Australian house prices fell at the fastest pace in at least six years last quarter, while a record drop in job advertisements pointed to yet higher unemployment, reviving pressure for a cut in interest rates this week. The Reserve Bank of Australia (RBA) holds its monthly policy meeting on Tuesday and analysts had thought it would skip a further easing, having already chopped rates by 4.25 percentage points to a record low of 3.0 percent.
Yet the grim data seemed to argue for more action now. "The weakness in house prices was a shock and bodes ill for household wealth and confidence, while the jobs figures were just terrible," said Stephen Roberts, an economist at Nomura. "We still doubt the RBA will cut, but it's a much closer call now." A Reuters survey of 19 analysts taken on Friday found all but one expected rates to stay on hold when the RBA announces its decision at 2:30 pm (0430 GMT) on Tuesday.
Investors still seemed to be of the same mind, with the local dollar strong and bond futures soft on a view the global economy was past the worst. While data abroad may have shown some sign of improvement, domestic indicators had taken a turn for the worse. The 2.2 percent drop in established house prices confounded forecasts of a flat outcome and left prices down 6.7 percent for the year, the biggest fall since the series began in early 2003.
The decline was still relatively moderate compared to many other developed countries. According to Case-Shiller, US home prices were down 18.6 percent in February, from a year earlier, while measures of British prices were down between 10 and 16 percent. But it was a shock to many analysts given that private indicators of house prices had been showing a pick up in the last couple of months as record low interest rates supported demand.
Variable mortgage rates have sunk by almost 4 percentage points since September. That has been a big windfall for home owners since almost 80 percent of Australian mortgages are floating, the reverse of the US where three quarters are fixed. As a result, interest payments as a share of disposable income fell to around 10 percent last quarter, from a peak of 15 percent in mid-2008.
Analysts suspected this improvement in home affordability may have been overshadowed by fears of unemployment. A survey of job advertisement by Australia and New Zealand Banking Corp showed ads fell 7.5 percent in April from the month before, the 12th straight month of decline.
That brought the fall since April last year to a 50 percent, the biggest annual decrease on record. "There can be little doubt that these numbers are consistent with our forecast of unemployment rising above 7 percent in the next 12 to 18 months, and most likely peaking above 8 percent," said Warren Hogan, ANZ's head of Australian economics.