real estate South Coast Property Specialists (Carlene Franzen) Tips #1082: Interest Rates - A Critical Consideration for Home Owners Most people are aware that almost every month of the year, the Vol 16 September 15th 2017 Reserve Bank Australia 28 April December 7th, 2017 meets to (amongst other things) set the Vol 48 27thof2018 cash rate for the coming month. While there is no direct correlation between the cash rate and the interest rates that you pay for your mortgage, generally there will be some movement when the cash rate does change. Earlier this week the RBA left the rates on hold for yet another month, though they are now leaving their options well and truly open for a possible increase later in the year. If this was to occur, we would almost certainly see some increase by the banks to their variable mortgage interest rates which is never good news for borrowers. So, what will their decision be based on when they do change the rate? The Reserve Bank decision seems to be very dependent on them seeing strong wages growth across all, or the majority, of the employment sectors that they monitor. There have been recent media reports of lawyers obtaining huge increases and dishwashing workers demanding $50 per hour but these are the exception. In November last year Australian Bureau of Statistics figures reported only one of 18 sectors had pay rises above 3% in the last year and across the entire economy, growth in the wage price index was only 2.2%, which is s6ll below the rate of infla6on. The USA and UK are experiencing different wages growth to Australia which has been put down to them having a much higher sickness rate from Covid. This has led to a phenomenon called “The Great Resignation” where people are quitting their jobs in much higher numbers, causing staff shortages, leading to higher wages growth.
In Australia the RBA is closely watching how the labour market reacts as the economy opens up. It should see an increase in spending more on labour-intensive services such as ea6ng out, retail and tourism. This combined with our lower than usual unemployment rate, should see an increase in the demand for jobs with less people to fill them and hence an increase in wages. Should this occur in a widespread way across the community, the RBA will be more inclined to start making changes to the monthly cash rate. Logically, if the increase in wages occurs inline with and increase in the cash rate, increase in interest rates and increases in infla6on then the net result shouldn’t be a huge burden on the home purchasers. It’s obviously a difficult balancing act and certainly interest rates will change at some 6me in the future so best make the most of the lower rates now. beagle weekly : Vol 245 February 4th 2022
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