Flashnote: Where to next for the RBA?
The dust is starting to settle following this month's RBA rate hike. There's a lot of noise about what the RBA is hinting, suggesting and doing in its forward interest rate expectations. However as we look forward, we're starting to see a clear picture emerge and that is one of interest rates rising to around 3% before leveling off.
The Aussie dollar continues to suffer from a stronger greenback, but that's great news for our expert driven economy. We don't have currency issues like other emerging economies.
Aussie 2 year government bond yields are flat lining at around 3.2% which suggests we'll probably get a couple of more 25% basis points rises before the RBA sits back and awaits economic data. There are already signs of earning inflationary pressure with the unemployment rate rising (mildly) and energy prices moderating.
A 2.5-3.5% cash rate is actually very healthy for the economy. It readjusts risk pricing and will see yields across all major asset prices rise, which provides income support. We're back to a pre-covid world, with an economy that is much larger and naturally, a rate setting that is no longer in emergency territory.
Bottom line: Most of the headlines around house price projects are old news. We've already seen the Sydney and Melbourne property markets adjust by 10-15%, perhaps not on official median metrics, but from anecdotes we're hearing on the ground.
Auction clearance rates are still in line with historical averages near 60% and we're hearing from our contacts that many vendors are actually pulling their properties from sale, reducing supply on market which combined with higher building costs, is insulating the residential real estate market from hefty falls.
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Peter Esho Wealthi Co-Founder, a Forbes featured business leader, contributor to Money Magazine and regular guest on business TV channels including ABC News, BBC, Bloomberg and CNBC. Connect with Peter on LinkedIn.