Markets in a ‘sound’ state despite shift: PIPA

The Reserve Bank of Australia (RBA) has raised the official rate by 0.25 per cent in May and 0.50 per cent in June as the regulator looks to get inflation under control and the economy on track. 

Ms McDougall downplayed the alarmist narratives surrounding the recent rate hikes. 

“[In] all my years of reporting on property markets and economic metrics, I don’t think I’ve ever seen such outlandish commentary on the interest rate increases as occurred in May and June,” Ms McDougall commented.

Further commenting on the recent monetary tightening by the Reserve Bank, Ms McDougall said: “While, yes, the rate rises are earlier than the central bank had indicated, I don’t think any of us really wanted to believe that the cash rate would need to stay at such an emergency low level for multiple years.” 

“That’s because, if it did, it would mean that our economy was in very bad shape indeed, which would be a bad thing for all of us – rather than the opposite,” she stated. 

Ms McDougall said the strong performance of the banking sector indicated that new borrowers were financially stress-tested by 2 or even 3 percentage points higher than the actual interest rate attached to their mortgages. 

“This fact, as well as most borrowers being well ahead on their repayments, means that increases to interest rates are nothing to be feared by the majority of mortgage holders,” she explained. 

The PIPA executive noted that rising costs of living are bringing more hip-pocket pain for most households, with the country’s inflation rate now above the central bank’s 2 to 3 per cent target bank. 

But she highlighted that the central bank has indicated that it expects high inflation to be a temporary situation rather than a permanent one.

“Further, most major banks appear to be pricing in a maximum interest rate of around 5 per cent to 6 per cent within two years, which is still relatively low compared to historical averages,” she said. 

Ms McDougall acknowledged that affordability constraints, coupled with changing monetary policy, had taken some heat out of markets. She noted this is more evident in higher-end locations, where buyer activity has started to decline.  

But she offered that with more listings available and fewer buyers actively hunting for property, the current market conditions provides an abundance of opportunities for long-term home buyers and investors.