Cash rate target 4.10 per cent
The Reserve Bank of Australia lifted interest rates for a 12th time in this cycle, to a cash rate target of 4.10 per cent.
This will have the desired effect of slowing spending further in the economy (the latest data actually show this is already happening, so the impact will be accentuated).
CBA noted the decision was largely attributable to the large increase in award wages announced over the past week or so, and the 8.6 per cent increase in the minimum wage.
From a housing market perspective, this likely means sharper increases in mortgage arrears, more builder and developer insolvencies, and yet further declines in lending to buy or build new homes (already at 15-year lows).
The Housing Industry Association noted that approvals for multi-units have already fallen by two-thirds from their highs, and that due to the long lags in this cycle we're only now just starting to see the impacts of the first interest rate hike.
From HIA's media release:
Source: HIA
Thus there is a monumental housing shortage brewing in Sydney, while Melbourne's land tax grab on landlords looks like lunacy, and seemingly risks creating a rental market inferno.
This week I interviewed Peter Tulip (formerly at the RBA and now Centre for Independent studies) on our podcast, and he discussed the extraordinary 3 percentage points lending assessment buffers currently in place.
The episode isn't out until next week, so I won't run a spoiler here, but to put it bluntly he thinks the current settings aren't a very good idea (well, that's an understatement).
You can see why in the graphs below: prospective investors are going to be assessed at mortgage rates of above 9 per cent going forward, at a time when rental apartment vacancy rates are already at record lows and population growth is running at a record high.
Source: Cameron Kusher, REA
It's not going to be a major issue everywhere around the country: there are certainly rental markets across much of regional Australia where supply is still hitting the market, and where rental vacancy rates are softening.
But as 'COVID refugees' return to Sydney and Melbourne - which are also the cities where most new arrivals, tourists, and international students head to - this looks like a fustercluck supply shortage in the making.
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SQM Research reported a modest decline in property listings in May, down -0.3 per cent, with a further seasonal decline of 15 to 20 per cent expected over the coming months.
Asking prices increased by a further +2.1 per cent over the month, with units in Brisbane and houses in Perth and Adelaide faring well over the past year.
Source: SQM Research
