RBA Governor, Michele Bullock
The official interest rate is 4.35 per cent. Image: RBA.
  • The official cash rate remains at 4.35%.
  • Experts expect the move to instill confidence into the property market.
  • It is also widely expected that rates are at or close to peak.

The Reserve Bank of Australia (RBA) has hit pause on interest rates, leaving the official cash rate at 4.35%. The last time rates rose was last month.

In a statement, RBA governor, Michele Bullock, said:

“Last month, the Board increased interest rates by 25 basis points, following a period of four months where it had held interest rates steady. This decision reflected the Board’s view that progress in bringing inflation back to the target range of 2 to 3 per cent was looking slower than earlier forecast.

“While the economy has been experiencing a period of below-trend growth, it was stronger than expected over the first half of the year. Underlying inflation was higher than expected at the time of the August forecasts, including across a broad range of services.

“Conditions in the labour market had eased but remained tight. Housing prices were continuing to rise across the country as was the number of new mortgages. Given this, the Board judged that the risk of inflation remaining higher for longer had risen and an increase in interest rates was therefore warranted to be more assured that inflation would return to target in a reasonable timeframe.”

She added that higher interest rates are working to establish a more sustainable balance between aggregate supply and demand in the economy.

“The impact of the more recent rate rises, including last month’s, will continue to flow through the economy. High inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment. Holding the cash rate steady at this meeting will allow time to assess the impact of the increases in interest rates on demand, inflation and the labour market.”

PropTrack senior economist, Eleanor Creagh, commented: “The latest monthly Consumer Price Index Indicator (CPI) report revealed inflation was up by 4.9% over the 12 months to October 2023. While this is still above the RBA’s target, it continued the downward trend, which has seen inflation fall from a 30-year high in December 2022.

“After excluding volatile items, the annual rise in underlying inflation of 5.1% in October was the lowest since April 2022.

“Conditions are expected to continue to soften as the full impact of monetary tightening to date is yet to be felt and inflation is likely to continue moving lower as a result.

“The RBA has been clear that it has a low tolerance for allowing inflation to return to target more slowly than currently expected.”

Eleanor Creagh, PropTrack

“This means it’s likely the cash rate has peaked in this current tightening cycle, although should inflation data indicate inflation is returning to target at a slower pace than currently expected the risk of another lift in February 2024 remains.”

Confidence instilled in Australian housing market

Creagh said the December cash rate pause will, “… maintain both buyer and seller confidence.”

“Looking ahead, interest rates are either at, or very close to, their peak.

Eleanor Creagh, PropTrack

“The outlook for the economy is weaker, however, population growth is set to remain strong. Together with a shortage of new home builds and challenging conditions in the rental market, prices are expected to continue rising, though the pace of growth will continue to slow.”

PropTrack figures showed Australian property prices have remained resilient to the higher interest rates this year, with November marking the eleventh consecutive month of national home price growth.

“After falling 4.02% from March 2022 to December 2022, national prices are now up 5.53% from the low point recorded in December 2022. This brings them 1.29% above their previous peak to a fresh record high,” said Creagh.

Founder and managing director of Rethink Investing and Rethink Commercial Education, Scott O’Neill, also noted stability ahead for the Australian housing market.

“Holding the rate steady may offer some reassurance to property investors and homeowners as it implies relative stability in terms of loan and mortgage repayments,” he said.

A steady Christmas ahead

The hold on interest rates will be keeping Australia’s real estate market steady across the festive season, with rising appraisal numbers indicating a busy start to the New Year for real estate agents, according to the LJ Hooker Group.

This month’s pause will give time for the Reserve Bank to assess the impact of last month’s interest rate hike on households and Christmas spending, noted LJ Hooker Group’s head of research, Matthew Tiller.

Listings have been increasing in recent weeks but are expected to taper off over the holidays with an early return predicted for the market in 2024.

“Solid and consistent price growth during the past 12 months means homeowners regardless of their circumstances are now more confident that they will achieve a good sales price,” said Tiller.

“So while there is a component of sellers who are doing it a little bit tough due to last month’s rate rise, not everyone is listing because they are struggling to pay their mortgage.”

Matthew Tiller, LJ Hooker Group

“We are also seeing a lot of general sellers in the market – these are families looking to upsize or downsize as well as retirees who are moving forward with their plans because they feel assured and know there are buyers out there ready to purchase.”

Tiller predicts that the market will begin to favour buyers as listing numbers increase, however, prices are expected to remain steady.

The three levers of strong population growth, a very tight rental market, and low unemployment continue to unleash demand, and supply of new homes remains scant.

Investor market varied, and sellers headed to market earlier

A full spectrum of activity may be ahead for the investor market, as Tiller expects the tight rental market to encourage cashed-up investors to purchase, while others will reduce the size of their portfolio as they adapt to rising interest rates, particularly those with highly leveraged multiple property portfolios.

Sellers who are prepared to go to market sooner rather than later could find some advantageous sales conditions over the summer break.

“There are still buyers out there in the market and while auction clearance rates have softened a little, they remain above 60 per cent which is still a good number,” said Tiller.

“There is an advantage to having your property on the market over the Christmas period because buyers have time, they are off work and can scroll through listing portals to see what is happening in their local market. So, there is less competition and being the start of the year many buyers have renewed motivation.”

A change in conditions for developers?

“In the long run, Australia is grappling with a severe shortage of properties,” said O’Neill.

“Increased interest rates are dissuading developers from constructing and discouraging investors from supplying rental properties to the public, which is consequently resulting in historically low vacancy rates.

“This situation is concurrently causing unprecedented growth in rental rates. As a result, the vulnerable factions of our society suffer the most due to these elevated rates.

“Therefore, maintaining steady interest rates could potentially bring relief to these individuals.

A broadly expected hold

CoreLogic’s Eliza Owen said the move to hold interest rates at 4.35% was widely predicted, as several data flows came in weaker through November.

“Retail trade fell -0.2% month-on-month, and although still low, the unemployment rate ticked up 20 basis points to 3.7% in October,” said Owen.”

“The monthly CPI measure also declined, but this may have had less influence on the RBA decision.”

Eliza Owen, CoreLogic

“That’s because October CPI was impacted by various subsidies, including the increase to the Commonwealth Rental Assistance, and excluded some services where inflation is more persistent. This gave a less clear read on inflationary pressures.”

“Offsetting the weaker data flows was a surprisingly strong month of housing lending in October, up 5.4% month-on-month. The uplift in lending may be short lived however, with CoreLogic currently estimating a month-on-month decline in sales volumes over November.

“Recent market performance indicates that while housing has been surprisingly resilient this year in terms of capital gains, interest rate increases have had some impact.

“This is particularly the case where rate increases were unexpected.”

“This was evident following the ‘surprise’ rate hike through June, and appears to have had some impact through November. CoreLogic’s national Home Value Index recorded its lowest monthly increase since February, with values up just 0.6% in November.

“The slowdown in housing market performance has been led by Melbourne, where values actually fell -0.1% in November. Sydney also saw a marked slowdown in the rate of growth from 0.7% in October to 0.3% in November.

“Rates are not the only factor slowing housing market performance, with stretched affordability and more normalised stock levels also having an impact.”




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