Aussie homeowners could get slammed with another rate hike

Australian real estate
Australia Reserve Bank governor Michele Bullock (Credit: RBA)

Australia’s real estate stocks slumped on Tuesday (July 2) as investors took backwards step on the sector after the Reserve Bank’s June meeting minutes showed the cash rate could be hiked again if “inflation expectations” change.

The discussion, held on June 17 and 18, shows some storm clouds for homeowners. “Members acknowledged that if inflation expectations were to rise materially from current levels, it could require significantly higher interest rates to bring inflation back to target, with adverse implications for growth in output and employment,” the minutes state.

The central bank retained its cash rate at 4.35% during its June meeting, keeping borrowing costs unchanged for the fifth time since it was last raised in November 2023 but reiterated it would be ready to hike them if necessary.

June meeting’s minutes revealed that RBA members said it was still possible to achieve the inflation target within a reasonable time frame without moving from full employment, while acknowledging this “narrow path” was becoming narrower.

“Raising the cash rate at this meeting could be appropriate if members formed the view that policy settings were not sufficiently restrictive to return inflation to target within a reasonable time frame,” the minutes show.

“This could be the case if it was judged that inflation was returning to target more slowly than previously assumed or that the gap between aggregate demand and aggregate supply was not closing quickly enough.”

A few days earlier, expectations of rising inflation hit Australia, in the latest indication that the Reserve Bank won’t be cutting interest rates soon and might yet hike again.

The monthly Consumer Price Index (CPI) indicator rose 4.0 per cent in the 12 months to May 2024, up from 3.6 per cent in April, according to the latest data from the Australian Bureau of Statistics (ABS). The most significant contributors to the annual rise to May were Housing (+5.2 per cent), Food and non-alcoholic beverages (+3.3 per cent), Transport (+4.9 per cent), and Alcohol and tobacco (+6.7 per cent).

Rents increased 7.4 per cent for the year, reflecting a tight rental market across the country. The annual rise in new dwelling prices remained steady at 4.9 per cent with builders passing on higher costs for labour and materials, ABS said.

These figures are less complete than the quarterly ones, which won’t land until 31 July, just a week ahead of the RBA’s next board meeting.

(Source: Australian Bureau of Statistics)