further impacts manifest."

Rich Harvey, Propertybuyer (Hold): "With inflation now trending in the right direction downwards and the hip pocket nerve of consumers finally feeling the pinch, it is likely the RBA will pause this month for breath before raising it again in August."

Michael Yardney, Metropole Property Strategists (Hold): "The fall in the May monthly CPI figure as well as other signs that our economy is slowing down should give the RBA room to keep the cash rate on hold this month at 4.10%. However, it would not reduce the likelihood of 1–2 more interest rate rises in coming months."

Cameron Kusher, REA Group (Hold): "Encouragingly both headline and underlying measures of inflation slowed in May which I believe will give the RBA enough of a reason to pause this month. Noting that next month's quarterly inflation may still give them enough of a reason to lift rates again."

James Morley, The University of Sydney (Hold): "The lower than expected year-on-year inflation for April will provide cover for the RBA to hold at this meeting. If the Q2 number comes in high in late July, they will raise at the next meeting. Then I think they will hold for a few months, especially if conditions deteriorate given past increases. There is some chance they will cut by the end of the year if the economy goes into recession, although I think there is still a bit less than 50% chance of this happening this year."

Anthony Waldron, Mortgage Choice (Hold): "We saw a meaningful slowdown in inflation in May, with Australian Bureau of Statistics data showing the smallest annual increase in inflation since April last year, so I expect to see the Reserve Bank hold the cash rate steady in July."

Stephen Halmarick, Commonwealth Bank (Hold): "To help control inflation."

Nicholas Gruen, Lateral Economics (Hold): "It's line ball this month. I think the Bank may pause as economic conditions tighten."

Garry Barrett, University of Sydney (Hold): "Inflation persistently well above target range."

Jakob Madsen, University of Western Australia (Hold): "RBA wants the increase to be gradual."

Nalini Prasad, UNSW Sydney (Increase): "While inflation has slowed, it nevertheless remains high. Inflation is higher than the cash rate. Of particular concern is services inflation which primarily reflects labour costs. To bring this down the RBA will need to increase interest rates."

Dr Andrew Wilson, My Housing Market (Increase): "Stubbornly strong and strengthening labour market unaffected by rate rises over past year. Underlying inflation is still too high and significantly above target range. Responsible inflation-fighting policy demands more rate increases."

Tomasz Wozniak, University of Melbourne (Increase): "Despite the lower reading of monthly inflation in June at 5.3%, my forecasts tell the same story as last month. They indicate a 15 basis point rise in the cash rate, with further increases expected throughout the year. The narrow forecast interval, spanning the values from 4.16–4.34%, leaves little doubt about the projected raises."

Matthew Greenwood, University of Melbourne (Increase): "The latest inflation data came in lower than expected, but that outcome was mostly driven by fuel prices. Underlying inflation is still stubbornly high. That will be a concern for the RBA Board, which has signalled its intent to keep a lid on inflation expectations. Coupled with a strong labour market and low productivity growth, this points to a further tightening of monetary policy."

Stella Huangfu, University of Sydney (Increase): "It is clear from the CPI data released today that inflation in AU has started declining. However, with a 5.6% CPI inflation during the year up to May 2023, the RBA still needs to increase the cash rate further."

Sean Langcake, Oxford Economics Australia (Increase): "The RBA are justifiably concerned about the outlook for unit labour costs. With wage growth yet to peak and productivity growth underwhelming, upward pressure remains on services inflation. International experience shows how persistent and hard to rein in inflation can be in these components. July will be a line ball decision as there is relatively little new data. But we expect to see 2 more hikes by September."

David Robertson, Bendigo Bank (Increase): "The lower read on monthly CPI does open the door for a pause in RBA rate hikes, however in another close decision the official cash rate will probably still increase in July as the RBA continues its focus on core services inflation."

Malcolm Wood, Ord Minnett (Increase): "RBA guarding against a wage-price spiral spiral."

Geoffrey Harold Kingston, Macquarie University Business School (Hold): "According to reports, 3 of the Bank's board are runners for the new Governor position, which will be decided next month. Also, the May CPI was lower than expected."

Mala Raghavan, University of Tasmania (Increase): "Despite the inflation rate of 5.6%, which is lower than previous recordings, it remains significantly higher than the desired target range of 2–3%. A closer look at the CPI figures provided by the ABS reveals that 2 essential household categories continue to exhibit high prices. Housing costs remain at a high level of approximately 8.4%, while food and non-alcoholic beverages have increased by 7.9%, thereby impacting the overall cost of living index related to housing. The declining trend of the overall inflation figure indicates that previous cash rate hikes have effectively helped curb inflation. Consequently, the RBA should consider implementing 1 or 2 additional rate hikes to restore inflation to its target level."

Tina Teng, CMC Markets (Increase): "Inflation is well above the 2% target, while labour market stays tight, putting upside pressure on consumer prices. Consumer spending saw softening, suggesting demand weakens."

Leanne Pilkington, Laing+Simmons (Increase): "It was apparently a close run decision last month so while many will feel leaving rates on hold is warranted this time around, the RBA appears intent on at least 1 more increase to curb inflation, despite the looming risk of recession."

Mark Crosby, Monash University (Increase): "Inflation remains elevated, and still the need for 2 more rate rises."

Peter Boehm, Pathfinder Consulting (Increase): "The RBA has no option but to increase interest rates – and I suspect rates will be at least 0.5% higher over the coming months, than they are today. This is because inflation is still high and the Federal Government budget is on balance, inflationary. So you have fiscal policy going one way and monetary policy going the other – no wonder the economy is in such a mess. Plus, with central banks like the Bank of England increasing interest rates, the RBA has no option but to follow suit otherwise we'll see the inflationary impacts of a devaluing AUD. And it seems almost inevitable Australia will enter a recession, hopefully a shallow one, but a recession nonetheless. This will probably be the only way to get inflation under control since the RBA and Federal Government policies appear to be at odds with one another."

Tim Reardon, Housing Industry Association (Increase): "Because the CPI will remain well above 3%."

A/Prof Mark Melatos, School of Economics, University of Sydney (Increase): "Inflation, especially the trimmed mean of the CPI, remains significantly above the RBA's target band. The RBA is still in catch-up mode with respect to matching their cash rate settings to the inflation reality. The RBA currently seems particularly concerned about services inflation and potential wage increases unaccompanied by productivity gains."

Brodie Haupt, WLTH (Increase): "Inflation is not in the 2–3% target range and the labour market remains tight with unemployment around the 3.5% mark."

Dale Gillham, Wealth within (Increase): "The slight increase in CPI last month was not in line with expectations and so I think the RBA will want to ensure they have inflation under control before easing off."

Craig Emerson, Emerson Economics (Increase): "The RBA Deputy Governor has said in a speech that the RBA needs to increase the unemployment rate to 4.5%."

Nicholas Frappell, ABC Refinery (Increase): "Persistent inflation coupled with tight labour market and concerns that wages and prices become 'indexed' and therefore stickier."

Alan Oster, NAB (Increase): "RBA very focussed on inflation. Not so much the economy now."