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Reserve Bank keeps interest rates on hold for third consecutive month

The Reserve Bank of Australia has kept interest rates on hold for a third consecutive month as it seeks to gain more clarity on the nation’s economic outlook.

In what was outgoing Governor Dr Philip’s Lowe last time chairing the board, the RBA kept the cash rate at 4.10 per cent.

This comes after 12 interest rate rises, totalling 4 per cent, since May last year.

In his monetary policy statement, Dr Lowe said higher interest rates were working to establish equilibrium between supply and demand in the economy and would continue to do so.

“In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month,” he said.

“This will provide further time to assess the impact of the increase in interest rates to date and the economic outlook.”

Dr Lowe said inflation had passed its peak in Australia and the monthly CPI indicator for July had declined but, overall, inflation was still too high.

“While goods price inflation has eased, the prices of many services are rising briskly,” he said.

“Rent inflation is also elevated. 

“The central forecast is for CPI inflation to continue to decline and to be back within the 2–3 per cent target range in late 2025.”

Dr Lowe said the Australian economy was experiencing a period of “below-trend growth” and this would continue for some time.

“High inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment,” he said.

“Notwithstanding this, conditions in the labour market remain tight, although they have eased a little. 

“Given that the economy and employment are forecast to grow below trend, the unemployment rate is expected to rise gradually to around 4½ per cent late next year.

“Wages growth has picked up over the past year but is still consistent with the inflation target, provided that productivity growth picks up.”

Dr Lowe said there were still significant uncertainties about the economic outlook for Australia and services price inflation that has been persistent overseas could occur here. 

He said there were also uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages respond to the slower growth in the economy at a time when the labour market remains tight. 

“The outlook for household consumption also remains uncertain, with many households experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income,” he said.

“And globally, there is increased uncertainty around the outlook for the Chinese economy due to ongoing stresses in the property market.”

Dr Lowe said some further tightening of monetary policy may be needed to ensure inflation drops to its target range in a reasonable timeframe, but that would depend upon data and “the evolving assessment of risks”.

Geoff Lucas – The Agency

The Agency Managing Director and Chief Executive Officer Geoff Lucas said today’s interest rate hold was widely anticipated and signalled that the nation was likely heading into a period of little to no interest rate changes for “a considerable time”.

“This is a significant shift from the material reductions and increases we have seen over the last few years,” he said.

“We have only seen 2.7 per cent of the 4 per cent rate increases work their way through the market due to two main factors.

“First, the mortgage cliff phenomenon which has only just begun in July 2023, where over 1.1 million fixed-rate loans of circa 2 per cent are moving to circa 6.25 per cent, and will continue to March 2024.

“And second, the fact that the banks have been moving out of sync with the RBA, in some cases not passing on the increases in full, in an effort to try to win market share.”

Mr Lucas said even though the full impact of the previous 12 rate rises were still to be fully felt, agents on the east coast had started to see a significant increase in the number of homes coming to market, including investment properties and principal places of residence.    

“The same cannot be said for WA, where new listings remain five per cent below the prior year,” he said.

Mr Lucas said price increases in metropolitan house prices had started to taper off and he expects that trend to continue, with some price falls at the lower levels over the next six to 12 months, which would create opportunities for new and first-home buyers.

“The new environment we are seeing will likely create improved confidence for Australians to transact their homes in a market with less pricing volatility and greater stability in pricing,” he said.

“Increased unemployment is likely to further increase the supply of homes coming onto the market and potentially reduce buyer demand in some parts of the market and reflect the softening of prices we are likely to see in the next 6-12 months.   

“Looking at the premium end of the market, we are seeing continued record strength, which is being exacerbated by the low levels of supply.  

“Sydney, in particular, is continuing to record staggering increases at the super premium level.”

Mr Lucas said services inflation remained a concern for the economy and this, combined with cost of living pressures and higher for longer interest rates, would continue to increase the unemployment rate. 

“Notwithstanding an expected period of lower volatility, should services inflation remain elevated, we believe there is a chance of one final 25 basis point increase prior to Christmas,” he said.

Manos Findikakis – Agents’Agency

Agents’Agency CEO Manos Findikakis said today’s interest rate hold was expected and a good move from the RBA to restore some certainty into the market.

He said when the RBA last lifted rates in June it was a step “too far” and today’s decision was the right one.

“The 12 interest rate rises, to date, are certainly having an effect on the marketplace and to the everyday Aussie, mortgage holder and investor,” Mr Findikakis said.

“We’re certainly seeing people looking at their options in regards to offloading their investment properties and reducing debt by selling their principal place of residence because they’re maxed out.”

Mr Findikakis said he’d also noticed changes in unemployment, particularly in property management.

“The other thing we’ve also seen is an increase in applications for employment,” he said.

“We’ve seen that in property management and administration, so we feel that we’re seeing signs that unemployment might increase mildly.”

Mr Findikakis predicted interest rates had reached their terminal rate but he said he would not like to see rates drop anytime soon.

“I think the most prudent course of action would be to keep interest rates on hold,” he said.

“Because if there’s a reduction, that’s going to unsettle everyone again.

“I think at this point in time the Reserve Bank and economists need to give everyone confidence to make informed decisions without the thought of increases or decreases.”

Ray Ellis – First National Real Estate

First National Real Estate CEO Ray Ellis said today’s interest rate hold was good news and the “shock of 2022 and start of 2023 is now gone from people’s psyches”.

He said this meant buyers and sellers could now make property market decisions without the spectre of interest rates rising every month.

But he said it was now important to pay attention to household budgets.

“The national accounts come out tomorrow, and we’ve only got a growth of 0.4 per cent on the national accounts,” Mr Ellis said.

“The household sector, which affects property markets, was growing at zero in the June quarter, down from 0.2 per cent in March and 0.3 per cent in December.

“That means household spending is down and, while that doesn’t necessarily translate into buying property, everyone knows household budgets are stretched.

“And when household budgets are stretched, buying decisions are influenced and that’s what we’re starting to see now.”

Mr Ellis said buyers were being more cautious with their money, only buying properties that meet their needs and the days of paying significantly over vendor expectations were gone.

He said some vendors were also downsizing both their property size and their mortgages.

“Every weekend around Australia we see houses sell well above the reserve but that is more the exception now, not the norm,” he said.

“So a well-priced house and a well-priced apartment is being sold around the margins of what those price expectations are.

“The ability for people to just dip into their pockets and pay that extra has disappeared from the market.”

Mr Ellis predicted inflation would be under four per cent by the end of 2023, but that was still 2.5 per cent higher than the RBA’s target of 2-3 per cent.

“It’s going to remain at that low level probably until the middle of next year, so as that starts to become in line with expectations, we should expect some cuts around August, September, October next year,” he said.

Thomas McGlynn – BresicWhitney

BresicWhitney CEO Thomas McGlynn said the ‘wait and see’ mentality that many sellers adopted in 2022 with respect to future interest rate rises had all but dissipated with the view that the cycle was close to its peak.

“Today’s holding of the cash rate is further evidence of that and will serve the Sydney property market well for the remainder of the calendar year,” he said.

“The increase in spring-related listings is delivering more choice for buyers who may have been holding out for this period to make decisions.

“The stabilisation of house price growth is also a motivator for both buyers and sellers who recognise that the more significant gains are now more than likely behind us.”

Mr McGlynn said if the interest rate environment remained stable though, even in the short-term, there could me a little more price growth in coming months.

“There are ongoing economic indicators that will shape selling and buying conditions including the inflation rate, however it’s a markedly different environment to that of 12 months ago,” he said.

“Our transactions for August alone are 48 per cent higher than they were this time last year and the volume of property listed in August (150-plus) is almost 60 per cent higher than a year ago.

“These are very telling of sellers’ intentions and buyers’ willingness to move forward.

“With these factors in mind, we see spring as being the last ‘sprint’ for the year with respect to transactional activity, before a more stable first quarter of 2024.”

Nerida Conisbee – Ray White Group

Ray White Group Economist Nerida Conisbee said the next rate movement was likely to be a cut but she didn’t see that happening in 2023.

Instead, she said while inflation was declining, housing costs remained “problematic”.

“It is good news that the rate of change in construction costs are starting to moderate quickly,” she said.

“While still recording a year-on-year growth rate of 5.9 per cent, it is the smallest increase since October 2021. 

“Many of the drivers of high rates of growth are no longer such a problem. 

“Supply chains are moving easily again and this is improving productivity in the industry.

“With migration starting up again, labour shortages are starting to ease.”

But Ms Conisbee said the outlook in the rental market was gloomy, with rents sent to increase for some time yet. 

“Last year, we wrote about how although advertised rents were rising very quickly, it was yet to show up in the inflation figures,” she said.

“This is because there is a lag between when advertised rents start to increase and the flow through to already tenanted properties. 

“However, the converse is also true. Advertised rental growth is starting to slow but it will take some time for it to flow through to properties already rented.”

Ms Conisbee said rates also exacerbated rents and price growth because they impacted the number of new homes being built. 

She said housing approval levels had fallen to rates not seen in a decade.

“With housing finance costs so high, this is discouraging both owner occupiers and investors from buying new properties,” Ms Conisbee said.

“Fewer properties being built will push more people into buying or renting existing homes.

“The rents/rates spiral has a while to run.”

Mathew Tiller – LJ Hooker

LJ Hooker Group Head of Research, Mathew Tiller, said today’s interest rate hold was perfectly timed to boost the spring market and the confidence of buyers and sellers. 

He said inflation dropping to 4.9 per cent and a softening employment market gave the RBA time to pause and assess the impact of the 12 previous rate jumps on households and businesses.

“If inflation does get sticky then there is still the potential to increase rates again, but for the moment it is trending downwards and this will give both buyers and sellers the confidence to take action as we head towards the end of the year,” he said. 

“This means we are finally going to see a proper traditional spring selling season which is something that we haven’t really experienced since the pandemic. 

“There are a lot more listings coming onto the market, particularly in Sydney, and there are still buyers out there who have been waiting for the right home to come along.”

Mr Tiller said there had been a significant increase in appraisal numbers in the leadup to spring and, according to CoreLogic, 2300 properties are set to be auctioned nationally next weekend, which is much higher than this time last year. 

He said Sydney’s clearance rates remained at about 72 per cent.  

“As auction listings rise, then the clearance tends to fall but this is not what we are seeing at the moment,” Mr Tiller said.

“It goes to show there are buyers in the market and a fair amount of pent-up demand given that over the past 12-18 months there has been a real lack of choice and listings available.

“Steady interest rates mean buyers will feel comfortable with their existing mortgage or finance arrangement and can budget with more certainty for their next property purchase. 

“Those looking to sell because of mortgage pressure will also feel relief because property prices have been increasing and it will allow them to downsize to something more affordable.”

Eleanor Creagh – PropTrack

PropTrack Senior Economist Eleanor Creagh said the 12 previous interest rate hikes had had the desired impact, with inflation moderating faster than expected in August, the third straight monthly slowdown. 

“The substantial tightening previously delivered is weighing on economic activity,” she said.

“Consumer spending is slowing, and conditions are expected to soften in the coming months as economic activity continues to slow.

“The unemployment rate rose slightly in July and the labour market is expected to ease ahead, with expectations the unemployment rate is set to edge higher.

“Furthermore, the full impact of the tightening already delivered is yet to be felt and we’re likely to continue to see inflation moving lower as a result. 

“Together, this gave the RBA leeway for a pause in September.”

Ms Creagh said the majority of price falls recorded last year had been reversed in 2023, with August marking eight consecutive months of national home price growth.  

“Strong demand and limited supply have offset the impact of rate rises that continued this year,” she said.

“The decision by the Reserve Bank to continue holding the cash rate steady in September is likely to maintain both buyer and seller confidence as the spring selling season begins, with home prices likely to continue lifting in the period ahead.”

Graham Cooke – Finder

Finder Head of Consumer Research Graham Cooke said mortgage holders would breathe a sigh of relief at today’s interest rate pause and the rate could stagnate until the end of the year. 

“The outlook for the economy, though, is still uncertain,” he said. 

“We are seeing 40 per cent of homeowners struggle to pay their mortgage, with many fixed loan holders facing dramatically higher payments over the coming months.”

The Finder panel of experts was split on what issue is most important to address in order to bring inflation down.

AMP’s chief economist Dr Shane Oliver said it’s about more than just wages and profit margins.

“Wages and profit margins can be just symptoms of inflation, not its causes,” he said.

“The key is to rebalance demand relative to supply which means cooling demand and boosting supply.”

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.