RBA keeps cash rate on hold with Omicron a new source of uncertainty

At its final meeting for 2021, the Reserve Bank of Australia has opted to keep the official cash rate at its historic low of 0.1 per cent, with a new Covid variant causing some market uncertainty.

In his monthly statement today, RBA Governor Dr Philip Lowe said the Australian economy was recovering well from the setback the Delta outbreak caused, and while the emergence of the Omicron variant was unsettling, it shouldn’t halt the progress made.

“High rates of vaccination and substantial policy support are underpinning this recovery,” he said. 

“Household consumption is rebounding strongly, and the outlook for business investment has improved.

“The emergence of the Omicron strain is a new source of uncertainty, but it is not expected to derail the recovery.

“The economy is expected to return to its pre-Delta path in the first half of 2022.”

Dr Lowe said house prices had risen strongly in the past year, as had housing credit (6.7 per cent), but more recently, both had eased.

He said with interest rates at historic lows, it was important lending standards were maintained and borrowers had adequate buffers built into their mortgages.

The labour market is also strongly recovering, Dr Lowe said, with job ads at historically high levels and reports of firms finding it difficult to hire workers. 

“Wages growth has picked up, but at the aggregate level, has only returned to the relatively low rates prevailing before the pandemic,” he said.

“A further pick-up in wages growth is expected as the labour market tightens.”

Dr Lowe said the board would not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range, which was likely to take “some time”.

But unlike the RBA’s November statement, this time there was no mention of the end of 2023 being the timeframe underlying inflation was expected to reach 2.5 per cent.

Geoff Lucas, The Agency

The Agency Chief Executive Officer Geoff Lucas said there had been a significant increase in investor lending, with Australian Bureau of Statistics data released earlier this week showing new loan commitments rose 1.1 per cent in October to $9.73 billion, which is the highest level since April 2015.

“That points towards potential APRA (Australian Prudential Regulation Authority) action in 2022,” he said.

“Already the banks are doing a little bit of that work because they’re increasing their fixed loans.”

Mr Lucas said while the financial markets had been pricing in potential interest rate increases in 2022, he had remained steadfast in the view that they would remain the same for the majority, if not all, of next year.

“With the new Covid variant Omicron, what we’ve seen from that is increased caution, and financial markets are now, as a result of that increased caution, starting to back away from their aggressive stance on interest rate increases,” he said.

“So I guess that gives further weight to interest rates remaining where they are for the vast majority, if not all, of 2022. That contributes to the strength of the investors.”

Mr Lucas said there had been a significant increase in the number of properties coming to the market, and the market had shifted in the direction of equilibrium.

But he said that would not result in a correction due to low-interest rates and expats returning to the market with international borders reopening.

“That underpins the market, particularly at the mid to high levels of the market,” Mr Lucas said.

Mr Lucas said stock levels in regional property markets were tight, just as they had been in the cities in recent months. 

“We’re seeing very strong prices in the regions still because of the lack of volume of homes,” he said. 

The Agency CEO Geoff Lucas.

Andrew Acton, Explore Property 

Explore Property Leader Andrew Acton said there had been talk of interest rate increases “because they really can’t go anywhere else” given their historic lows.

But he said the RBA seemed intent on keeping things steady, and he didn’t anticipate the cash rate would move for some time.

“Interest rates are going to go up at some point, I think we all accept that,” Mr Acton said.

“But even if they do climb, it’s going to be at a rate that’s going to be slow.”

Mr Acton said the days where the cash rate was at 8 to 10 per cent would not return in the foreseeable future.

“I certainly don’t think you’ll see it over the next decade to 20 years,” he said.

“The world is a different place, and the way the economy is driven and the way we look at things has changed.”

Mr Acton said, speaking to agents on the ground, there was a positive outlook moving into 2022, and there wouldn’t be the traditional end of year market slowdown.

“What we’re sensing from across our offices is that while Christmas is going to be there, and it’s going to be relevant, it’s not going to have the bearing or the gap in the market we used to see once,” he said.

“Things are going to increase and pick up over the next period of time as people have got more time to and space to look into other opportunities.”

Mr Acton said the market in northern regional Australia had experienced a boom, with agents, including one in Townsville, reporting that the market had bounced back from being “as flat as it could be” a few years ago to being strong and buoyant now.

“There’s been a really big change,” he said.

“This has just brought a whole new lease of life to some of these lifestyle locations and regional and northern Australia in particular.”

real estate leadership
Explore Property Leader Andrew Acton.

Manos Findikakis, Eview Group

Eview Group Chief Executive Officer Manos Findikakis said the RBA’s decision was in line with what he had been anticipating, given a softening of buyer inquiry and numbers at open homes.

“APRA is also continuing to tighten its lending criteria, which puts pressure on buyers’ ability to borrow, and then we’ve got the traditional slowdown over Christmas,” he said.

“I think it’s natural to see a slight downturn. We’ve also got an influx of new listings, which has created great opportunity for increased buyer choice.

“The supply-demand curve has swung slightly in favour of buyers.”

Mr Findikakis said there had been some significant prices achieved in the market in October and November, but they had to level out, there had been no signs of price decreases.

“We’re still getting continued multiple offer situations, and while there may not be five per property, we’re definitely seeing two or three, and that stimulates that competitive nature,” he said.

“From a seller’s point of view, if they’re contemplating coming to market, they need to be sensible with their price expectations.

“While the market has dampened compared to the last 60 days, it’s still a great market for well-presented homes.”

Mr Findikakis said he expected the market to remain strong in 2022 and that the Omicron variant would have little impact, even if restrictions or lockdowns returned as people were familiar with the process.

Eview Group Director Manos Findikakis.

Andrew Cocks, Richardson & Wrench

Richardson & Wrench Managing Director Andrew Cocks said the RBA’s decision was “widely anticipated,” with the bank previously having made it clear it didn’t intend to change the cash rate for some time.

Mr Cocks said he didn’t see that altering in the next three to six months, particularly as Australia takes its first “tentative steps” out of full pandemic mode.

“I don’t see any major change to that in the next three to six months, really while the market restabilises and we get all of the impacts of the Queenslands this world and potentially, one day, even Western Australia reopening,” he said.

“I think once the impact of all of those changes, as well as the uncertainty around new variants and the way that the world and also Australia deals with that, are known, then we will have a bit more normality.

“Once those very tentative steps out of pandemic mode start to play out in the marketplace, they will have a better feel for what the long-term and underlying trends are going to be in terms of market behaviours.

“That is really going to have the biggest impact on monetary policy.”

Mr Cocks said low interest rates had pushed prices up and increased demand, but the market was now starting to shift with more vendors deciding to sell at a time when buyers were starting to exit the market.

“We’re clearly seeing that in terms of the market behaviours,” he said.

“We’re seeing some very significant changes in terms of buyer behaviour and registrations at auctions, with all of those sorts of things really starting to come off.

“There’s also all the talk around the number of properties that go to auction and then don’t sell and transition to private treaty sale. We’re seeing a lot more of those, and that’s happening across the board, certainly in NSW and Victoria.”

Mr Cocks said the reopening of international borders and the recommencement of international tourism would all impact the property market in some way in 2022 but exactly how was yet to be seen.

He said he expected rental yields to improve by the end of 2022, and vacancy rates, which had already started to drop, would fall further next year.

“It will become much more a landlord’s market in the second half of 2022,” Mr Cocks said.

“All of these things are going to play out until we get back to some semblance of normality, which in reality, isn’t going to happen until 2023.

“So we’ve got another 12 months of continuous change, and hopefully it’s change as we move out of the pandemic mindset, but it’s still going to be change nonetheless.”

Richardson & Wrench Managing Director Andrew Cocks.

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.