WITH the Reserve Bank of Australia (RBA) deciding to increase the cash rate by 50 basis points to 0.85 per cent, as well as increase the interest rate on Exchange Settlement balances by 50 basis points to 75 basis points, homeowners and those wanting to enter the housing market are feeling the pinch.

The RBA Board is responsible for formulating monetary policy and sets the target ‘cash rate’, which is the market interest rate on overnight funds. 

It manages the levers that help control inflation, which is rising, with the Consumer Price Index currently sitting at 5.1 per cent but forecast to hit 6 per cent in 2022.

The decision to increase the cash rate was made by the RBA Board on Tuesday during their June meeting and will further impact the cost of living, with increases to other household expenses such as electricity, gas, and petrol already putting families under financial strain.

It marks the second increase in two months after the RBA lifted the cash rate from a record low 0.1 per cent to 0.35 per cent before the election last month.

Data from ANZ-Roy Morgan Australian Consumer Confidence revealed consumer confidence dropped by 4.1 per cent last week with decreases experienced in New South Wales, Victoria, Queensland, and Western Australia, while South Australia experienced an increase.

With consumer confidence at its lowest level since mid-August 2020, the ‘time to buy a major household item’ level dropped 4.7 per cent, while inflation expectations rose to 5.7 per cent, the highest weekly reading since early April.

CoreLogic Asia–Pacific research director, Tim Lawless, said Tuesday’s 50 basis point raise in the cash rate was “larger than expected”.

“With the cash rate up, it’s highly likely variable mortgage rates will rise by the same or a similar amount over the coming week, taking the average variable interest rate for a new owner occupier loan to around 3.16 per cent,” he said.

“Together with the 25 basis point increase handed down last month, the cumulative 75 basis point lift in mortgage rates will add approximately $200 per month in additional repayments on a $500,000 mortgage compared with mortgage rates in April.

Mr Lawless also said interest rates would likely continue to rise throughout the remainder of the year and into 2023.

“While higher interest rates will lower borrowing capacity, less household savings and tighter balance sheets will also weigh on serviceability assessments for prospective borrowers, adding to diminished demand for home purchases,” he said.

However, the local housing market has seen significant growth over the last two years due to the pandemic, prompting more people to seek the relaxed country lifestyle offered by places such as Hamilton, rather than the hustle and bustle of city living.

A recent statistic from Domain showed that a three-bedroom home in Hamilton spent an average of 50 days on the market and had a median price of $336,000.

However, Southern Grampians Livestock and Real Estate residential property consultant, Nic Cullinane, said the high demand for people wanting to buy homes in the area meant houses were spending very few days on the market.

“(Homes) at Southern Grampians Livestock and Real Estate are still selling very quickly for the most part,” he said.

“Most of ours are still selling within seven days, and some in the first two days.”

Mr Cullinane said the increase in demand for homes locally had directly impacted house prices, with the market experiencing “a dramatic increase” in the last two years.

“The market has been stagnant for 12 years and has increased by approximately 50 per cent on average since March 2020 or when Covid started,” he said.

“Due to Covid, many metro residents are wanting to head out to rural (areas) for more freedom and work-from-home opportunities.

“Also, properties are still far more affordable in regions like Hamilton than metro.”

According to Smart Property Investment, the median house price in Hamilton has risen to be $347,000, with prices experiencing an average growth of 19.24 per cent per annum over a three-year period.

In a CoreLogic report released on May 2, 2022, Mr Lawless said despite housing values across regional Victoria experiencing a 0.9 per cent increase in the last month, the overall trend showed housing was becoming more unaffordable as households struggled with higher interest rates partnered with reduced savings and tighter lending conditions.

As household budgets continue to tighten due to inflation caused by impacts to supply chains such as the pandemic, the war in Ukraine, and the recent floods, it is not reassuring to hear that further inflation is expected before a decline next year.