CBA's notes this week summarised the Reserve Bank decision to hold interest rates.
Source: CBA
Services inflation is still too high over the year, noted CBA, including notably for rents (not that higher interest rates would help rents to decline, of course...quite the opposite, in fact).
Nevertheless, it would take some surprise data to see any further interest rate hikes from here.
Source: CBA
Thus CBA's base case is now for interest rates to be on hold for an extended period, with 100 basis points of interest rate cuts penciled in for next year, to take the cash rate target back down to a more 'neutral' setting at around 3.10 per cent.
Source: CBA
Australia's 3-year bond yield has eased to about 3¾ per cent, with the implied terminal cash rate for the cycle also dropping to 4.2 per cent.
Settings too tight
With no further interest rate increases expected - and rate cuts expected next year - this should lead CBA and other major banks to question why they're still required to stress test a borrower at 300 basis points above the mortgage rate, often at close to an excruciatingly high 10 per cent mortgage rate for investors.
Now, sure, rental vacancy rates will likely bottom out at around 1 per cent as renters adjust the new market conditions - except perhaps in Melbourne and Brisbane - but that doesn't mean that we have a healthy functioning rental market or that the rental crisis is 'solved'.
This week in Queensland's ongoing housing nonsense stories, a tarpaulin tent pitched next to some dated AstroTurf is advertised for rent at $380 per week, with BYO sleeping gear expected.
Note this isn't in Brisbane - it's up near Gladstone...
Plenty of prospective landlords would potentially like to invest in a rental property, but on a net basis investor credit growth has been squeezed into negative territory by extraordinarily high serviceability assessment buffers.
Rental shortage to be ongoing
With record high population growth to contend with, this doesn't strike me as a healthy market mix.
The ABS is now calculating the fastest population growth on record for Australia, being one extra person in the country every 46 seconds.
Source: ABS
Of course, this rate of population growth will have to slow down eventually.
After all, it equates to an annual pace of more than 685,000 per annum!
Population pressures are presently greatest in the 25 to 35 age bracket or cohort, equating to a huge demand for rental housing, as well as from first homebuyers.
Source: ABS
The latest central population projection for 2065 is for the Australian population to increase to 48.7 million, with the population pyramid swelling dramatically outwards in the 30 to 40 age cohort (which is why we tend to buy properties in landlocked capital city suburbs).
Source: ABS
The future demand for Aussie housing is going to be very high.
