The key is that the announcement came with a warning, that this is a pause only in a tightening phase.
Mind you, this warning was also attached to the last two rate rises.
For existing residential stock, a rebound has occurred off a low but very temporary base. There is renewed confidence in the market that last year was the “bottom and I better get in now because we have shortages of stock”.
The RBA continues to speak through economists in order to scare the market whilst they deal with other sectors who need all the help they can get.
The upshot is that there is a pain threshold that hasn’t been reached yet through rising values, nor through sufficient increases in rates, for example the cry “can I afford my monthly repayment?” At the moment, they are saying yes plus plus….
The debate on rates is a moving target with a convergence of rising values, future rising interest rates and the potential for wages flat lining resulting in discretionary spending impacted by inflation.
Early discussion mid last year suggested a 4.5-5% base rate would be a possible target in the tightening phase for a “balanced” rate. As the market increases in value and banks take a greater margin, this target base is potentially lowering weekly, and I believe most economists have given up guessing where that “balance” may be.
Watch the weekly clearance rates and if they continue to show in excess of 75% clearances in all capital cities, there continues to be capacity for growth in the market and then it’s likely interest rates will be going up.
If they dip below 70% we may have hit equilibrium.
By David Way, joint managing director, Knight Frank Valuations and API spokesperson.*
Australian Property Journal
