Navigating the inflationary maze: real estate CEO’s take on the property market

The Agency CEO, Geoff Lucas, has weighed in on the implications of the Reserve Bank of Australia’s (RBA) decision to maintain the cash rate at 4.10 per cent for the second consecutive month. According to Lucas, this decision is a positive sign for the economy, indicating that previous rate increases have started to impact the economy, and the RBA now wishes to assess more data to ensure this impact continues.

However, Lucas also acknowledged a potential downside to the pause in rate increases. “The downside to the pause is that it can cause sentiment to improve which sets off further inflationary drivers,” he said. While he acknowledged the positive movement in the Consumer Price Index (CPI) last week, he cautioned that inflationary pressures remain, and a further increase would assist in keeping inflation in check.

Turning his attention to the property market, Lucas highlighted a significant increase in residential listings across the eastern seaboard. “As a result, the mini boom in prices over the last quarter has begun to taper, with some markets showing signs of stagnation or even decline,” he said. He noted a shift in momentum from a strong seller’s market towards equilibrium, and even signs of a buyer’s market in some cases. He predicted this shift would continue, with further decreases in price growth trending to overall softness later in the year and into the first part of 2024.

In contrast, Lucas described a completely different set of circumstances in Western Australia. “What has been an exceptionally strong market is now showing signs of a slight decrease in listings, similar to what occurred the past year on the eastern seaboard. The reduction in supply, strong economy, high liveability, investor demand and growing migration from the eastern states will all serve to ensure continued price stability during a slowing in volumes,” he explained.

While Lucas reiterated that the holding of rates at 4.10 per cent does offer up good news regarding the RBA’s stance on inflationary pressure, he also warned that concerns remain, highlighting the danger of ‘services inflation’ is still strong. He listed a number of factors suggesting that inflation is not yet under control, including energy prices, wage increases, rent increases, and Australia’s high amount of savings ‘buffer’ from pandemic stimulus.

“It’s this buffer that’s keeping the services component of inflation strong. That buffer isn’t expected to dry up until late in the calendar year, around the same time the full impact of the mortgage cliff is being felt and unemployment begins to rise,” he said. Lucas predicted at least one more rate rise before Christmas, concluding, “The data shows monetary policy is beginning to work – and sometimes when the symptoms of an illness are tapering off, it’s good to keep up the medicine – no matter how it tastes.”