Standing Still on Rates a Balancing Act

In a move that was more or less expected (but probably welcome nonetheless),

In a move that was more or less expected (but probably welcome nonetheless), interest rates have been left on hold for a further period as the Reserve Bank of Australia (RBA) continues to take a “wait and see” approach to the Australian economy.

As much as I would love to see a rate drop for my own sake (and that of everyone else with a mortgage), I can appreciate this is one of those times that being a decisionmaker is a pretty thankless task. The cost of living is getting WILD, whether its fueling up and being pleasantly surprised you’re (only) paying $2 a litre, filling a basket of groceries for $150 or paying interest on a mortgage where the interest component far exceeds the principal each week. Against that backdrop though, parts of the economy are continuing to charge ahead, and property prices have risen quarter after quarter, across almost every part of the country.  Raise rates again, and you risk adding the straw that broke the camel’s back. Drop them too quickly, and the argument becomes that you’ve added more fuel to an already hot property market. In that context, sitting on your hands starts to look pretty good.

What effect will we see when rates DO change? Given the consensus was that the 4.25% of rises that has already been thrown at the market was expected to slow things right down and we are still seeing cases of $100,000 in growth in 12 months (yes, here in Cairns), its getting hard to tell.

Prices are strong due to VERY tight supply, such that even with a curbed demand due to current interest rates, there are still more buyers than sellers out in the market. Higher rates might thin the buyer ranks a little or give their budget a bit of a haircut, but the relatively small increase we would be expecting at this point wouldn’t make a huge dent as it sits.

Lower rates will offer obvious relief to anyone on a variable mortgage, but will also give more people more confidence in getting back into the property market. Unless more people are enticed to sell, then prices are likely to keep going the way they have – keeping the roller coaster going.

With the added complication of balancing exchange rates and watching the US and UK, where we finish the year is anyone’s guess at this point.

Who would have thought standing still, could have such an impact!