A plunge in house prices around the country including Canberra will put pressure on the Reserve Bank to keep interest rates unchanged when its board meets today.
The case for an interest rate cut before the end of the year has also firmed as the Australian Bureau of Statistics house price index issued yesterday which calculates the average for the country's eight capitals fell by the sharpest pace in three years at 0.3 per cent in the June quarter. This left the annual rate at its slowest pace in two years at 8.2 per cent, compared with 13.2 per cent growth in year to March. Canberra house prices fell by 1.4 per cent in the quarter but growth in prices of 7.2 per cent over the year showed the market remained relatively strong.
A private survey also shows job prospects are deteriorating as businesses wind back their hiring intentions, which could see the unemployment rate spike towards 5 per cent in coming months. The ANZ newspaper and internet job ads series fell by a seasonally adjusted 0.3 per cent in July.
These two gloomy reports add to data pointing to a rapidly slowing economy, which economists say could see RBA cutting interest rates before the end of the year.
At today's board meeting, the RBA is widely tipped to leave its cash rate at 7.25 per cent for a fifth straight month after four rate rises, each of 0.25 per cent, in the past 12 months. But it may lay the groundwork for a change in monetary policy.
Amid the gloom, there was some welcome news, with the biggest fall in petrol prices in four years. Petrol prices fell by 6c per litre in the past week to an average price of 153.5c a litre.
Figures from the Australian Institute of Petroleum showed the average household was paying nearly $215 a month on petrol, a fall of $15 over the past two weeks.
CommSec chief equities economist Craig James warned that if the RBA cuts rates, it could spark a new rush into the housing market.
''The fear of being left behind, or even worse, shut out, was behind previous surges in house prices.
''If rates are cut in coming months, investors could easily swing from cash-based investments and the sharemarket to the property market.''
ANZ head of Australian economics, Warren Hogan, said, ''In conjunction with other economic data release in recent months, the job advertisements series provides further evidence that the current level of interest rates is achieving the RBA's desired slowing in domestic economic growth.''
But Macquarie Bank economist Rory Robertson said the fall in house prices added to the case for a rate cut sooner rather than later.
''The reality is that home prices have probably fallen a bit more than the 0.3 per cent that the statistician reported today,'' Mr Robertson said.
''But it does fit the story that tight monetary policy is biting and the case for the first interest rate cut is growing.''
Dr Hogan said recent trends suggested there would be an easing of employment growth in coming quarters consistent with the general economic slowdown.
The ANZ job ads showed an increase in ads only in the ACT where the number of job ads for July rose by 4.2 per cent and in Tasmania, where the number of ads rose by 1per cent.
The latest Australian Bureau of Statistics labour force figures are due out on Thursday and Dr Hogan said the ANZ expected ''a gradual drift up'' in the unemployment rate, which is currently at 4.2 per cent.
''ANZ is forecasting unemployment to be around 4.9 per cent by June 2009,'' he said.
National Australia Bank senior economist Spiros Papadopoulos said the RBA, in its accompanying statement issued after the board meeting, could reveal its future intentions on rates.
''Their statement is likely to further highlight the downside risks to growth following the very poor run of data over the past week,'' Mr Papadopoulos said.
NAB expects the first rate cut to be in the first quarter of next year. with AAP