Media Release | 7 March 2023
Commentary from The Agency's Managing Director and Group CEO Geoff Lucas on the RBA's March interest rate decision
The Agency (ASX:AU1) Managing Director and Group CEO Geoff Lucas said subject to ongoing high rates of inflation, which we expect to continue in the short term, we are likely to see one or probably two further 25 basis point increases and therefore a terminal rate between 3.85 and 4.10 per cent.
"While traditional data supports the case that real wages have fallen since the pandemic, other more contemporary measures, updated for how the workforce has changed - are indicating real wages are stronger than reports suggest," Mr Lucas said. "Additionally, as the peak of fixed rate roll offs won’t be occurring until July through to December – we have yet to see the majority of the impact on Australian mortgage holders. These factors help explain why consumption and inflation remains stronger in the face of ten consecutive interest rate increases.
"There has been a bump in clearance rates in metro areas over the last few weeks and while it is encouraging, I do not think that we have hit the bottom of the market in terms of prices. There are a number of factors that are contributing to the rise in clearance rates including low supply levels but it can also be attributed in some instances to buyers looking to deploy capital at their current approval levels. They now understand that their capacity to borrow is likely to be reduced on re assessment with each interest rate rise.
I believe that there is more softness in the market ahead as inflation and the full impact of interest rate increases is felt. Notwithstanding the strong language in today’s statement that “the RBA will do what is necessary”, as consumers eventually become more comfortable that the terminal rate is approaching, and this cycle of increases is approaching its end, there will be improved sentiment, and therefore we believe a lift in transaction numbers. We are likely then to see a sustained period of stability as the price headwinds are met by very strong immigration with an increasing proportion of those coming from the world’s most populous country, India.
"Looking ahead it has been it has been a “wild ride” in the last three years and we are looking at a period of more stability with less volatility - a healthy development as real estate is a long term asset class and households benefit from steady rates of growth facilitating a safe transactional environment."
Consumption and inflation remains strong despite ten consecutive interest rate hikes, says The Agency Group CEO Geoff Lucas.