The Reserve Bank is poised to drive official interest rates to a fresh-10 year high of 3.6 per cent to quell cost-of-living pressures which have driven record numbers of Australians into holding down multiple jobs to make ends meet.
But there are growing signs the RBA’s aggressive tightening of monetary policy is now causing pain across the housing sector with tumbling levels of new mortgages and home approvals.
Home approvals and new mortgages are falling as higher interest rates start to bite.Credit:Bloomberg
The Reserve Bank has increased the official interest rate at its past nine consecutive meetings, lifting the cash rate from 0.1 per cent at the start of May last year to 3.35 per cent following its first meeting of the year in February.
Financial markets and economists expect RBA governor Philip Lowe to announce a further quarter percentage point increase in the cash rate on Tuesday afternoon while signalling even more rate rises through the rest of the year.
In the past week, there has been a lift in the number of indicators suggesting the housing market is struggling.
According to the Australian Bureau of Statistics (ABS), the value of home loans in January fell by 5.3 per cent after a 4.3 per cent tumble in December. They have now fallen by a record 35 per cent lower over the past 12 months.
The number of first home buyers taking out a loan has fallen to its lowest level in five years. Loans to first time buyers dropped 8.1 per cent in January after a 4.1 per cent fall in December. These loans have fallen 57.5 per cent since peaking in early 2021 and are now 27.5 per cent lower than their immediate pre-COVID level.
The drop-off in loans is also feeding into a sharp fall in home approvals which tumbled by 27.6 per cent in January. It was the single largest monthly drop since at least 1979.
AMP Capital chief economist Shane Oliver said the data suggested the Reserve Bank may have done enough but the institution was still likely to lift interest rates.
“However, following the run of softer economic data we expect that the RBA may ease its tightening bias a bit,” he said.
AMP Capital chief economist Shane Oliver says the RBA has probably done enough but is still likely to lift interest rates on Tuesday.
There’s also signs the jobs market is starting to cool.
Job vacancies as measured by the ABS fell to 440,100 in December, an 11.2 per cent or 55,100 drop on their September level. There was also a 0.4 per cent fall in the proportion of vacant jobs across the economy.
The overall jobs market still remains tight, but the figures suggest people are struggling under cost- of-living pressures.
The number of multiple job holders increased by 1.7 per cent to a record 925,000, with the proportion of multiple job holders increasing to 6.8 per cent of all workers. The most multiple job holders are in education and training, healthcare and administrative support.
Asia-Pacific economist at job site Indeed, Callam Pickering, said the multiple job numbers were pointing to two key issues.
“There are a lot of jobs available and therefore an opportunity to take on additional work if you want more hours,” he said.
“[And] cost-of-living pressures have created the need for some people to take on additional work to keep their heads above water.”
A measure of consumer trends compiled by NAB’s behavioural and industry economics team also shows people are now struggling.
Forty per cent of Australians surveyed by the team reported some form of financial hardship during the December quarter of 2022, the highest level since before COVID. One in three said money was their biggest cause of trouble while a quarter said they were under pressure to make ends meet.
Low-income earners are suffering the most while a quarter of people on incomes of between $50,000 and $75,000 reported pressure to cover all their bills. In the September quarter, 19 per cent of people in this group were struggling.
The Reserve Bank board meeting is the last before Treasurer Jim Chalmers receives an independent review of the RBA at the end of the month.
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