[Podcast] The RBA forecasts what’s ahead – and it has flip flopped, with Dr. Andrew Wilson

Earlier this year the Reserve Bank thought it had time on its hands and could be patient in lifting interest rates.

Clearly, that’s not the case.

They started what’s going to be a series of interest rate rises in May, but in its Statement on Monetary Policy recently, it became clear that evidence of strong inflation had actually caught the Reserve Bank by surprise.

The RBA has now significantly raised its forecasts for inflation and cut its forecasts for economic growth and unemployment.

So that’s what we discuss in today’s podcast with Dr Andrew Wilson we’re going to talk about where the Reserve Bank has changed its views, what’s happening with our rental markets, what’s happening with our auction markets, which are slowing down, and a few other factors that are going to give you great insight into what’s really happening on the ground and what’s likely to be ahead.

The RBA forecasts what’s ahead – and it has flip-flopped

• The economy, as measured by GDP, is expected to expand by 3.5 per cent over the year to June 2022 (down from its previous forecast of 5.0 per cent).
• They’ll then pick up to a 4.25 per cent annual growth rate in December 2022.
• Underlying or “core” inflation is tipped to exceed the top of the 2-3 per cent target band through to December 2023.
• We’re still creating lots of jobs and the jobless rate is expected to fall to 3.50 per cent by June 2023.
• But we won’t be enjoying “real” wage growth for some time as inflation will outpace increasing incomes.
• The Wage Price Index is expected to grow at a 3.00 per cent annual pace by the end of 2022.
• Wages are only expected to grow at a 3.75 per cent annual pace by mid-2024.

Rental markets tighten over April with higher rents

• The national weekly median asking house rent has increased by 14.8% over the past year to $521, with the April house vacancy rate declining to 1.2%.
• Unit rentals have recorded strong increases generally over the past year.
• All capitals have reported increases in unit rents over the year to April.
  • Darwin reported the sharpest increase - up by 17.8%.
  • It was followed by Sydney - up by 6%.
• Demand for rental accommodation will continue to increase over 2022 driven by our strong economy, the easing of covid restrictions and concerns, and the return of high levels of migration and students.
• This is all set to exacerbate a chronic undersupply of rental accommodation.

How will rising interest rates affect our rental markets?

• Rental vacancy rates are really the main driver of rental levels.
• Once local vacancy rates move above 3%, and remain elevated for some time, asking rents start to fall.
• On the other hand, rents tend not to rise until the vacancy rates fall below 2% and tenants have to compete for accommodation.
• If affordability becomes constrained, potential homebuyers will have difficulty getting loans, particularly in a higher interest rate environment
  • Particularly in Sydney and Melbourne where house prices have risen considerably.
• This will add extra pressure on our rental markets.

Links and Resources:

Michael Yardney

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Dr. Andrew Wilson, Chief Economist My Housing Market

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Some of our favourite quotes from the show:

“In the past, we had some experience with what happened when interest rates went up, and they went up quickly, they went up multiple times, and that slowed the property markets.” – Michael Yardney

“The latest loan approvals, they rose in March, but interestingly, owner-occupier approvals flattened out, but investors, as you correctly said, are getting back into the market again.” – Michael Yardney

“In my mentorship program, I know that those people who write down their plans, write down their goals, and visualize them are much, much more likely to get them.” – Michael Yardney

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