RBA leaves cash rate unchanged

Last week’s big news is that the Reserve Bank of Australia (RBA) has left the cash rate unchanged at 3.6%.

This is great news for mortgage holders, and as the following chart indicates, rate increases have paused after experiencing a historic ten consecutive rises starting in May last year.

Unfortunately, the latest monthly inflation rate was released after the newsletter was written last week, so we must play catch-up this week. Inflation fell from 7.4% in January to 6.8% in February. Inflation has fallen for two consecutive months, and as the following Inflation and Unemployment chart illustrates, the gap is closing. We thought the RBA would want to see three consecutive months of falling inflation, and so would make one more rate rise to ensure the downward momentum of inflation would continue.

However, the RBA board acknowledged they have paused because the effect of rising interest rates is lagged, and the full effect was “yet to be felt”. We interpret this comment as they are waiting to see the effects of the mortgage cliff, where the RBA reports that approximately 880,000 fixed-rate mortgages will convert to principal and interest. So although the RBA said it expected further rate increases to follow, if inflation continues to fall, they may well keep rates on hold for several months until after the effect of the mortgage cliff, which will be primarily felt in the second half this year.

Despite the increased interest rates, Perth dwelling prices have been increasing during March, which is already carried on into April. Prices increased by 0.5% in March and by 0.1% for the week, making this the fourth consecutive week of price growth. The following Perth Property Price Growth 2023 chart reveals that Perth prices are in positive territory for the first time this year.

The latest real estate data from REIWA supports the buoyant and improving local market. Perth recorded 1,069 transactions this week, above the 1000 transaction mark for the second week. While demand is robust and consistent, it is unsurprising that the new supply of established dwellings is being continually absorbed. Perth reported 7,076 properties for sale, the lowest supply level for two months. As the next chart indicates, listings in 2023 are considerably lower than in 2022.

It appears Perth is on the cusp of a potential property price boom. This is dependent on a few factors. Firstly, inflation continues trending downwards towards the 2-3% target range, and the RBA keeps rates on hold. Secondly, population growth remains at its current levels above long-term averages. Thirdly, listings remain at the current under-supplied levels, including rental vacancy rates encouraging tenants to buy. The second and third points are highly likely considering the projected migration for the next 12 months and the delayed completion of new builds, and if rates remain on hold, we expect Perth prices to increase throughout 2023.

Review c/o Ryan Brierty

www.michaelkeil.com