[Podcast] Will the latest increase in interest rates be the “straw that breaks the camel’s back”? Big Picture Podcast with Pete Wargent

In today’s episode, Pete Wargent joins me as we do a deep dive into the big picture of our economy and our property markets.

Some of the topics we’ll explore include 12 interest rate rises, high inflation, and recent wage decisions, all of which are causing increasing worry about a recession among commentators.

Don’t despair, however.

Take the time to listen to Pete and me parse these topics, offer insights, and discuss what these trends really mean for you and for the future of the economy and our housing markets.

The Big Picture with Pete Wargent

Current economic data shows that Australia’s growth may be coming close to stopping our forward momentum.

Take a look at the subjects Pete and I discuss and what impacts they’re having on the economy and property markets.

Highlights from my Big Picture conversation with Pete

• 12 Interest rate increases: the RBA’s focus on returning inflation to target remains at the forefront after the 12^th interest rate increase by the Central Bank in just over a year.
  • This brings interest to 4.1%
• Commonwealth Bank of Australia and HSBC economists now both put the odds of a recession at 50 per cent
  • Many people will feel like it’s a recession with per-person GDP tipped to go backward for the rest of this year
• The economy is growing at an annual rate of 2.3 per cent, down from 2.7 per cent.
  • The Reserve Bank's rapid interest rate hikes have contributed to the slowdown.
  • By the March 2023 quarter, the interest payable on dwellings had increased by 107 per cent from a year earlier
    • Further increases are to come in the June quarter.
  • However, property markets have remained resilient
    • Even after the interest rate increases, property prices have not only stopped falling, but they are now on the rise.
    • It now seems clear that our property markets have bottomed out and we are moving into the next phase of the property cycle. 
    • Lower listing volumes (fewer properties for sale) are helping protect the market from further downward pressure.
  • RBA data indicates the majority of mortgage debt is on variable terms.
    • The next stage of the cycle is the stabilization phase.
  • The rental crisis and rents will continue skyrocketing this year.

Aussie population passes 26½ million

• The estimated Australian population just passed 26½ million, according to the population clock.
  • We’re experiencing the fastest population growth on record.
    • This is happening at a time when the capital city rental markets are already chronically tight.
  • Although the capital cities need more rental supply, we have:
    • Record lending assessment buffers for prospective landlords at 3 percentage points
    • Victorian Premier Dan Andrews looking to increase property taxes
      • This is a bad combination for the rental market
    • There is also a shortage of houses for sale for the many migrants coming to Australia
    • A significant shortage of rental properties is creating historically low vacancy rates

Risky lending has dropped to record lows

• Low-deposit lending fell to a record low in the March quarter on the available data series.
• High debt-to-income lending has also dried up, falling to record lows.
• Interest-only loans also fell to a record low 11.1 per cent of outstanding loans
• Low-doc lending is also at a record low
  • Removing risk from lending is commendable, but removing all the risks won’t necessarily strengthen our financial system
• The chronic housing shortage, especially rental housing in Sydney and Melbourne, is a different kind of risk with no end in sight.

Links and Resources:

Metropole’s Strategic Property Plan – to help both beginning and experienced investors safely grow, protect and pass on your wealth through property.

Get a bundle of free reports and eBooks – www.PodcastBonus.com.au

Pete Wargent’s blog

Some of our favourite quotes from the show:

“Despite all this, despite the 12 interest rate increases, despite high inflation, despite all the negative sentiment, our housing markets, in general, have been very resilient.” – Michael Yardney

“The banks are still friendly and accommodating.” – Michael Yardney

“Being a serious property investor takes courage, resilience, and out-of-the-box thinking.” – Michael Yardney

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