The RBA lied to you.
The RBA told us they would not be raising rates until at least 2024. Lie!
The RBA told us they would wait for the May and June wages data before increasing rates. Lie!
Well, at the last RBA meeting they did something this country has not seen since November 2010….raising interest rates.
The official RBA rate moved from a record all-time low of 0.1% upwards by 0.25% to 0.35%. The media is having a field day right now, blasting the news with fear around the terrible news of interest rate increases.
But why? Why are higher interest rates a sign of Armageddon?
Higher interest rates are in fact a sign of a strong economy. Rates fall or stay low when the economy is weak. Rates rise when the economy is strong, and that growth threatens to raise inflation- which is where we are at right now. Look around, the economy is doing seriously well right now. Do you know anyone who has been laid off from work and lost their job? I certainly don’t. In fact, all the employers I talk with each week are complaining they can’t find staff!
So, should you be scared of the rate hikes?
The recent 18 months of property growth around the country have absolutely been driven by FOMO. (Fear of Missing Out.) As buyers took advantage of all-time low-interest rates and easy access to debt to pay way more than they should have to purchase the property.
In our view, the Sydney property market hit its peak in November last year, and since then the heat has absolutely come out of the market.
Throw in an increase of properties on the market, and fear of huge interest rate rises and we are starting to see vendors gripped by FONGO. (Fear of Not Getting Out.)
The million-dollar question is … how far will the property market drop?
No one knows the answer to that question of course. And our guess is just that, a guess.
But here is one thing we are certain about: There is zero precedent for the RBA to continue hiking rates up whilst house prices are materially falling. The last thing the RBA wants to do is tip us into a recession that would deny workers their jobs and wage growth that the RBA has spent the last 12 years trying to stimulate.
So talk of home loan rates going 6-10% is absolute trash in our view, but you must admit it does make for great headlines and clickbait. Just like “Liar Liar, property market on Fire!!!”