How long will interest rates remain on hold? | Property Insiders [Video]

Key takeaways

The Reserve Bank kept interest rates on hold at its recent May meeting, but now the rhetoric has changed to rates remaining where they are for most of this year and possibly even rising.

Inflation has crept up a little bit recently, and the RBA expects it to remain high for some time, and will remain vigilant to upside risks.

The annual growth of house building costs has kept falling, and the annual rise is now 5.2%, which is significantly lower than the rate of increase 12 months ago and 24 months ago.

Home loans rose 17.9 per cent since March 2023 to $27.6 billion, according to ABS data. The rise was mainly due to increases in the average loan size, in line with rising house prices over the same period.

Investor loans rose 3.8 per cent in March to $10.2 billion, owner-occupier loans rose 2.1 per cent to $12.3 billion, and first home buyer loans rose 4.4 per cent to $5.2 billion.

All auction markets are standing up as the holiday period concludes, with the prospect of robust activity continuing through to the end of the notional autumn selling season.

The primary task of our Reserve Bank governor Michele Bullock is to bring inflation into the central bank's target range of 2-3% and keep it there.

However, this task seems to be all but impossible with inflation remaining stubbornly high, unemployment stubbornly low, and Aussies still spending up big.

It’s old news now that the Reserve Bank kept interest rates on hold at its recent May meeting, but now the rhetoric has changed from rate cuts by the middle of this year to rates remaining where they are for most of this year and possibly even rising.

Over the last week, there have been some clues in the news as to what’s ahead for inflation and interest rates, which I discuss with Dr Andrew Wilson, chief economist of My Housing Market, in this week’s Property Insider chat.

Interest Rates are on hold again

While it’s old news that interest rates are on hold again, with the Reserve Bank making its 4th consecutive steady decision in May, watch this week's Property Insider chat as Dr. Andrew Wilson and I explain some of the thinking behind the RBA's decision and the factors that will determine the direction of interest rates moving forward.

Amongst other things, we discuss:

• How our economy remains strong despite 13 interest rate rises since May 2022 - that's two years now, and boy has a lot happened over that time.
• The jobless rate remains at near record lows, job creation is surging, unemployment is falling, and the participation rate is also at near record-high levels. And all this is happening despite over half a million more people in Australia today than there were a year ago.
• Retail sales are still high and remain significantly above pre-Covid levels, notwithstanding the effect of strong migration and surge in inflation.
• How inflation has crept up a little bit recently, with housing, food and fuel being the main drivers.

However, you will hear that Dr Andrew Wilson believes that, on balance, rights are likely to remain steady despite higher inflation being a concern.

We also discussed the following comment from RBA governor Michelle Bullock:

“Recent data indicate that, while inflation is easing, it is doing so more slowly than previously expected and it remains high.

The Board expects that it will be some time yet before inflation is sustainably in the target range and will remain vigilant to upside risks. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.

The Board will rely upon the data and the evolving assessment of risks.”

Interestingly, Australia’s interest rates are lower than the other similar economies:

Housebuilding costs are not rising as much

In this week's Property Insider chat, Dr. Andrew Wilson explains how the annual growth of house building costs has kept falling, and even though costs are still rising, the annual rise is now 5.2%, which is significantly lower than the rate of increase 12 months ago and 24 months ago.

This is particularly good news for builders who have had difficulty completing contracts in a rising-cost environment, and of course, this is good news on the inflation front.

The price of oil is easing

We regularly discuss the international price of oil as it is a major factor influencing inflation, and there is some short-term good news as the price of oil is easing slightly, despite the war in the Middle East.

Interest rate decision Matrix

Watch this week's Property Insider chat as Dr. Andrew Wilson discusses the many points in the following matrix of factors affecting the RBA's interest rate decision-making.

Home loans still rising

Watch this week's Property Insider video as Dr. Andrew Wilson unpacks the latest housing finance data.

 The value of new housing loans rose 17.9 per cent since March 2023 to $27.6 billion, after a 3.1 per cent rise in the month, according to ABS data.

Mish Tan, ABS head of finance statistics, said: “The value of new loan commitments is a product of the size of loans being approved and the volume of loans. The rise in the value of new home loans over the past year reflected increases in the average loan size, in line with rising house prices over the same period.

“Meanwhile, in original terms, the number of loans reaching the final commitment stage is broadly similar to a year ago.”

Comparing different buyers in the market, the value of investor loans rose 3.8 per cent in March to $10.2 billion, increasing 31.1 per cent since March 2023.

Owner-occupier loans (excluding first-home buyers) rose 2.1 per cent to $12.3 billion, increasing 8.8 per cent through the year.

First home buyer loans rose 4.4 per cent to $5.2 billion, rising 17.9 per cent through the year.

All auction markets standing up as Holiday period concludes

With the April-May holiday period now finally ended, capital city auction markets have reported generally solid to strong results with the prospect of robust activity continuing through to the end of the notional autumn selling season in June.

Adelaide had the strongest auction clearance rate of 79.5%.

Auction clearance results for the other capitals were: - Melbourne - 64.2%; Brisbane - 59.2%; Sydney - 73.2% and Canberra - 69.0%.

The national weekend auction market reported a clearance rate of 69.0% which was again higher than the 65.0% reported over the previous weekend – but well below the 78.9% recorded over the same weekend last year.

National auction numbers were again higher at the weekend with 2004 listings versus the previous weekend (1977), but significantly above the 1552 listed over the same weekend last year.

Weekend auction markets have now generally normalised with the conclusion of the autumn holiday season, with no sign of a slowdown in the surge of the seasonal listings that have characterised markets so far this year.

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.