The decision to keep the cash rate on hold at 4.35% came as no surprise, with most economists agreeing the next move on rates will be down, although the timing of an RBA rate cut remains uncertain and dependent on inflation outcomes.
A boost to confidence: Nonetheless, the hold decision, alongside lower inflation and a growing expectation that interest rates will reduce later this year, should help to provide a further lift in confidence.
Historically we have seen a close relationship between consumer sentiment and the volume of home sales. Following the 6.2% rise in the February consumer sentiment reading from Westpac and the Melbourne Institute, a further lift in confidence could be accompanied by a rise in home purchasing. This could add to housing demand that has already remained quite resilient despite the higher interest rate environment and cost of living pressures.
Higher services inflation remains a focus for the RBA. The RBA has consistently highlighted the challenges involved with returning inflation to the target range of 2-3%. Headline inflation has reduced at a faster than forecast pace, falling from a peak of 7.8% at the end of 2022 to 4.1% annually, while the latest quarterly inflation reading, at 0.6%, is the lowest since March 2020.
However, beneath the headline result, it is clear that services inflation remains stubbornly high, reflecting tight labour market conditions but also ongoing growth in services costs such as insurance & financial services (+8.1% annual) and housing costs including rents (+7.3% annual), new builds (+5.1% annual) and utilities (+8.4% annual).
The RBA expects services inflation to decline only gradually, making the timing for a rate cut highly uncertain and dependent on further progress in reducing inflation emanating from the services sector.
Housing values continue to rise. Despite the high interest rate environment, housing values have remained broadly resilient, if not strong in some cities and regions. Upwards pressure on housing values has been supported by an imbalance between supply and demand, a situation that looks entrenched as barriers to new housing supply remain high.
Nationally, we have seen a reacceleration in the pace of value growth through the first two months of the year, which could reflect renewed optimism amid a peak in the rate hiking cycle and progress towards the inflation target.
Best Regards.
FREIQ, LREA, LJ Gilland Real Estate Property Sales & Management Est 1996 07 3263 6085 | 0409 995 578 www.ljgrealestate.com.au linda@ljgrealestate.com.au PO Box 19, Zillmere QLD 4034 |
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