Chapter 1: What is the main topic discussed in this episode?
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And welcome to another episode of The Real Estate Podcast available on iHeartRadio, also Spotify and Apple Podcasts or wherever you get your podcasts from. Well, here we are once again, right back to where we started from, a Monday. And it's so true what Bob Geldof sang all those years ago. I don't like Mondays, and I don't. Too many things can go wrong on a Monday.
That's been my experience, and we need that three-day weekend and kill the working Monday off once and for all. Wouldn't that be nice? Well, I hope you had a great weekend, so much so that it was good enough to forget it's even Monday. It is the 11th day of July for 2022. You're listening to the Real Estate Breakfast podcast. And last week, we had the RBA cash rate rise.
So we've been digesting that over the last few days. So coming up shortly, we are talking with the chief economist from the Commonwealth Bank. And I see in the history books today, David Bowie. I didn't know this. He released the single space oddity just nine days before Apollo 11 landed on the moon. I only found that out this morning.
It happened on this day in 1969, and that has really surprised me.
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All right, let's check on your weather around Australia. First, we look at Sydney. One or two showers on your Monday morning and expecting a high of 17 degrees. Melbourne expecting a cloudy day but mainly dry and 14 is your high. Brisbane also cloudy skies and 21 and in Perth the big blue is back with sunshine and your top of 18 degrees.
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Well, last week proved to be another bitter pill to swallow for mortgage borrowers with the RBA rate rise. who are not finished by a long stretch with more basis points increases. Already since May, it's gone up by 125 points.
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Chapter 2: What recent changes have occurred in the RBA cash rate?
And so they need to get interest rates up to a point that brings inflation back down into the target range. And the higher interest rates do that by weakening demand. Essentially, the way I think about it is people need to spend more of their income in servicing their mortgage. So then they have less income to spend on everything else.
The Reserve Bank is saying it probably will take the cash rate getting to at least two and a half percent to do that. We actually think it'll be a little bit lower than that. But certainly the inflation outlook is the key number the Reserve Bank is looking at.
And I think that the CPA prefers a standard rise of 25 basis points. The big fixed rate home loan expiry schedule is for next year. It's getting closer and closer, Stephen, and I presume that factors into your thinking for 25% instead of 50 basis points?
Well, yes, the Reserve Bank Governor described a 25 basis point move as business as usual after the first move in May. And then they proceeded to do two unusual moves of 50 basis points each for June and July. So we think that they will move back towards that 25 basis point move for August and September and November, which will take the cash rate to 2.1%.
There is a risk that they might have to do another 50 basis points in August if the June quarter inflation number drops. which we get on the 27th of July, is higher than expected, they may be thinking that they might do another 50 basis points in August.
But the big mortgage refinancing challenge that is coming in 2023 is really the reason why we think the Reserve Bank won't need to increase the cash rate to 2.5% or indeed the 3.5% that's priced into markets because essentially financial conditions, many Australian households
will continue to tighten through 2023 without the Reserve Bank raising the cash rate any further because there's going to be a pretty large share of the Australian housing market or those with mortgages having to refinance off those super low fixed rates that they were able to get in late 2020, early 21 and refinance at what's now going to be considerably higher fixed rate or variable rates through 2023.
Yeah and I want to come back to that in just a moment and I know that the stress testing is built in but these are as we said at the top a set of unusual set of circumstances if next month is another 50 basis points even with people ahead of their repayments not all are in that situation it's going to get pretty tricky to balance the household budgets right?
Yeah, that's exactly right. So there'll be a large number of Australians with a mortgage who will now have to be increasing their monthly repayments to service their home loan, either now or in the months ahead as interest rates continue to rise further.
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