RBA apology shows no finger on the pulse
This week, the Reserve Bank of Australia (RBA) governor Philip Lowe publicly apologised to Australian home owners for the recent interest rate hikes.
And while an apology is always welcome, especially from a bank, I believe it was too little too late.
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The RBA was talking about rates going up in 2024 as recently as this time last year. And during 2021, bank economists predicted interest rates would rise sooner, and they did, but unfortunately, the RBA didn’t have their finger on the pulse; they acted too late and too aggressively.
Now the RBA has lost people’s trust and will have to work hard in 2023 to gain it back.
Mortgage holders will have to get used to these new, and still increasing interest rates, and budget accordingly. These higher interest rate levels are the new normal in Australia now and will force home owners to take a good hard look at their finances in early 2023 to make sure they haven’t over-committed and can actually afford to pay off their home loans.
Investors are also spooked by the rate rises. It’s one thing to invest in a property or multiple properties when you are advised by the RBA that the rates will remain static, but with seven consecutive interest rate rises already, this will understandably make investors question where they’re putting their money and if it is still a good investment option for them.
We all need to be working together in the property market for it to flow. There are big shortages in the number of properties for sale, and there is a critically low level of properties to rent.
The last 12 months, in particular, have been hugely stressful for renters, with a shortfall in rentals available, lots of competition and rents being increased by large amounts, often to unaffordable levels.
For investors, it’s now a case of weighing up their options. If the cash flow on the property is negative for the property owner, then they are probably considering whether to hold on to it or sell it.
If there’s one positive to come out of the RBA’s rate rises, it’s that it isn’t overreacting when it comes to inflation, with 25 basis points rises in Australia instead of 75 in New Zealand and America.
As we look forward into 2023, home owners and investors will have to come to terms with the fact that interest rates won’t revert back to those low rates anytime soon, unless, of course, there’s a massive international catastrophe; and after the past few years of the pandemic, no one wants or needs that. What we need is a period of interest rate and housing market stability again.
Here’s hoping that after a tumultuous 2021 and 2022, we can set sail into smoother waters in 2023.
Garth Davis is the founder and chief executive of Property Powerhouse.