Words can matter

There is no dispute that the residential property market is directly influenced by financial and economic factors. It might not respond as immediately as the share market but national financial decisions do play out in market confidence and activity. Which is why words can matter.

Interspersed with the pre-election announcement fervour and in the lead up to Easter, the Reserve Bank of Australia announced it would keep interest rates on hold at the historic low level of 0.1%. That wasn’t unexpected but as inflation starts to bite hard in economies around the world it does set Australia apart somewhat.

For economic policy pundits, the devil of the most recent RBA announcement was in the detail. In fact, it was in the lack of detail. The statement by Governor Philip Lowe was significant because it didn’t talk about the need for ‘patience’.

The RBA states the cash rate would not need to be raised until actual inflation is sitting between the 2-3% target range. Up until October last year, the RBA believed that target would not be met before 2024.

Then in November, the announcement was changed. In November, December, February and March this year the RBA statement said the same thing, that “The Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve.”

In April the RBA officially lost patience. And I think that matters.

Of course, it will be speculation until it’s official but losing patience has to be seen as the precursor to action. Rates will rise. Soon.

As I have said in blogs already this year I do think many in the market have already factored that possibility into their budget calculations when borrowing and looking to buy. But as we all know sometimes even when you’re prepared the reality can still be a shock.

So I do think the next few months are going to be a bit tough and a Federal election campaign certainly adds an extra element of uncertainty. But I remain confident in the underlying strength of the property market and the commitment of our clients to stay focussed on the longer-term benefits delivered by the residential property market.

And to be honest I think most people have endured more challenges and uncertainties over the last couple of years than they thought possible so whatever the RBA might deliver will just be another speed bump on the highway of life.

Posted in Ewan's Blog on 20th April, 2022