Housing's Perfect Storm
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What are the latest RBA signals and how likely is a September rate hike?
Hello, I'm Alan Collar, editor-at-large of Intelligent Investor and finance presenter, columnist and podcaster for the
ABC. And I'm Stephen Mayne, contributor at Intelligent Investor, founder of Crikey and shareholder activist. And we are The Money Cafe. Alan, I beat you again.
We are the Money Cafe and good morning, Stephen.
Now, where do we start? I mean, it's bond route, it's oil surging, it's another poor night on Wall Street. So, what did you say on the news last night? Everybody's miserable and it's pretty rocky times on markets, that's for sure.
Well, it's very interesting because we've had a couple of statements from Reserve Bank people. Sarah Hunter, who's their chief economist, the assistant governor, economic, she was at the Financial Review's housing summit and she said, well, we might have to put up interest rates. And then Andrew Hawser, the deputy governor, did an interview on 7.30 last night, which is unusual. And he said the same thing, you know, inflation is too high, it's sticky, we need to do something about it. We've had three rate hikes, we might need to do another one. The market odds of a rate hike this month, which is at the end of this month, is now at about 70%. So the markets are kind of inclined to think that it's more likely than not that there'll be a hike in September.
I think when you get to November, which is the next meeting after that, then it's more or less kind of certain or becoming close to certain.
And it's a similar story in the US as well, isn't it? Inflation's too high, Walsh, despite being Trump's man, and they've got similar sort of percentage chance of a rate hike there.
That's right. And the point about last night's graphs, which there was the business confidence, which is, you know, well down. Business conditions have gone negative for the first time since the pandemic. Consumer confidence fell 5% and is deeply negative. And the other graph I had that you referred to, everyone's miserable, was that basically consumer confidence is negative No matter what your mortgage status is, whether you've got a mortgage, you haven't got a mortgage, or you're renting, everyone's miserable. And so I reckon what that means is that if there is a rate hike this month, and possibly even another one in November, then we're heading for a recession because confidence and sentiment is well down, even though inflation is high.
And I think that I interviewed Shane Oliver yesterday for Intelligent Investor and he's kind of saying that we may be getting to the point where the Reserve Bank thinks we're going to have to have a recession, perhaps a brief, mild recession, in order to control inflation. And that seems to be where we're heading.
The fear of rate hikes plus the perception of housing crash. and the real effects of inflation, that everyone is still feeling the pinch cost of living and they're fearing what failure to tame the inflation beast will be, which is jawboning from the central bankers about we'll go again. You haven't fixed inflation.
That's right. So it's almost a perfect storm, isn't it? It kind of is. And, you know, the number one thing, and Sarah Hunter's basically big point was that inflation is now our number one priority. So... You know, that's pretty clear. They've got a dual mandate at the Reserve Bank which is inflation and full employment, that they should pursue full employment. Well, she's saying clearly that they're basically focusing on inflation now and possibly at the extent of employment. On house prices, we'll talk more about that in questions. We've got a few questions about that. But the thing to note is that yesterday, Paul Bloxham, who's the chief economist of HSBC, he adjusted his forecast for house prices down to a minus 13%, a fall of 13%.
Now, most of the market, most of the economists are talking about 10% decline in house prices. Even 10% would be bigger than we've seen, I think, basically for the last 80 years, really. I mean, there hasn't been one since I've been in the business of more than about 8% to 9%.
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Chapters
4 chapters
1
What are the latest RBA signals and how likely is a September rate hike?
0:12–4:37
2
How are falling consumer confidence and business sentiment shaping a potential recession?
4:37–19:31
3
What is the forecast for Australian house prices and why could a 10‑13% drop happen?
19:31–26:56
4
How did the Bathla collapse expose risks in private‑credit‑funded property development?
26:56–44:54