Is higher inflation the end of low interest rates? | Property Insiders [Video]

By Michael Yardney | 15 Nov 2021

With the latest inflation figures showing an uplift to 2.1%, which is within the RBA’s 2-3% window for inflation, over the last few days the media has been rife with speculation that the Reserve Bank will hike up interest rates sooner than expected. 

In fact, the money markets have sent a three-year bond rate into the stratosphere and are pricing in the chances of an interest rate rise in February next year at 75 per cent, and traders are gambling that four more rate rises will follow in 2022 alone. 

If the money markets are correct that would send borrowing rates higher at a time when small businesses around Australia are trying to recover from the pandemic lockdowns, particularly in our two most populous states. 

So is a rate rise on the cards and what would this do to our property markets at a time when soaring property prices are stretching affordability limits. 

These are some of the questions I’ll be asking Dr. Andrew Wilson, Australia’s leading housing market economist and Chief economist of My Housing Market in this week’s Property Insiders chat. 


Is this the end of low-interest rates? 

As inflation rises across the world – including in the U.S., U.K., and New Zealand – Australia is the latest country to join the chaos. 

Supply chain disruptions, soaring energy prices and labour shortages due to COVID-19-related restrictions have all merged to drive up the cost of goods such as fuel, rent prices, and new dwellings with core inflation increasing to 2.1 per cent in the September quarter. 

The RBA had predicted that inflation would not reach 2% until mid-2023 and that as a result, it could maintain cash rates at 0.1% until 2024. 

Following the release of these inflation numbers, the bond market began to bet against the RBA, predicting that a cash rate will come much sooner than 2024. 

In fact, the markets are tipping rates that will start rising in 2022. 

However, wages growth is still a long way from 3 per cent, so despite all the media commentary telling us to expect interest rates will rise soon, don’t count on it. 

But you might just start to see fixed mortgage rates creeping a bit higher over the next year. 

While the major contributors to headline inflation in the quarter were new dwelling construction and automotive fuel, rising rents were one of the contributors to higher inflation. 

Rents rose just over 0.2% in the quarter as declining rent in Melbourne and Sydney offset strong rental growth in other cities. 

What about Interest rates? 

Speaking before a Senate committee last week Reserve Bank of Australia deputy governor Guy Debelle acknowledged that ultra low-interest rates have contributed to record high house prices, it still maintains that jobs would be endangered if rates are lifted too soon. 

The deputy governor maintained the position that accommodative interest rates have supported the return of Australian jobs after successive COVID-19 lockdowns. 

Surge in tax averts Delta recession 

The federal government has advised of a $7.8billion improvement in the Budget bottom line for the September quarter, despite the impact of lockdowns in New South Wales and Victoria. 

The government’s payments rose by $11.7billion during the quarter, primarily due to COVID-19 disaster payments; however, this was offset by a $16.3billion rise in personal and company income tax receipts. 

There had been fears that the lockdowns would plunge Australia’s economy back into recession, but Treasurer Josh Frydenberg says the latest figures demonstrate the national economy’s “remarkable resilience”. 

This week’s auction results – another weekend of strong auction results

Watch this week’s Property Insider video as we discuss how most cities continue to record generally strong results for sellers. 

Sydney Auction Market 

Sydney market back about 80%, despite listing wave. 

Sydney’s weekend auction market bounced back on Saturday with the clearance rate rising above 80% despite a wave of new listings challenging the local market. 

Sydney recorded a clearance rate of 81% of the weekend which was higher than the previous week and 77% and above the 79.1% recorded over the same weekend last year. 

Significantly higher auction numbers over recent weekends continue impacting clearance rates, although results clearly remain in favour of most sellers. 

Auction numbers were the highest since lockdown impacted the market in early July. 

The following chart from Dr. Andrew Wilson shows the Sydney auction clearance trend: 

Melbourne Auction Market

More strong results from Melbourne’s post lockdown auction market 

The Melbourne weekend auction market reported another boom time result this weekend with the market now in full recovery mode following the easing of lockdown restrictions. 

Melbourne reported its first consecutive weekend clearance rates above 80% since is early May, despite a flood of listings. 

Melbourne recorded a clearance rate of 80.5% on Saturday which was similar to the previous weekend’s 80.4% and higher than 78% reached over the same weekend last year. 

The following chart from Dr. Andrew Wilson shows the Melbourne auction clearance trend: 


Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog and hosts the popular Michael Yardney Podcast.

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