Rates fuelled higher
After the Reserve Bank of Australia hiked interest rates in February, it had been assumed that there would be no further moves until May - after the next quarterly inflation figures have been released - especially given that there's been no time for the February tightening to take effect as yet.
Unless you've been living under a rock, however, you'd know that fuel prices have jumped following the onset of conflict in the Middle East.
Some of the servos have been beginning to resemble the gas station prices in the movie I am Legend...
Australia doesn't always help itself in this regard, running supplies below the internationally recommended levels, and already there have been reports of regional petrol stations experiencing devastating shortages.
Until yesterday, markets had been pricing for interest rates remaining on hold in March, but an interview with Deputy Governor Hauser changed all that, with several banks and economists now expecting interest rates to be hiked again in March and May, which would take the cash rate target back the cycle high of 4.35 per cent.
There could yet be a further hike beyond that later in the year.
This won't poll at all well for the government, who will be under pressure to find some spending cuts in the Federal Budget.
Vacancy rates plumb the lows
One of the mechanisms through which higher interest rates are effective in cooling demand is through slowing the pace of housing construction:
Quoting Livewire Markets:
"Higher interest rates are a significant driver in slowing dwelling construction, as they increase borrowing costs for both developers and consumers, leading to reduced investment, fewer new home approvals, and increased project cancellations."
Unfortunately we're already in a chronic housing shortage before these interest rate hikes take effect, with rental vacancies falling back to near-record lows at a national vacancy rate of 1.1 per cent in February, according to SQM Research's data.
Source: SQM Research
Vacancy rates are already at emergency low levels in Hobart (0.5 per cent), Darwin (0.6 per cent), Perth (0.6 per cent), and Adelaide (0.8 per cent).
You can also add in the Sunshine Coast, Ipswich, Toowoomba, Byron region, Wollongong, Mornington Peninsula, and several other areas.
In February, the vacancy rate in Brisbane also fell to just 0.9 per cent.
Source: SQM Research
Sydney's vacancy rate fell back down to 1.3 per cent.
Source: SQM Research
Melbourne has been the one city with slightly better housing supply - but the vacancy rate fell here too in February, to 1.6 per cent.
Source: SQM Research
Overall, the rental market is now about as tight as it's been since the global financial crisis, and especially bad in some of the coastal regions.
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