The Reserve Bank of Australia meeting in March was another hotly debated topic prior to its cash rate decision being announced on the first Tuesday of the month.
Another rate rise had already been priced in by markets, so, the start of softer economic data was never going to be enough to change the outcome – which was a 25 basis point cash rate rise.
However, the Reserve Bank’s commentary showed a decidedly different tone to the month before, with it being less hawkish about the path of monetary policy in the months ahead.
In fact, the RBA Governor Philip Lowe even suggested that inflation may have peaked in Australia in December last year. Alas, economic data is often a few months’ old by the time it’s published, which means there is an element of “cart before the horse” in monetary policy decision making.
Investment opportunity exists
The most interesting thing about the current interest rate environment is that, yes, rates are quite a lot higher than they were this time last year but, no, they are not extreme by historical standards.
A caveat to that is the fact that property prices are much higher now than they were in the early 2010s, which was the last time the cash rate was above the level that it is currently.
At Adviseable, we have seen a solid uptick in client enquiry since the start of the calendar year from investors who recognise the benefits of purchasing counter cyclically to the masses.
A case in point is the latest Australian Bureau of Statistics Lending Indicators for January that showed that the value of new borrower-accepted loan commitments for homebuyers and investors had fallen 35 per cent since the same time last year.
Now before you start going, “But, Kate, many markets were still booming at the start of 2022”, I would agree with you, however, when you drill down into the data a bit more and analyse the number, and not the value, of loan commitments, a much different story emerges.
Of course, since property prices are still well above where they were pre-pandemic, the value of loan commitments can appear more robust than the market reality on the ground.
That’s because the number of new owner occupier loan commitments in January this year was actually the lowest since the latest data series began way back in July 2019. More people actually bought homes to live in during the deepest and darkest days of lockdowns than they did in January this year.
The situation for investors is similar with the number of investors purchasing in January this year down to levels not seen since the middle of 2020 when property investment numbers had fallen off a cliff. Of course, that was the precise moment that the most educated and experienced investors made their moves and have reaped the financial benefits from it.
Over coming weeks and months, we will no doubt start to see softer economic indicators that will enable the Reserve to pause rate increases and ultimately start reducing them at some point, too.
But anyone hoping for a return to two per cent mortgages will be disappointed, because that ship has sailed and was always an emergency measure as our country battled the COVID19 pandemic.
Where interest rates will eventually land is anyone’s guess, and no one has THAT crystal ball, but one thing I know for sure, because I’ve seen it happen time and time again, is that the time to invest is when others are fearful – and that time is clearly now.