Welcome to this month’s Dominion Finance April Newsletter.
The Reserve Bank of Australia’s Board met today and for the first time since May 2022 they kept the cash rate on hold at 3.60%.
There were mixed views on the state of the economy, with some experts predicting that the RBA would raise rates for an 11th straight time, while others thought they’d keep them steady. Inflation rates and retail spending figures show that the economy is slowing down, but strong figures on the job market and business conditions suggest that the economy can take another rate hike.
Even though the US Federal Reserve, European Central Bank, and Bank of England all went ahead with rate hikes to tame inflation, traders believed that the RBA would take a more cautious approach.
The decision to keep the cash rate on hold is a sigh of relief for borrowers, especially those who are struggling with mortgage servicing costs. However, there are still headwinds to face and we’re yet to feel the full impact of the RBA’s rate hikes.
We’re curious to see how this decision will impact house prices. According to PropTrack’s latest Home Price Index, national home prices rose slightly by 0.13% in March, with the cumulative increase for 2023 sitting at 0.49%. Although prices have declined from their peak in most markets, national home prices are still 29.9% above pre-COVID-19 levels.
Sydney, Perth, and Melbourne had the highest price increases, while Hobart, Darwin, and Brisbane recorded falls. Sydney experienced the biggest correction of all the capitals, with home prices falling 7.19% from peak to trough.
In Canberra, home prices eased in recent months, rising slightly by 0.03%, and are now 5.98% below the March 2022 peak. However, PropTrack noted that the recent upturn in the market was influenced by limited supply of properties for sale.
Interest rates were the primary driver of price declines so far, but positive demand drivers like a strong rebound in immigration, tight rental markets, and slowly increasing wage growth are offsetting the downward pressure.
With the Reserve Bank of Australia pausing its cash rate hikes, the bottoming process may continue and home prices could stabilize even further. Also, uncertainty from borrowers regarding borrowing capacities and mortgage servicing costs will ease, which could result in a boost of confidence.
Even though there are still challenging times ahead, the report stated that the full impact of the RBA’s rate hikes is yet to be felt. This means that the decline in prices could still find a second wind, particularly if new listing volumes increase in the coming months.
At its meeting today, the Board decided to leave the cash rate target unchanged at 3.60 per cent and the interest rate on Exchange Settlement balances unchanged at 3.50 per cent.
This decision follows a cumulative increase in interest rates of 3½ percentage points since May last year. The Board recognises that monetary policy operates with a lag and that the full effect of this substantial increase in interest rates is yet to be felt. The Board took the decision to hold interest rates steady this month to provide additional time to assess the impact of the increase in interest rates to date and the economic outlook.
The information provided in this newsletter is general in nature and does not take into account your personal circumstances, needs, objectives or financial situation. This information does not constitute financial advice. Before acting on any information in this newsletter, you should consider its appropriateness in relation to your personal situation.