Wilson Weekly 28: A Deep Dive into Economic and Housing Market Trends
December 17, 2023
Introduction
The Reserve Bank’s recent decision to maintain interest rates has indeed caught many by surprise. This unexpected
move, after ten consecutive months of increases, has led to numerous discussions and speculations in the financial
world.
The Reserve Bank’s Decision
The Surprise Element
The decision by the Reserve Bank to leave rates on hold, despite a series of increases starting from May last year, has
left many experts bewildered. This pause, after a decade of no change, followed by ten months of steady increases,
seems to be defying the data that’s been presented recently.
The Theoretical Side
From a theoretical standpoint, the primary aim of raising rates is to decrease demand, thereby exerting downward
pressure on inflation. However, the Reserve Bank’s decision to pause suggests it is keen to observe the impact of higher
interest rates on inflation, sparking questions about the data supporting this move.
The Data Conundrum
The Inflation Dilemma
The Reserve Bank, while admitting that inflation is still too high, seems to be banking on the idea that the effects of
these rate hikes may not be visible yet. However, the only data referred to by the Reserve Bank over the past month is
the experimental monthly inflation data from the ABS, a data set even the Reserve bank itself believes needs
further refinement before it can become a reliable indicator of inflation.
The Economy Continues to Boom
Interestingly, other factors observed over the past month reflect a very strong economy. With a record low
unemployment rate, an increase in jobs, and a near-record number of people entering the workforce, the economy
appears to be thriving. This raises further questions about the Reserve Bank’s decision to pause interest rate hikes.
Reserve Bank’s Monetary Policy Stance
The Puzzle
The Reserve Bank’s monetary policy stance and the model it is using have been brought into question. With labor
market figures and inflation data not tracking as high as they were towards the end of last year, the decision to pause
rate hikes seems even more baffling.
The International Perspective
The Reserve Bank’s decision also seems to be at odds with the international experience. While other central banks are
not signalling a pause in rate hikes, the Reserve Bank has chosen to hold rates, bucking the global trend.
The Housing Market
Rising House Prices
The Reserve Bank’s decision comes at a time when house prices are on the rise again. National house prices have seen
consecutive increases in recent months, and the pause in interest rate hikes is likely to provide a further boost to
the housing market.
The Impact on the Housing Market
The pause in interest rate hikes is likely to bolster the already reviving housing market, adding to growing buyer and
seller confidence. As prices are still lower than a year ago, buyers might start to believe they have missed the bottom of
the market, creating a fear of missing out energy.
The Auction Market
Super Saturday
The auction market has been performing admirably this year, with clearance rates consistently high in Melbourne and
Sydney. The Super Saturday of auctions, the first weekend in April that precedes the Easter holidays, saw clearance
rates above 70% in all capitals except Canberra, a remarkable result considering the higher number of listings.
Forward Indicators
The auction markets serve as an excellent forward indicator of general housing market activity. Higher house prices
reflect higher clearance rates, and the trend is clearly evident in Sydney and Melbourne.
Conclusion
The Reserve Bank’s decision to hold rates has sparked a flurry of discussions and speculations in the financial world.
While the move has been welcomed by some, it has also raised questions about the Reserve Bank’s monetary policy
stance and the data supporting this decision. As we move forward, it will be interesting to see the impact of this
decision on various sectors, particularly the housing and auction markets.
