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Big 4 banks forecast cash rate hike in June

Apr 8, 2022 |TEAM FUTURERENT

Perhaps not surprisingly, the RBA held the cash rate at 0.10% this week. However, there’s been an extraordinary change in language in the central bank’s statement, which indicates a hike could come sooner than we thought.

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Eagle-eyed market watchers would have spotted a significant language shift in the RBA’s post-meeting statement.

  • In the months between November 2021 and March 2022, the central bank had mentioned repeatedly in its statements that its board was “prepared to be patient” before it lifts rates. This phrase was dropped in its most recent statement – a sign that the RBA is losing patience.
  • The statement also reinforced that the board would assess upcoming inflation and wages growth (data slated for release between late April and early June) to set policy on the cash rate.
  • In response to the statement, ANZ, Westpac, and NAB brought forward their cash rate forecasts to June, from August/September.
  • The timing of the possible rate hike has also come under scrutiny, with federal election locked in for May 21. A rate hike, or even talks of it, during an election campaign can be politically controversial – a complication that the RBA appears to be willing to risk.
  • In response to the concern, Treasurer Josh Frydenberg said household buffers strengthened during the pandemic and believes household budgets are strong enough to absorb a rise in interest rates.

What does this mean for you?

  • Lifting the cash rate is now a question of ‘when’ and not ‘if’. Property investors who started investing in property in the past 12 years have never experienced a cash rate hike and have enjoyed three rate cuts since November 2020, totalling 0.75 percentage points. Property investors should prepare by assessing how higher mortgage repayments could impact their cash flow position.
  • On the upside, property investors have benefitted greatly from record price growth in 2021, with housing values up by 23.7% across the capital cities last year. Combined with rising rents in 2022, these factors will help soften the impact of higher mortgage repayments for property investors.
  • As the take-up of fixed mortgage rates surged noticeably in 2021 due to widespread rate cuts, CBA expects a significant number of mortgage holders to come off their fixed-rate terms in 2023.
  • Property investors in this bucket will have some time before their repayments rise, but will need to prepare for higher rates when their fixed terms end. Fixed rates have already been creeping up before the RBA has even officially lifted the cash rate.

Facts of the week

  • Home loan borrowers have stashed away a record $232 billion in offset accounts – up by 15% in the past 12 months, according to the Australian Prudential Regulation Authority. This represents a $30-billion increase in money locked away to save on interest and cut back loan terms.
  • The average mortgage holder is 45 months ahead of repayments – a sign that housing debt is not an issue for the average borrower.
  • The big picture here is that households generally have substantial buffers, which will have a huge role to play when interest rates go up.

More quick news

  • Elon Musk, 50, has become the world’s richest person of all time. With a staggering net worth of $395 billion (USD $300 billion), Musk’s wealth is now more than double that of Warren Buffet.
  • The ACT government is looking to legally enforce minimum training requirements for real estate agents in Canberra. The nation’s capital is said to be a “backdoor” for people looking to get licensed quickly and practise in another state with no industry experience.
  • There’s a crypto coin for that infamous Will Smith slap, called Will Smith Inu. Within the same week, the memecoin saw $3 million+ in trading but plunged to nearly zero.

At a glance: prices & rents

Houses

Units

*Source: CoreLogic - March 2022.

  • Housing prices in Sydney & Melbourne continued to ease for a second month in a row and are falling behind more affordable markets like Canberra, Adelaide and Brisbane. Price growth on a national level is also slowing its pace, albeit more gradually.
  • Regional markets appear to be well-insulated from the slowdown seen in the rest of the country, recording 1.7% growth across houses & units in the past month, compared with 0.3% in the combined capitals.

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