Neil Breen of 4BC Drive recently engaged in a conversation with Shayne Elliott, CEO of ANZ Bank, discussing the current state of property prices and borrowing capacity in Australia. The dialogue highlighted concerns over potential declines in house prices and the factors influencing these changes.
According to a report by ANZ Bank, the primary driver behind falling property prices is not an increase in forced sales but rather a reduced borrowing capacity. As interest rates rise, individuals may find themselves able to borrow less than before. "All we are saying is if interest rates are higher, you're going to be able to borrow less," explained Elliott.
The Reserve Bank of Australia's cash rate currently stands at 1.85%, with expectations for it to rise potentially affecting borrowing capacities significantly. Breen noted that "for the cash rate to reach 3.35%... equates to a reduction in borrowing capacity of nearly 30%."
Elliott acknowledged that while news of declining house prices could be shocking, it's essential to consider this as a correction from recent price booms. "Let's not forget, it's just retracing some of the boom and inflation we have had in pricing over the last two years," he stated.
For those who have recently purchased homes or extended themselves on multiple properties, there might be increased risks involved. However, Elliott reassured homeowners that as long as they can afford their mortgage payments despite fluctuations in house prices, they should continue without undue concern.
The discussion also touched upon wage growth data indicating a 2.6% increase over the past year—still lagging behind inflation rates—raising additional worries about economic conditions for Australians.
On an international note, Breen referenced UK inflation reaching 10.1%, prompting Elliott's observation that such figures are part of broader global trends influenced by factors like oil prices and supply chain issues.
In conclusion, while market dynamics present challenges for borrowers and homeowners alike, Elliott emphasized resilience: "If people got in and they can afford to keep going, they should."