Wage Growth Halts Rate Rise | Kanebridge News
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Wage Growth Halts Rate Rise

RBA governor Dr Philip Lowe speaks out on ascendent property markets and future plans.

By Terry Christodoulou
Wed, Mar 10, 2021 12:25amGrey Clock < 1 min

Reserve Bank of Australia governor, Dr Philip Lowe, has dented any suggestion of a pending rise in official interest rates, citing slow levels of wages growth, inflation and current unemployment figures as factors that will see maintained rates through until to at least 2024.

His comments come as the Australian housing market engages unprecedented levels of growth — with many tipping a necessary increase in rates given the stronger than anticipated march out of the pandemic.

Speaking at the Australian Financial Review’s Sydney business summit, Dr Lowe said that despite the strong economy, interest rates – which the bank cut to a record low of 0.1 per cent in 2020 – would only start rising when wages were growing fast enough to lift inflation.

“The point I want to emphasise is that for inflation to be sustainably within the 2-3% target range, wages growth needs to be materially higher than it is currently,”  Dr Lowe said.

Wages growth currently sits at a record low of 1.4 per cent.

“The evidence strongly suggests that this will not occur quickly and that it will require a tight labour market to be sustained for some time. Predicting how long it will take is inherently difficult, so there is room for different views. But our judgment is that we are unlikely to see wages growth consistent with the inflation target before 2024. This is the basis for our assessment that the cash rate is very likely to remain at its current level until 2024.”

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Data reveals house values have continued to decrease, but the rate has slowed as the RBA Board prepares to meet next week

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Thu, Dec 1, 2022 2 min

House values continued to fall last month, but the pace of decline has slowed, CoreLogic reports.

In signs that the RBA’s aggressive approach to monetary policy is making an impact, CoreLogic’s Home Value Index reveals national dwelling values fell -1.0 percent in November, marking the smallest monthly decline since June.

The drop represents a -7.0 percent decline – or about $53,400 –  since the peak value recorded in April 2022. Research director at CoreLogic, Tim Lawless, said the Sydney and Melbourne markets are leading the way, with the capital cities experiencing the most significant falls. But it’s not all bad news for homeowners.

“Three months ago, Sydney housing values were falling at the monthly rate of -2.3 percent,” he said. “That has now reduced by a full percentage point to a decline of -1.3 percent in November.  In July, Melbourne home values were down -1.5 percent over the month, with the monthly decline almost halving last month to -0.8%.”

The rate of decline has also slowed in the smaller capitals, he said.  

“Potentially we are seeing the initial uncertainty around buying in a higher interest rate environment wearing off, while persistently low advertised stock levels have likely contributed to this trend towards smaller value falls,” Mr Lawless said. “However, it’s fair to say housing risk remains skewed to the downside while interest rates are still rising and household balance sheets become more thinly stretched.” 

The RBA has raised the cash rate from 0.10 in April  to 2.85 in November. The board is due to meet again next week, with most experts still predicting a further increase in the cash rate of 25 basis points despite the fall in house values.

Mr Lawless said if interest rates continue to increase, there is potential for declines to ‘reaccelerate’.

“Next year will be a particular test of serviceability and housing market stability, as the record-low fixed rate terms secured in 2021 start to expire,” Mr Lawless said.

Statistics released by the Australian Bureau of Statistics this week also reveal a slowdown in the rate of inflation last month, as higher mortgage repayments and cost of living pressures bite into household budgets.

However, ABS data reveals ongoing labour shortages and high levels of construction continues to fuel higher prices for new housing, although the rate of price growth eased in September and October. 

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