RBA continues to talk tough on rates

RBA Governor Michelle Bullock has had the hammer down over the past few weeks, making it quite clear that there will be no rate cut in 2024. Australia’s central bank is seemingly undeterred by projections from two of the major four banks, CBA and Westpac, along with a huge number of financial commentators, who are forecasting a rate cut in November.

The RBA seems happy to have a war of words with such commentators, essentially advising them to get back in their box while indicating that they will not be bullied into cutting rates, even if the calls to do so are loud.

The RBA is also pointing the finger at the Federal Government for further stimulating the economy with tax breaks and big spending, which is making the RBA’s job of reducing inflation even harder. Treasurer Jim Chalmers doesn’t seem happy as Aussies are clearly struggling in the current environment, however it’s not just inflation that’s on the minds of the everyday Australian.

Looking at the property sector, in mid-August the final auction clearance rate was a touch above 44 percent according to SQM Research, the weakest Sydney has recorded since October 2022. The higher interest rate environment, affordability constraints and a tough-talking RBA are all combining to put buyers on their heels. The depth of committed purchasers per property has fallen over the past several months and many sellers are having to adjust their price expectations to secure a sale.

As we’re on the verge of Spring with rising listing volumes, the Sydney market could potentially see increased downward pressure on property prices. Respected market commentator Louis Christopher of SQM Research noted that if the auction clearance rate continues to perform below 50 percent, then historically the data reflects a decline in prices of 4-8 percent.

No-one ever wants to hear or talk about prices falling. We’ve all been lulled into the never-ending story of the rivers of Sydney property gold, however there’s only so much people can financially absorb before a correction has to occur. In our view, we’re already seeing price resistance for compromised properties in many markets, and this sentiment has been slowly creeping into the A and B-grade properties which have, until recently, remained incredibly resilient.

A rate cut may not immediately swing the market back into positive territory, but it would certainly help support buyer confidence, which is currently fragile. If the RBA rhetoric swung to confirming that they acknowledge we’re at the peak of the cycle, the battle against inflation is under control and more rate cuts are on the horizon, this would significantly boost the market. However, for now this seems to be some time away, perhaps even late Q1 next year. Therefore, with listings increasing into Spring, sellers are going to have to stay on their toes around value and may need to rein in expectations.