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Mark Bouris appeared on Channel Nine’s Today Extra to talk about the impact of six consecutive months of rate hikes.
After this week’s announcement by the Reserve Bank of Australia (RBA) that the official cash rate would increase another 0.25%, Bouris said, “It’s a little lower than we were expecting…actually, it’s good news for borrowers.”
Have we seen rates rise for the final time this year?
Most likely not.
Bouris stressed the importance of looking to the RBA’s press release on the first Tuesday of each month and to carefully read the words of RBA Governor, Phillip Lowe:
“In the second paragraph of his statement, he says that interest rates are still likely to rise. They are his words. So, yes, we’re going to get more rate rises. But he did provide some words of caution in terms of the amount of rate rises we will see, by saying that we have had ‘substantial increases in interest rates over the past six months’. So he’s starting to change his language.
“Substantial is a very important piece, which is probably why the RBA peeled the rate rise back to 0.25% instead of 0.5%. And the final thing he did say is that global markets, in terms of economic outlooks, are starting to deteriorate, that is another new word he has used. They’re cautionary words that maybe we’re not going to see too many more rate rises.”
Does this mean a recession is inbound?
Global markets have been facing increased pressures, with many commentators and economists predicting recessions around the globe. However, Bouris is more optimistic about Australia’s economic outlook.
He said we will likely see a, “recession in the US, probably in the UK, and more than likely in parts of Europe.”
“I got some comfort out of what the RBA said yesterday, I think Philip Lowe doesn’t want to put us into recession.
“I think the RBA is just going to go more gently, with a wait and see approach to whether to continue increasing the official cash rate, but I expect a couple more 25 basis point rate rises this year.”
To understand the basics of a recession and learn why Mark doesn’t believe Australia will experience a recession, see the latest from this week’s episode of Property Insights with leading economist, Stephen Koukoulas.
Should house prices stabilise?
Following months of declining property values across the country, many are concerned that continued rate rises could see the property market plummet further.
Yet Bouris believes that the more “gentle” approach the RBA has taken this month will likely “not have the same devastating effect that previous rate hikes have had on property prices.”
“What is going to have a big effect on property prices, is when the o.5% rate rises that we’ve already had in previous months, start to catch up. So I think we are halfway through the program in terms of how these rate increases will impact property prices.”
Unfortunately, there is a slight lag between a rate increase, and when mortgage holders will notice their repayments increase. So Bouris said that most of the previous interest rate rises we have seen this year will likely only be felt around Christmas, “or just after Christmas, when everybody goes on their spending spree, or goes on holidays.”
Mark said the RBA is “conscious” of the pressure being placed on households and in particular, the substantial amount that mortgage repayments will have increased for many homeowners.
“As a result of that,” said Bouris, “I think the Reserve Bank will stall around February and they’ll wait and see what happens. They need to see what the net effect of all the rate rises have been so far, because they have a three month lag.”
Tune into the full segment with Mark Bouris and the Today Extra panel by clicking the video above.
