RBA reveals decision on August cash rates

In an expected turn of events following the revelation that the inflation rate had reached 6.1%, the Reserve Bank of Australia decided to raise the cash rate from its current rate of 1.35% to 1, 85% – an increase of 50 basis points.

PropTrack senior economist Eleanor Creagh noted that the increase marks the fastest rise in the cash rate since 1994.

She also acknowledged that today’s (August 2) decision was widely expected, “given that the RBA has signaled its desire to ‘get a head start’ and the board has committed to “do what is necessary” to overcome the challenge of high inflation. .

CreditorWatch chief economist Anneke Thompson said the fourth straight increase indicates “the level of concern over inflation.”

“July’s employment data, which saw the unemployment rate fall to 3.5%, contributed to this decision. There are now 600,000 more Australians than there were in March 2020 – an extraordinary increase,” Ms Thompson said.

Referring to the economic update provided by the Treasurer last week, Ms Thompson noted that inflation is expected to peak at nearly 8% towards the end of this year before starting to decline in 2023.

“While this is clearly concerning, the RBA will no doubt focus on trying to break inflation down on the supply side, versus the demand side, and tailor its monetary policy response as closely as possible. possible of that,” she shared.

While much of the inflation recorded in the last quarter was caused by supply issues, such as the war in Ukraine and weather events, the chief economist noted that the construction of new housing had been another major inflationary driver, driven by both demand and supply issues.

From his perspective, “one could argue that the long-term demand problem here has already been solved by falling home values ​​and dramatically rising construction costs, which will deter buyers from starting new houses and make renovations”.

For Ms Creagh, “how household spending is holding up amid rising inflation and falling house prices (the negative wealth effect), compared to buffers of savings and wealth , and hopefully stronger wage growth, will be crucial in determining the loss of conditions in the economy and how high and how fast the cash rate rises.”

She added that this dynamic would be “a key source of uncertainty for the housing market and the pace and depth of price declines.”

“Current market conditions have cooled as buyer confidence has declined, and auction volumes and clearance rates have fallen, sales volumes have fallen, and home prices are down,” he said. she declared.

She expects property prices to continue to fall as repayments become more expensive: “As the cash rate increases, borrowing capacity will be limited and the cost of servicing a mortgage loan will also increase significantly.

So what does this mean for investors?

Ms Creagh expects the continued rise in rates to impact potential borrowers and weigh on house prices.

For sellers, she said it’s time to reset price expectations and keep in mind that your property may take longer to sell with fewer competing bidders, noting that “demand from Potential buyers will continue to decline as uncertainties about future borrowing costs, the rapid pace of rate hikes and declining consumer sentiment weigh.”

“For those looking to enter the market, there will be less competition and a lot more choice, which could create opportunities for some,” she concluded.

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Mortgages are loans that are used to purchase homes and other real estate where the property itself serves as collateral for the loan.

Mortgage

Mortgages are loans that are used to purchase homes and other real estate where the property itself serves as collateral for the loan.

RBA reveals decision on August cash rates



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Last update: August 02, 2022

Posted: August 02, 2022