Comments from Citi economists on the Australian housing market and what could force the Reserve Bank of Australia to cut again
This is via the Australian Financial Review today
- Citi expects the under supply in housing market will narrow over the next two years
- Population growth will slow
- Regulatory restrictions will lower demand for property from investors and foreign buyers
- Plenty of construction in the pipeline ... "If all potential pipeline construction for apartments comes into market, it will pose a significant downside risk to price growth for the next two years"
- Long pipeline means housing activity should support economic growth
Citi's modelling anticipates house price growth to slow to 4 per cent in 2016-17 and 3 per cent in 2017-18, and other economic challenges may mean the RBA will be forced to cut interest rates again below the record low 2 per cent
... "our central case for over six months has been that the RBA could cut the cash rate again to 1.75 per cent"
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The RBA meet next week (December 1). They'll be on hold and ther4e isn't another meeting until February. Plenty of water to flow under the bridge before then so we'll get a better picture of what to expect from the RBA in 2016.
A big risk for a cut could well come if the USD does not strengthen after the (what seems) likely interest rate hike from the FOMC in mid-December. There are plenty of expectations for the USD to fall after the cut (on the basis that the market is long USD going into it) ... any AUD/USD gains would not be welcomed by the RBA and could tilt them towards a currency-inspired cut. Too early for that at the moment, though.
