Figures out today on retail sales and building approvals will go a long way to setting the timing for the first interest rate rise from the Reserve Bank.
Governor Glenn Stevens made it clear on Monday to a Senate Committee that a rate rise will happen because the economy is recovering.
Figures out later today from the RBA for private credit for August will confirm that apart from owner-occupied housing, there’s no real upward pressure on rates coming from demand for loan funds.
Business and investor fund needs from the banks are low, with annual growth around 3% to 4% for the past few months.
Companies listed on the ASX have raised the best part of $114 billion in the past 15 months or so and this has enabled them to cut loans from banks, restructure the remaining debt and remain afloat and paying their way.
According to Macquarie Bank interest rate strategist, Rory Robertson, the RBA will increase rates in consecutive months starting in November if there are signs of continuing improvement in the economy.
"We’ve known for a while now that the RBA is keen to start removing its 3% "emergency policy setting" at the earliest available opportunity, and November is looking increasingly firm.
"Nothing is guaranteed, but the scenario of back-to-back 25bp hikes in November and December should be taken seriously," Mr Robertson said.
He said that good news on the economy will be ‘bad’ news for interest rates.
The building industry is an area to watch, which is why the building approvals figures for August will be a good figure to keep an eye on.
They will show a surge in first home buyer approvals, and slower growth in demand for loans for existing homes (but this could start showing signs of accelerating).
The RBA Governor has already indicated it is watching the land development and housing sector very closely for signs of any bubble in prices, as well as bottlenecks and pricing pressures on resources and labour.
That’s why a speech yesterday by Anthony Richards, the head of analysis at the central bank, is worth reading.
He warned that house prices may surge too fast, hurting low-income families seeking to buy or rent homes.
“Looking forward, the risk is that we might move toward undesirably strong growth in Australian housing prices.
“This raises a number of concerns, which seem to be widely shared in the community.”
"When the price of housing rises, higher-income households tend to benefit at the expense of lower-income households.
"As I have noted before, as a nation, we are not really any richer when the price of housing rises, but the more vulnerable tend to be hurt."
House prices rose 4.2% in the June quarter from the previous three months. That was the first rise in 15 months.
Richards said it’s “increasingly clear” Australia has avoided the large drops in property prices seen in other countries.
“This is a good thing, because of the macroeconomic difficulties that have accompanied those price falls in some countries,” Richards said.
“It is becoming well understood that supply side factors, in addition to the well-known demand side ones, have contributed to the relatively high level of housing prices in Australia.
"Population growth and the demand for housing are strong. Furthermore, as the recovery picks up steam, labour shortages in the building industry may again emerge.
"Looking ahead, we can be fairly confident that the housing market, like other markets, will clear.
"The task for public policies is to help ensure that this occurs with relatively higher construction volumes and lower growth in prices, rather than vice versa."
