Reserve Bank gives homeowners an early Christmas present

Jarrod Brown
By Jarrod Brown
5 Min Read

With inflation beginning to cool, the Reserve Bank of Australia is handing homeowners a welcome gift this holiday season – pausing the cash rate at 4.35 per cent.

Most economists saw this coming. In this month’s Finder RBA Cash Rate Survey, 82 per cent of financial experts predicted a hold on rates, pointing towards wages finally keeping up with inflation. 

However, while the news comes as a welcome reprieve for homeowners doing it tough, the hangover from 13 rate rises is still being felt across the country. 

Graham Cooke, head of consumer research at Finder, said this year’s soaring cost of living has “wreaked havoc” in nearly 80 per cent of Aussie homes.

“Everything from housing to groceries, petrol and energy costs more, and economic conditions are some of the worst in decades,” said Cooke.

“While we expect the RBA could start cutting the cash rate late next year, we could see at least one more hike before that happens.”

The paused cash rate still leaves Aussies with a $600K mortgage forking out roughly $1,349 more per month than they were before the RBA started lifting the cash rate in May last year.

That’s an additional $16K over a year in mortgage repayments alone.

The increase has also forced many borrowers to tap into savings, with a recent survey from Canstar revealing 35 per cent of households having already accessed money from their offset account to cover their repayments and cost of living expenses.

Reserve Bank governor Michele Bullock said that pausing the cash rate will allow time for the RBA to assess the impact of the previous interest rate hikes on inflation.

“The impact of the more recent rate rises, including last month’s, will continue to flow through the economy,” she said in a statement provided to Build-it.

“High inflation is weighing on people’s real incomes, and household consumption growth is weak, as is dwelling investment.

“It (inflation) erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality.

“If high inflation were to become entrenched in people’s expectations, it would be much more costly to reduce later, involving even higher interest rates and a larger rise in unemployment.

“Returning inflation to target within a reasonable timeframe remains the Board’s priority.’

Too little, too late for builders

Unfortunately, the RBA’s latest pause comes too late for the building industry. Two years of rate hikes have already forced Aussies to tighten their belts and slow the pipeline of residential construction projects to a crawl. 

The ABS’s recently released Lending to Households and Businesses data for October, which provides statistics on housing finance commitments, revealed that the construction and purchase of new homes was 22.4 per cent lower than at the same time last year – their lowest since the GFC. 

Tim Reardon, Chief Economist for the Housing Industry Association (HIA), said that with construction activity set to slow even further in 2024, there is no justification for further RBA rate rises. 

“This low volume of lending has been sustained since the start of 2023 and will see new home construction continue to slow through 2024, despite the need to increase the supply of new homes,” said Mr Reardon.

“Not only are rising rates making it harder to address the acute shortage of housing stock, but the loss of skilled trades from the building industry will also make a recovery in home building increasingly slow.

“The industry requires stable and reliable economic settings to avoid an ongoing market roller coaster.”

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Jarrod Brown combines his background in journalism, copywriting and digital marketing with a lifelong passion for storytelling. He has a strong passion for new and emerging consumer technology within the building sector. He lives on the Sunshine Coast - usually found glued to the deck of a surfboard.