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Buyers given boost of confidence as inflation drop signals rate hold
Headline inflation softened slightly in April, with a potential rate hold expected to steady borrowing conditions and support renewed buyer confidence across the property market, opening a window of opportunity.
Headline inflation has decelerated in the month of April, rising 4.2 per cent annually, a slight drop from the 4.6 per cent increase in March, according to the Australian Bureau of Statistics.
The data also showed that trimmed mean inflation, the Reserve Bank of Australia’s (RBA) preferred measure for underlying inflation, was 3.4 per cent in April, up from 3.3 per cent in March.
The data followed a recent slowing of the housing market, with auction results showing clearance rates for the combined capitals have hung below 60 per cent for six of the last eight weeks, as buyers take more caution.
PRD chief economist, Dr Diaswati Mardiasmo, said the decline in headline inflation meant the two cash rate hikes prior to April were translating into hard results, with people saving rather than spending.
She said housing was notably still one of the biggest contributors, but that it would take time for any softening in house prices to be translated into the Consumer Price Index (CPI) figure.
“Especially when not all house markets have seen a decline in price, for example, Brisbane and Queensland are still trending up,” she told SPI.
Combined with the unemployment rate increasing slightly to 4.5 per cent in April, Mardiasmo forecasted a greater chance of a rate hold in June.
“The fact that CPI moderated means that past cash rate hikes are working their way through, pulling the inflation down, so we can ‘rest’ for a little bit to give everything else, for example, federal budget implications, a chance to settle,” she said.
“So time, and finding and taking advantage of that window of opportunity, is of the essence,” she said.
While the lower CPI meant people had not been spending or making purchase decisions as much, Mardiasmo said there were still opportunities to capitalise on a lower competition market.
Mardiasmo said that with the likelihood of a rate hold next month, buyers may have more borrowing power, giving them increased confidence when purchasing in their desired price range.
As a result, she said sellers could also be assured that buyers will be able to make offers, and encouraged them to seize on the window of opportunity ahead of another possible rate hike this year.
“The education/advisory piece here is – we don’t know what's going to happen between now and the next RBA meeting in August,” she said.
“The RBA predicted a higher cash rate environment and upward trend between now and the end of 2026, so there could be another cash rate hike before the end of the year,” she concluded.
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