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What does the continuation of a 4.1 per cent cash rate mean for property? Geoff Lucas lends his perspective.
According to The Agency CEO, the decision by the Reserve Bank of Australia (RBA) to keep the cash rate at 4.10 per cent for the second consecutive month “is good news for the economy”.
He explained: “It means the RBA has detected movement indicating the previous rate increases have begun to have an impact on the economy, and now wishes to assess more data to ensure the impact continues.”
On the other hand, Mr Lucas acknowledged that “the downside to the pause is that it can cause sentiment to improve which sets off further inflationary drivers”.
“Don’t get me wrong – the CPI movement last week was positive – it’s just that inflationary pressures remain and a further increase would assist in keeping the foot on the throat of inflation,” he commented.
Zooming in on the property market, the CEO highlighted that the industry is now seeing a significant increase in residential listings across the eastern seaboard.
“As a result, the mini boom in prices over the last quarter has begun to taper, with some markets showing signs of stagnation or even decline.
“This is a significant shift in momentum as what was a strong seller’s market moves towards equilibrium and towards signs of a buyer’s market in some cases.
“We believe this shift will continue with further decreases in price growth trending to overall softness later in the year and into the first part of 2024.”
It’s a different story on the other side of the country, with Mr Lucas touting a completely different set of circumstances at play in Western Australia.
He outlined: “What has been an exceptionally strong market is now showing signs of a slight decrease in listings, similar to what occurred the past year on the eastern seaboard. The reduction in supply, strong economy, high liveability, investor demand and growing migration from the eastern states will all serve to ensure continued price stability during a slowing in volumes.”
Reiterating that the holding of rates at 4.10 per cent does offer up good news regarding the RBA’s stance on inflationary pressure, the CEO also took the time to warn that concerns remain, highlighting the danger of ‘services inflation’ is still strong.
“It’s this component that is hard to shift and is especially susceptible to a rebound in consumer sentiment,” he conceded.
He listed a number of factors suggesting that inflation is not yet under control: “Energy prices and wages contributing to increased inflation from July. As well as this, rent increases are still not fully reflected in the inflation data. In addition, Australia has the highest amount of savings ‘buffer’ from pandemic stimulus.”
“It’s this buffer that’s keeping the services component of inflation strong. That buffer isn’t expected to dry up until late in the calendar year, around the same time the full impact of the mortgage cliff is being felt and unemployment begins to rise.”
It led Mr Lucas to predict: “It’s quite possible there will be at least one more rise before Christmas.
“The data shows monetary policy is beginning to work – and sometimes when the symptoms of an illness are tapering off, it’s good to keep up the medicine – no matter how it tastes.”
ABOUT THE AUTHOR
Grace Ormsby
Grace is a journalist across Momentum property and investment brands. Grace joined Momentum Media in 2018, bringing with her a Bachelor of Laws and a Bachelor of Communication (Journalism) from the University of Newcastle. She’s passionate about delivering easy to digest information and content relevant to her key audiences and stakeholders.
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