Chapter 1: What recent changes have occurred with the RBA's interest rates?
It's the Real Estate Podcast, brought to you by ANZ Home Loans for financial well-beings. And welcome to another episode of the Real Estate Podcast, available on iHeartRadio every morning at 6.30, also available on Spotify and Apple and wherever you get your podcast from. It is a Thursday morning. The week has just, it's gone by pretty fast for us here at the Real Estate Podcast.
It is already the 6th day of October nearly a week into October and next month of course is November and I guess now is the time to start thinking about booking that holiday away if you leave it too late nothing will be available and you'll be fiddling with your thumbs at Christmas time that's of course if you are lucky enough to be heading away for a bit of a break after 2022
After Tuesday's rate hike, more and more people are digging in for the long haul because this inflation problem is not a sprint but rather a marathon and household budgets are going to be tested well and truly into 2023. And talking of tested, coming up next, we're going to be speaking with Adelaide Timbrell, ANZ Senior Economist.
Chapter 2: What does the latest RBA rate hike signal for future increases?
We're going to be having a look at this interest rate rise. And the RBA has signalled that it expects two more rate increases in this tightening cycle. We'll be asking Adelaide what she thinks about That means, because of course we still have two more months coming up in this year, and what sort of rate rises are we going to expect?
Hey, if you're celebrating your birthday today for the 6th of October, Shu, you're sharing it with her. She is the American actor turning 58 today. Tony Gregg, he would have been celebrating his birthday today, but he died unfortunately back in 2012. So if you are celebrating your birthday, have a fantastic Thursday. It's your real estate podcast for breakfast.
It's the main centre forecast with PRD, selling smarter every day. All right, let's check on your weather for this Thursday morning. Good morning to you in Sydney, expecting a high of 21 degrees and the rainy bits today. Melbourne expecting showers to increase in 22 degrees, so the temperature is good. In Brisbane, expecting one or two showers with 22.
Chapter 3: How many more rate rises are expected before the end of the year?
And in Perth today, partly cloudy, but it's not raining, expecting dry conditions and a high of 19 degrees. It's your weekday real estate breakfast with news, interviews and predictions every morning on The Real Estate Podcast. Let's bring in Adelaide Timbrell. She is the ANZ Senior Economist there. And a very good morning, Adelaide. Welcome to the Real Estate Breakfast. Thank you. Good morning.
So how much of a surprise was Tuesday's announcement in terms of going 25 instead of 50? I think what the Reserve Bank has been saying over the past few months is that they will eventually have to refine their cash rate increases. And certainly about a month ago, they did signal that as the cash rate increases, the argument for smaller cash rate increases from the higher rate become more likely.
So it's not a shock, but we were expecting the Reserve Bank to increase the cash rate just one more time in October by 0.5 percentage points. So it was not the base case scenario for us that they would lift 25, though it was an option.
Chapter 4: What factors are influencing the current inflation rates?
Yes, so a lot of economists, as you say, were predicting that 50 basis points. So what does that mean sort of moving forward? Yesterday I said that if you bring it down to 25, surely the next increase isn't going to jump back up to 50. That's exactly right.
And I think when we take a step back and look at the bigger picture, the biggest signal that the RBA has given us with this 25 basis point hike is that there is a very small chance of another 50 basis point hike from here. The Reserve Bank has been hiking the cash rate extremely quickly. In fact, the last time we saw the cash rate going up, it took about five years to get that
two and a half percentage point increase that we've seen in the space of about five months so they've been going really quickly they've started to slow down now we think it's more likely that we'll only see 25 basis point hikes from here including one in November. Having a look between now and the end of the year, we've still got two more months.
The RBA, they're saying that they expect two more rate increases in this tightening circle, as they put it. So perhaps just for those mortgage holders, what do you think is likely to happen between now and Christmas? Are we likely to get two rate rises? What do you think? I think that the chances of another rate rise in November are very high.
Chapter 5: How do savings and fixed mortgages affect the impact of rate hikes?
That'll be another 25 basis points. After that, there is a bit of a question mark. What the Reserve Bank has done in the past is that when they've started to slow down their rate hiking, they've actually taken pauses. So They do take a step back sometimes. They wait and see how those rate hikes are impacting the economy. And then if they feel they need to do more, they will.
So sometimes that pause is a month. Sometimes it's six months. We think that it's more likely to be on the shorter end this time, given that inflation. Inflation is still very high. But the thing about this current situation is that a lot of inflation is coming from global factors.
But this 25 basis point hike does show us that the Reserve Bank's not as worried as they were about the long term impacts of those domestic factors. Now, you say that the RBA might not be as consumed right now, but on the other side of the coin, as you say, inflation is still high.
So how long, because there is this bit of a catch up, how much of a lag effect are we still waiting to see the inflation maybe be tamed somewhat from this point? It does take a while for these cash rate impacts to flow through.
When people have a really strong amount of savings in their bank accounts, and that's something we are seeing particularly with people with mortgages, they can actually increase their minimum repayments or pay more in those interest payments on their mortgages without actually slowing down their spending.
People before COVID had an average of around eight months of repayments in their offset account. They now have an average of around 18. So that's going to be part of it as well, those big savings buffers from COVID.
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Chapter 6: What is the current state of mortgage defaults in Australia?
And another thing that will slow down the full impact of the cash rate rises is the really strong amount of funding. fixed rate mortgages we're seeing. So before COVID, 20% of mortgage debt was fixed. So that number has gone up to 35. So we've got more savings than usual coming into a rate hiking cycle. And we've also got more fixed mortgages than usual.
And all of that is slowing down the impact. Usually it takes three to 12 months anyway, but this time it means that some of these impacts will take 18 months or more to actually start hitting people's pockets. And having a look at the defaults, very, very low. What are you seeing at the ANZ there in terms of people defaulting with payments?
When we look at publicly available data from all financial institutions, we can see that the arrears rate for mortgages is still very, very low. We do expect that to increase a little as interest rates go up. I mean, I don't think that you could expect less people to be behind when it's getting more expensive to buy groceries and pay your bills. That would be pretty unlikely.
So we do think it'll go up a little bit. There will be a group of people that do lose out through COVID or have
lost out financially and that will lead to an arrear like a 90-day being behind on the mortgage or a default but we don't think the defaults will be widespread because a lot of the people unfortunately who lost out financially during COVID have also lost out in the Australian economy in the sense of not being in a financial position to buy into the property market in the first place.
but we've got a lot fewer people who are losing their income entirely. And that's reducing the arrears and defaults on that side of the equation as well. Yeah.
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Chapter 7: How does negative equity compare to previous years in Australia?
And yesterday I mentioned about the negative equity. What are you seeing around that space? Is there anything that is alarming as far as negative equity in people's homes? So when we look at the percentage of people with mortgages in negative equity, it's actually still far lower than it was in 2019.
Because what we saw was in 2020 and 2021, a huge increase in housing prices, which took a lot of people out of negative equity. So now, you know, compared to the top of the market, we are likely to see more people coming into negative equity than
It's really just going to be that a few years ago it was mostly people in Perth and Western Australia who were in negative equity because they purchased their homes at the top of the market in that mining boom and then those homes in WA lost value after that and were stagnant for quite a long time.
Now we may see negative equity spread a little bit more evenly across Australia after that really big increase in prices in 2021. However, we do not expect the share of people in negative equity to be really anything larger than it was in 2019. It's just going to be felt a little bit less in WA and a little bit more in other cities. All right, we'll leave it there.
Thank you Adelaide for coming on to the Real Estate Breakfast this morning. Thank you so much. We connect you to the best real estate information across Australia The Real Estate Podcast.
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