‘Reassuring’ rate pause a ‘welcome reprieve’ for homeowners

Time ‘to take stock’

For Tim Lawless, the research director at CoreLogic, the decision to keep the cash rate at 3.6 per cent “sends a clear message they are ready to take stock, assessing the economic impact of the rapid rate hiking cycle to date.”

“Considering monetary policy acts with a lag, it’s important to understand how trends in consumer prices, consumption, labour markets and sentiment are evolving as a result,” he flagged.

With the Consumer Price Index (CPI) slowing to 6.8 per cent in February — faster than the RBA’s latest forecast, Mr Lawless noted that continued falls to inflation will play a “key factor” in future interest rate decisions.

“While a pause doesn’t necessarily mean interest rates hikes are ‘done’, it is likely the tightening cycle is close to topping out,” the research director expressed, considering the RBA to have “left the door open for further hikes”.

‘A welcome reprieve’

Real Estate Institute of Queensland (REIQ) CEO Antonia Mercorella has called the pause “a welcome reprieve for home owners and small businesses”, stating that these groups were “unfairly carrying the burden of fixing the inflation curse”.

She considered a pause in interest rate hikes an appropriate response at this time: “Allowing households and businesses a few moments to pause and assess their expenditure.”

“It also gives first home buyers a chance to stabilise their borrowing capacity.

“Further, with loan activity for new builds at 18-year lows in Queensland, the pause will give consumers more confidence to proceed with building their dream homes.”

Clarity is coming

The chief economist at Knight Frank, Ben Burston, also believes the decision to pause “will help bring greater clarity to the fundamentals underpinning property values and instil more confidence in the medium-term outlook.”

While he acknowledged that 10 month-on-month rate rises had generated significant uncertainty as to how high rates would ultimately go, he said the pause “will be taken as an indication that the peak of the hiking cycle is now within reach and may indeed turn out to be 3.6 per cent.”

Addressing what the latest rate decision means for property investors, the chief economist professed that “this means that the macro context now looks more reassuring as we look ahead, with the likelihood that rates will remain stable over the next few months as the RBA assesses the impact of the rate increases to date, and potentially be cut in 2024–25 if the economy slows as expected.”

‘False hope’

Despite the positivity, not all commentators are assured its all sunshine and roses ahead.

The Agency Group CEO Geoff Lucas has warned that April’s inaction “will give some consumers false hope”, professing his own belief that there is at least one more rise still to come in this cycle.

“The RBA is trying to give consumers some relief; however, the reality is unemployment at 3.5 per cent remains near a 50-year low and the economy is still showing signs of strength, and it may have been prudent to deliver one more rise in this cycle,” he shared.

From his perspective, “this month was an opportunity for the RBA to further dent the persistent inflationary risk that now remains” — which it did not do.

Despite this, he acknowledged that the latest decision provides “good news in the immediate term for variable rate mortgage holders who have come under increasing pressure over the past 10 months.”

“It also brings forward an improved transactional environment where vendors will see higher levels of demand and a likely increase therefore in sales volume,” he continued.

“However, it could be premature, while it could be argued that inflation fell from 7.4 per cent to 6.8 per cent it still has a long way to go to be within the RBA target range.”

Even so, he has pointed out the presence of positive consumer sentiment in the marketplace, referring to CoreLogic data that showed a 1.4 per cent hike in Sydney property prices, and a 0.6 per cent lift nationwide recently.

“Recent home price rises especially in Sydney and Melbourne also reflect improving sentiment, although this has been assisted by some of the lowest sales activity in these cities over the past 28 years. Sales in NSW are 22.7 per cent down on the first three months of the year compared to last year with Victoria down 28.6 per cent for the same period.”

According to the CEO, “this data is symptomatic of consumers thinking that things are better than what they are. In fact, low stock volumes and record immigration played a contributing role in the increase in property prices.”

He warned: “Whilst there is an expectation of interest rate cuts into 2024, it is possible the next move may be upward if inflation proves more resilient than many would hope.

“What however appears certain is that we are now entering a period of reduced volatility in interest rate moves and as a result a more stable and safer transactional real estate market,” Mr Lucas concluded.

Rate pause won’t solve supply issues

Elsewhere, Real Estate Institute of Australia (REIA) president Hayden Groves has welcomed the “evidence-based decision” to keep the cash rate as is.

But now that monetary levers are on hold, he said attention must be turned to increasing housing options for Australians.

“We are fighting inflation at the same time we are fighting a severe housing — particularly rental — shortage with all Australians affected by the slowdown of the economy,” the president said, considering all Australian consumers as suffering from this.

“Ahead of the Federal Budget 2023, we need to move forward with programs of investment that physically deliver increased housing, such as taxation reforms and a government housing audit, that practically helps Australian renters and home buyers combat the current crisis,” he concluded.