Today’s inflation outcome is good for borrowers but not buyers
By Graeme Salt
Investors now believe the next move by the Reserve Bank of Australia (RBA) will be an interest rate cut rather than a rate rise, after today’s underlying inflation came in at 3.9 per cent – only slightly above official forecasts.
If you already have a mortgage this is good news.
Markets now give the RBA, a one in two chance of a move lower by November, with a rate cut fully priced in by February 2025.
But if you are looking to buy, these rate cuts are likely to put a rocket under the market.
House prices and rental charges across Australia are set to surge again this year, with the startling exception to Melbourne.
Rate cuts are likely to add to already-existing sound fundamentals for the property market. An undersupply of housing – combined with increased immigration – has already seen the average national house prices set to increase by about 8 per cent this calendar year
According to AMP research, the outstanding issue for the housing sector is that the number of new builds is still too low. Over the year to March, 172,000 dwellings were completed, but recent data suggests that over the next 12 months, completions will drop to 160,000 per annum.
And new data, released by the Australian Bureau of Statistics yesterday, shows the total number of dwellings approved in June fell by 6.5 per cent from the previous month. Meaning that Australia is likely to miss its new housing target by 300,000.
If you are looking to buy in any city apart from Melbourne, supply issues mean the period between now and those rate cuts is likely to be the calm before the storm; after which buyers will rush back into the market.
Melbourne is the exception– there has been a very large building program across the state of Victoria – over the last decade; there may even have been around 100,000 more homes built there than in NSW. Plus, recent tax changes have made investors pessimistic.
Is Melbourne a long-term investment bet?
Graeme Salt is an award-winning mortgage broker. For a no-obligations consultation on your home loan needs, please contact him on 02 9922 5055
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