“The labor market is tight and if we see an acceleration in wage growth so that it catches up with inflation, it would be positive for prices,” he says.
Andrew Wilson, chief economist at My Housing Market, expects real estate prices in the two major capitals to fall a “few percent” this year, having already moderated from their two-year boom.
“Melbourne and Sydney have consolidated those higher prices and there is no capacity left to grow at last year’s spectacular pace,” he says.
Rising interest rates will have a sobering effect on buyer confidence, but housing demand continues to outpace supply, he says.
However, controlling inflation will not just be a “light tap” by the RBA, but a combined period of higher rates, Wilson says.
Compensations for the dampening effect of higher tariffs include a strong economy, full employment, wage growth and the opening of international borders and the reintroduction of high levels of immigration, he says.
AMP Capital’s Oliver says there’s a chance the RBA could raise cash interest rates by as much as 0.5 percent on Tuesday in a bid to stay ahead of inflation.
Either way, we’ll probably have a 0.5 percent cash interest rate at the middle of the year, Oliver says.
He predicts official rates will reach 1.5 percent by the end of the year, with further hikes on the way.
Markets expect an even higher cash rate of 2.5 percent by the end of 2022.
“Fixed rates have already gone up and variable rates will rise, which will push prices down considerably, which we are already starting to see in Sydney and Melbourne,” said Oliver.