Real estate agents are calling February 28 Super Saturday – the biggest February sales roster on record – with a property to go under the hammer every six seconds between 10 am and 4 pm.
For the fourth weekend in a row, a wave of action sees more than 3300 homes go on the block around the country – 1000 in Sydney and 1400 in Melbourne.
It’s a sales frenzy that is mana from heaven for the property spruikers – and no doubt for many sellers – and the source of cold fear for the Reserve Bank of Australia.
Or at least it should be.
This month’s quarter-percentage point interest rate cut has put a fresh rocket under a market that was showing signs of faltering late last year. In just a handful of weeks, annualised rates of price growth have accelerated by about 50 per cent to almost 10 per cent – four times the pace of inflation and wages.
Buoyant auction clearance rates were recorded in Sydney and Melbourne last weekend, 86.2 per cent and 75.8 per cent respectively –the highest levels recorded since 2009, according to CoreLogic RP Data.
Its a surge in turnover that will result in unsustainable prices rises, CoreLogic analysts warned this week.
ACTION DRIVEN BY INVESTORS
There are also fresh signs that much of the action is being driven by investors – the very group the Reserve Bank has called out to be cautious. Official data this week showed 43 per cent of loans approved in the fourth quarter were interest only, and lending to investors is up 16 per cent from a year earlier.
Separate Reserve Bank figures released on Friday showed monthly investor lending growth crept to 10.1 per cent in January – and that’s before February’s rate cut. The figure is significant because it’s above the 10 per cent level regulators said last year they didn’t want banks to exceed.
For a central bank that has repeatedly warned of the dangers of runaway price growth, all the evidence should cause pause for reflection.
Adding fuel to this bonfire is fraught with risk. Prospects of a bubble –and inevitable painful correction – grow with every rate cut.
Yet the Reserve Bank board will be sorely tempted to do just that on Tuesday, with a greater-than-even chance they take the cash rate to a fresh record-low of 2 per cent.
Were it not for the property price frenzy in concentrated pockets across Sydney and Melbourne,Tuesday’s board meeting would be simple; the rest of the economy could use some stimulus in the form of a follow-up cut.
Figures published on Thursday showed business plans – particularly outside resources, which is already sputtering – are far weaker than expected. That’s bad news for the Reserve Bank, which has been sweating on a rebound in business spending this year to help shake the economy out of its current funk.
UNEMPLOYMENT CERTAIN TO KEEP CREEPING UPWARDS
Without a reinvigoration of the so-called business “animal spirits” Reserve Bank governor Glenn Stevens has been trying to invoke, unemployment is certain to keep creeping upwards from its current 12-year peak of 6.4 per cent.
Wage growth is also very soft, according to data released on Wednesday, rising just 2.5 per cent in the fourth quarter – the lowest annual increase in records going back 17 years.
Both sets of numbers expose an economy close to shrinking in real terms – with nominal growth likely to be soft, even contractionary, in next week’s national accounts for the December quarter.
Developments abroad are also relevant to Tuesday’s looming rate cut, with this week’s testimony by Janet Yellen pointing to further delays in the timing of Federal Reserve’s first post-crisis rate hikes. That means that the Australian dollar is less likely to continue its slide towards the US75 level Stevens wants. It may even appreciate.
All of which is unwelcome news for Canberra, where a struggling government needs all the help it can muster in the lead-up to May’s budget, expected to reveal fresh revenue write-downs.
Bill Evans, at Westpac, HSBC’s Paul Bloxham, Adam Carr at Deutsche Bank and ANZ Bank’s Felicity Emmett are among prominent economists tipping a cut on Tuesday.
Their logic is sound. What, other than renewed exuberance in the housing market, has changed from four weeks ago, when Mr Stevens hinted at further cuts to come? They’re counting on the governor’s preference to take action once his mind is made up.
If he doesn’t cut, the decision will be a reminder of how a relatively small part of Australia’s sprawling national economy is having a disproportionate influence on policy decisions.