Reserve Bank survey shows pundits increasingly divided over house prices and OCR

Friday, 11 February 2022

The lack of consensus over medium-term interest rates suggests fixing mortgage rates is more of a gamble than usual.

A survey of economic expectations published by the Reserve Bank shows top pundits are increasingly at odds over where interest rates and house prices will end up over the next two years.

The Reserve Bank said the 33 business leaders and professional forecasters polled on its behalf by researcher Nielsen showed “a wide range of forecasts” for house prices both one and two years ahead.

On average the influential group was expecting house prices would edge down 0.39 per cent over the coming year, the first time the consensus has been for a price drop since July 2020, when a fall did not in fact eventuate.

But the central bank said individual forecasts ranged from expectations of a 10 price drop to a 15 per cent price rise, “with negative and positive views evenly split”.

* Household living costs rose 5.2% in 2021, with mortgage interest included

* ANZ lifts OCR forecast to 3% by April next year while still hedging its bets

Looking two years ahead, the average expectation was for a 2.5 per cent rise in house prices over the period.

There is a very strong consensus that the Reserve Bank will raise the official cash rate (OCR) by 25 basis points, to 1 per cent, when it releases its next monetary policy statement on February 23.

But the Reserve Bank said there was “significant variation” over where the experts thought the OCR would land up next year and the year after, with forecasts for the OCR at the end of 2023 ranging from 1.5 per cent to 3 per cent.

“This wide distribution of forecasts represents a level of uncertainty for medium term OCR expectations,” it said.

ANZ is one of the financial organisations that has been heavily hedging its bets in forecasts.

The average expectation was that inflation would stand at 4.4 per cent in a year’s time and just under 3.3 per cent in two years’ time – both above the Reserve Bank’s 1 to 3 per cent target band.

There was reasonable consensus official unemployment would remain subdued, and remain below 4 per cent over the next two years.