Wood Property
Who knows what the market will do?

Who knows what the market will do?

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Prior to May 2022, the last time Australia’s central bank increased the cash rate was in November 2010 to 4.75%.

That was the end of a series of sharp decreases in late 2009, early 2010 (7.25% to 3.00% in 9 months) and then several increases to 4.75% in the post GFC years. It helps to keep the current cash rate in June 2022 of 0.85% in perspective.

Impact of Responsible Lending

Fortunately, after the GFC, APRA introduced responsible lending laws in 2009 which required lenders (banks)  to be more careful in their lending practices. These measures included a serviceability buffer and better checks to prevent lending too much to people who could not afford it. The nation’s loan book is therefore better prepared for increases in rates than it was in previous cycles. This will be important as further interest rate rises are forecast which will place pressure on some borrowers.

Since the rate rise announcement on Tuesday 7th June 2022, there have been many media reports forecasting the property market will taper off. As the cost of credit is one of key market drivers, they may be correct. However, the recent track record of market forecasts has not been good. Through Covid they were way off.

In the last few weeks, several economic and equity market commentators are openly saying that given major global and domestic issues at play, they have no confidence in forecasts. They are saying there is no play book for the combination of current issues.

Current Economic Challenges

Here is a quick list of the issues circling at the moment that are impacting the economy and the property market directly, or indirectly.

  • War in Ukraine
  • China – trade and security
  • New Federal Government
  • Rising living costs.
  • Labour shortages
  • Supply chain shortages
  • Rising construction costs
  • Delays in construction material delivery
  • Covid hangover
  • Rising interest rates.

It would be impressive for someone to accurately forecast the market as these influences interplay and the economy reacts accordingly.

We crave certainty, so it helps us to hear forecasters tell us what is going to happen. It is important to have a view on the market direction, but the current events tend to make that prediction a bit less certain at the moment.

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