Wowee, it’s hard not to write about the Reserve Bank’s decision to put up interest rates another 25 basis points.
Australia’s inflation figures were down in March to 6.8 per cent from peaks of more than 8 per cent. The American inflation rate dropped significantly over April down to 4.98 per cent, and the Japanese inflation rate also came down slightly to 3.2 per cent from 3.3 per cent the month before.
It is important to note the long-term 10-year average for inflation in Australia is only 1.88 per cent in comparison to 2.41 per cent for Japan and America at 2.18 per cent.
So why the panic?
It does appear that inflation has begun to swing backward, but not enough for Mr Phillip Lowe and his private school mates, who have taken Treasurer Jim Chalmer’s criticism to heart.
I do wonder if they are rolling around in their $5,000 suits laughing at the rest of us low and middle-income mortgage holders.
Let’s hope he enjoys retirement in September!
What has housing done?
Australian house price recovery continued in April with the Proptracks dwelling values index recording a 0.1 per cent monthly rise to be 1.4 per cent up from the December trough.
Economists like Mr Lowe are baffled.
How can property prices continue to increase whilst interest rates climb a further 0.25 per cent?
If you dive into the inflation numbers, one of the highest categories in the inflation figure calculation is housing. And a big factor in this is the rise in rentals.
There is nothing we can do about it.
As they make lending harder, more people will look to rent.
Why has housing continued to rise?
We still need somewhere to live, and while we don’t currently have supply in the market, people are paying what they need to put a roof over their heads.
The increase in demand is driven by factors such as overseas migration (estimated to be an additional 700,000 or so people by the end of this year) and the drop-off in new home building, which is reducing the supply.
Another key factor is the increase in family separations – when a couple separate, they are immediately residing in two homes instead of one.
The total number of divorces granted in 2021 was 56,244, the highest number recorded since 1976.
Total dwelling commencements fell by 6.7 per cent in the first three months of 2023 to 41,374 nationally.
Over the 2021-22 period new dwellings commencements are down -21.9 per cent.
New home finance approvals have also collapsed to their lowest point since 2012.
And whilst the cost of construction materials has started to fall, and construction prices also are starting to fall, it’s too little too late for the builders who were wedged between fixed price contracts and escalating wages and material costs.
Australian Securities & Investments Commission (ASIC) data shows 1,236 companies in the construction sector have gone into liquidation, receivership or administration already in 2022-23; is it any wonder?
Of course, it’s all just numbers to Mr Lowe, he appears to have no concept of what these rate hikes do to families.
The more affluent suburbs of Sydney are not hurt as much by the change in interest rates.
What’s an extra $1,000 a month when you earn $1,056,761 per annum (the RBA Governor’s salary)?
Yes, I am very annoyed about this last 0.25 per cent rise.
However, it’s not all bad news, I foresee great opportunities to buy cheap jet skis, caravans, Harley Davidsons and other disposable assets in the next few months.
I do expect that some may decide that this is the “straw that breaks the camel’s back” and some properties will be forced to come onto the market for sale.
But is that the way we want to manage our property market supply, relying on someone else’s pain?
With demand not easing, I don’t think we will see a fall in house prices, but perhaps it may rightly trigger the fall of the RBA Governor!
This article written by Gareth Kent appeared in the Geelong Times on 12th May 2023.