Breaking Square | 30th May 2024

The speculators are all out in force after the latest inflation figures were released for April. Markets are pushing out the next rate cut well into 2025 and there are a small number of economist still saying a rate rise is on the cards. I think the RBA will take a wait and see approach as some of the inflationary elements in the data are not affected by higher rates.

The RBA will also want to gauge the effect tax cuts and government handouts do to inflation. My bet is, no rate cut this year, natural forces will bring inflation down without too much intervention from the RBA.

I say this as we are witnessing first hand the headwinds facing many in our community and I can only assume, the same applies across the nation. In the past week our daughter learnt that the bakery she works at, that has been around for decades and boasts a mother yeast from the 70’s, is closing their doors. Another popular venue in Brisbane, MICA and associated businesses have gone into administration and I read about a pub in Melbourne who will be shutting their doors as wages rise to 50% of turnover and they just can imagine the public would pay $20 for pint. The cost of doing business is all too much for many.

Small businesses are doing it tough, along with the 2500 builders who have hit the wall this financial year; no wonder we can’t get any housing built.

The paradox is, if you are a Baby Boomer with no mortgage, a construction worker on a government work site or have safe, well paid employment, you are possibly doing ok. Small business owners on the other hand are struggling and given the number of people they employ across the country, the risk of unemployment going up may be great. The only caveat to this is the reduction in migration, which may facilitate the uptake of any sacked workers.

We have seen a definite change in buyers and the reluctance to make offers and/or taking much longer to engage. Sellers haven’t recognised this as yet, so in some cases are above the market, wanting more than the market will pay. Despite the news of prices continuing to rise, you need to consider Brisbane and for that matter, any city, is made up of many different markets, even a single street could represent 2 different markets from each other e.g. on the water, not on the water.

Parts of our suburbs have very different appeal to buyers and this has a bearing on what buyers will pay and where value is represented. Buyers have no appetite for paying over the odds for what might be termed, “B or C grade properties”. Whereas a little while ago, the FOMO drove buyers to any property, paying whatever they had too.

Stephen Koukoulas shared this graph today on LinkedIn, with this explanation:

No markets / data move in a straight line.
It feels funny having to say this but the reaction to the recent monthly CPI is – well – extraordinary.
The chart below shows the monthly and quarterly inflation data, via the good folk at CBA. A great chart.
I have added circles showing that when inflation exploded from 2% to 8%, there were three occasions when the inflation rate dipped before zooming higher. A few false dawns which bamboozled a few folk.
I have added three squares where the current inflation fall has been interrupted by blips up along the way down, two of which were transitory.
On the third, which is the current one, given how poorly the economy is going right now, and what we know of budget measures and global trends, it as certain as day follows night that inflation will resume its downward path in the next few months.

No data or markets move is a straight line.

So in a nutshell, mortgage holders will just need to be patient and hold on for a while. Sellers may need to adjust expectations in the near term to get sold, but if it allows them to get on with their plans, they will get the uplift in the next property when rates do eventually start to come down. With all this negativity in the media, I sense there will be opportunities for those looking to take advantage.

Until next week, stay safe and be kind.