On Tuesday the RBA increased the cash rate by 0.5%, that’s 0.75% in two months.
A number of economists predicted a rate rise of 0.4% or more, inflation is running high & low unemployment are two of the main factors that have driven a double rate increase.
For borrowers this represents a monthly increase of $295 per month for a $750,000 mortgage.
Some in the media are spreading catastrophe, with 15% year on year drop in house prices, defaults rising and Armageddon coming soon.
I think we all agree we’ve seen enough fear and panic spread during the recent Covid-19 pandemic, unfortunately sensationalism sells clicks.
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The cash rate was at the lowest point in history, a rate of 0.1% to help the Australian economy survive through a global pandemic. This had a flow on effect on many asset prices, not least real estate values. Sydney saw 25%+ growth last year, with ultra cheap cash fuelling the market.
However these emergency measures were just that…. Emergency. We’re returning to some stability in the economy and the RBA has good reason to return the cash rate to normal levels. This was always on the cards as we’ve seen fixed interest rates move from below 2% (1-4 year terms) in September 2021 to 5% (4.99%) today for many of the major banks.
Economists are predicting a cash rate of approx. 2.10% by the end of the year. This would likely leave variable rates around the low 4%.
What does this mean?
Whilst the costs of living are increasing (fuel, gas, electricity, groceries) the economy is returning to normal. It’s beneficial to be aware of the fear and panic the media will spread & understand this isn’t some crazy collapse in all that we know but a return to normalisation. There will always be some fear of the unknown but interest rates are still at historic lows & for me we have no reason to fear the future or at-least anymore than we would normally.
If you have concerns please don’t hesitate to contact me. There are measures available to help in managing budgets and obligations.
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