After a series of bullish interest rate hikes in recent months, the Reserve Bank of Australia has tempered its approach, increasing the cash rate by 25 basis points at its October meeting.
A large proportion of economic experts had tipped another 50 basis point jump, but the sixth successive rise lifted the cash rate to the lower option of 2.6 per cent, as the RBA treads a fine line between curbing inflation and avoiding recession.
Borrowers will need to pay an extra $78 per month on a $500,000 mortgage, which is an increase of $700 since May.
RBA Governor Dr Philip Lowe said the Board was keeping a close eye on Australia’s economic growth and today’s rise would help move inflation towards the goal of 2-3 per cent.
“The cash rate has been increased substantially in a short period of time,” Dr Lowe said.
“Reflecting this, the Board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia.”
Dr Lowe said further interest rate hikes were likely in the months ahead, as the Board seeks to curb ongoing inflation.
Their current predictions indicate inflation will peak at about 7.75 per cent around the end of the year before pulling back to 4 per cent in 2023 and 3 per cent in 2024 as global supply-side problems, drops in commodity prices, and rising interest rates take effect.
“The Australian economy is continuing to grow solidly and national income is being boosted by a record level of the terms of trade,” Dr Lowe said.
“The labour market is very tight and many firms are having difficulty hiring workers. The unemployment rate in August was 3.5 per cent, around the lowest rate in almost 50 years.
Job vacancies and job ads are both at very high levels, suggesting a further decline in the unemployment rate over the months ahead.”
“Beyond that, some increase in the unemployment rate is expected as economic growth slows. Wages growth has continued to climb, while price stability joined sustained full employment as a prerequisite for a strong economy, both of which the board is monitoring closely.”
Dr Lowe said one source of uncertainty was the outlook for the global economy, which has deteriorated recently.
Another is how household spending in Australia responds to the tighter financial conditions.
“Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments,” Dr Lowe said.
“Consumer confidence has also fallen and housing prices are declining after the earlier large increases.”
“The Board expects to increase interest rates further over the period ahead. It is closely monitoring the global economy, household spending and wage and price-setting behaviour.”
“The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market.”
RENTAL STOCK LEVELS WELL BELOW FIVE-YEAR AVERAGE
CoreLogic released its Quarterly Rental Review for the September quarter of 2022, with the latest data showing national dwelling rents rose 0.6 per cent in September and 2.3 per cent over the September quarter, down from a 2.9 per cent increase recorded over the June quarter.
Annual growth in national dwelling rents also broke into double digits for the first time on record over the year to August, and held steady at 10 per cent over the 12 months to September.
Seven of the eight capitals saw dwelling rents rise over the quarter and the year.
Rental stock shortages continue to impact the market, with the total supply of advertised properties 35.4 per cent below the previous five-year average.
The national vacancy rate fell from 1.3 per cent in June to 1.1 per cent in September, which is the lowest national vacancy rate on record.
The vacancy rate is tightest in Adelaide at just 0.3 per cent, followed by Perth at 0.6 per cent and Hobart at 1.1 per cent.
In Melbourne the vacancy rate is 1.2 per cent, while in Sydney, Canberra and Darwin it is 1.3 per cent.
One factor which has likely negatively impacted rental supply is the decline in investor purchasing activity between early 2017 and early 2020.
CoreLogic also recorded an increase in investor-owned housing stock being listed for sale through 2021 and into 2022, with many investors possibly looking to maximise capital gains through the upswing.
The median rent of a dwelling in Brisbane increased the most in the September quarter, rising 3.8 per cent to $573 per week, followed by Adelaide and Darwin where the median rent climbed 3.6 per cent to $508 and $590 per week respectively.
In Sydney, the median dwelling rent jumped 2.9 per cent in the September quarter to $665 per week, followed by Perth, where the median weekly rent for a home increased 2.5 per cent for the quarter to $533.
Melbourne recorded quarterly growth in dwelling rents of 2.3 per cent to sit at $495, while in Hobart growth was marginal at 0.4 per cent to reach a weekly median rent of $551.
Canberra was the only capital city to record a decline in rental rates in the September quarter, falling 0.4 per cent to $682 per week.
Across the combined regional centres, the vacancy rate for the September quarter sat at 1 per cent, with a weekly median rent of $497.
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Regards David, Benjamin & the Team at DB Philpott Real Estate