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Agents could soon see a surge in activity after falling unemployment has increased the likelihood of an RBA rate hike, pushing buyers to act faster than anticipated.
Data from the Australian Bureau of Statistics (ABS) has shown unemployment has fallen lower than expected, prompting speculation the Reserve Bank of Australia (RBA) could hike rates in the coming months.
The Labour Force data showed that unemployment in December fell to 4.1 per cent from 4.3 per cent in November.
The tightening of the labour market was also reflected in the number of people employed, which rose by 65,000, while participation rose to 66.7 per cent.
The results come just two weeks before the RBA’s next cash rate meeting on February 3, with various market indicators, including job data, to shape the board’s decision.
Finni Mortgages principal, Eva Loisance, said the unemployment data suggested the RBA was much more likely to hike rates at its next meeting, but it would depend on next week’s inflation figure.
However, if the cash rate is hiked, Loisance said there was likely to be increased pressure on the property market as owner-occupier mortgage holders struggle to make repayments.
She said that a potential hike may see two different type of first home buyers emerge in the market, those who wait and those who rush.
“[This might] make first home buyers hesitate a bit more to enter the market itself, some that would be like, ‘it's just going to be too hard I can't afford this’,” she told REB.
On the other hand, she said some first home buyers may try to get into the property market as soon as they can, knowing they could be priced out later.
“I think a lot of first home buyers are ready to get in and that might make them feel like that’s the last chance we have to get in.”
She said that even if first home buyers are unable to get into the market, investors will potentially take advantage of the rates and go in harder, meaning there will be more activity regardless.
In light of the new data, Westpac has forecast that the RBA will tighten policy and hike rates in February and May.
The bank said that the labour market was previously one of the few data points not particularly concerning for the RBA, but that the central bank would now be scrutinising the metric ahead of its rate decisions.
“They will now add it to the list of things that are tracking stronger than their expectations as they finalise their February forecasts (subject to Q4 CPI data next week),” it said.
“Where the RBA may have felt there was a gradual uptrend in unemployment that risked further increases, they will now need to put more weight on the risk of retightening, from a starting point where they already assessed the labour market as too tight.”
Similarly, the Australia and New Zealand Banking Group (ANZ) has projected that a rate hike could come as early as February, saying both the unemployment and employment figures had been well above its expectations.
“While there appears to be some noise in the December labour force survey (namely the increase in employment of 15–24-year-olds, a part of the data that has been volatile recently), the decline in the unemployment rate does make a February rate hike more likely at the margin,” it said.
However, the bank said that the outcome depended on the Q4 trimmed mean CPI figure to be released next week, saying that if it remained at 0.8 per cent q/q, the RBA was expected to hold.
“On a 0.9 per cent q/q outcome, a rate hike would now appear a little more likely than not (pending the detail of the CPI),” it said.
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