For the fourth consecutive month, the Reserve Bank of Australia (RBA) has spiked the cash rate sending it to a new height of 1.85%.
The central bank first halted Australia’s 18-month-long, 0.1% cash rate in May, pushing it upwards for the first time in a decade to 0.35%.
Today's 0.5% triple increase whammy was a move expected by most economists, including the real estate industry, following a 50bps jump in July to 1.35%.
The Australian Bureau of Statistics (ABS) also announced last week that the annual inflation rate increased 1.8% in the June quarter to 6.1%, following a 2.1% increase in the last quarter.
Yet while the RBA cash rate rise decision raised few industry eyebrows, mortgage holders will need to redouble their payment efforts - and this is amidst stagnant real-time wages, a continuing energy crisis and high inflation.
"Inflation in Australia the highest since early 1990s"
As in his recent cash rate announcements, RBA governor Dr Philip Lowe remains determined to depress inflation to 2%-3%.
Yet even the RBA doesn't believe we'll see this figure until around 2024.
Instead, the central bank forecasts that inflation will peak later this year to around 7.75% before dropping to around 4% over 2023 and finally to around 3% in 2024.
"The Bank's central forecast is for GDP growth of 3.25% over 2022 and 1.75% in each of the following two years," Dr Lowe explained.
Dr Lowe also admitted that the path to achieving a balance between a good inflation and keeping the economy on an "even keel" wouldn't be easy, partly because of global developments - such as Russia's invasion of Ukraine - but also due to domestic factors, including a tight labour market and capacity constraints in some economy sectors.
However, this same tight labour market is assisting Australia's economy, said Dr Lowe, with the unemployment rate declining in June to 3.5%, the lowest rate in almost 50 years, according to ABS data.
And while he noted household spending continued to be a key source of uncertainty, the RBA cash rate rise each month has been necessary "to create a more sustainable balance of demand and supply in the Australian economy" - and this week's hike won't be the last we'll see.
"The Board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a pre-set path," Dr Lowe said.
Good and bad times ahead
Only yesterday, CoreLogic reported that national housing values fell for a third consecutive month in its monthly Hedonic Home Value Index (HVI).
This fall was again led by Sydney and Melbourne which now have median dwelling values of $1,087,376 and $791,999 respectively, after falls of -2.2% and -1.5%.
The report stated that regional market values have also weakened for the first time in two years.
CoreLogic research director, Tim Lawless, had both positive and negative comments to make on RBA's new hike.
He said while the cash rate still remains well below the pre-COVID decade average of 2.56%, today's hike would most likely flow through in its entirety to variable mortgage rates - and that is within a matter of days.
He pointed out too that the recent HVI decline rate was comparable with the onset of the global financial crisis (GFC) in 2008, and the sharp downswing of the early 1980s.
"In Sydney, where the downturn has been particularly accelerated, we are seeing the sharpest value falls in almost 40 years," Mr Lawless said.
"And according to most bank forecasts, the cash rate could rise at least another 75 basis points before peaking.
"With this in mind, the decline in housing values is expected to become steeper, and geographically more widespread."
However, while the RBA is clearly "first and foremost in inflation-fighting mode", Mr Lawless believes the cash rate could nevertheless retrace some of the hikes through the second half of 2023 - with financial markets already pricing their figures on this trajectory.
"The ASX cash rate future indicates a peak in the cash rate at 3.32% by March next year, followed by an easing back to 2.99% by the end of 2023," Mr Lawless explained.
What does this mean for my mortgage?
Based on ABS' Lending Indicators data for June, the average national home loan is now $610,000.
Combine this with RBA's latest Lenders' Interest Rates, and current owner-occupier mortgage holders - ie those with outstanding loans - should expect to pay 3.07% for variable home loan repayments while new buyers will pay 2.61% for the same home loans.
However, today's 0.5% cash rate rise will see the former group pay, at the very least, an $162 extra per month, says savings.com.au - and more likely, towards $300 a month.
New buyers meanwhile can expect to pay an extra $157 per month or more likely, towards $400 a month.
What's next following the cash rate rise?
Mr Lawless notes that although interest rate hikes will most likely continue for 2022, the hike cycle may still be relatively short and sharp - with 2023 seeing some rate stabilisation or potential reduction.
“Similar to the trajectory of the upswing, this downswing phase could be a short but sharp one, depending on how high and fast interest rate settings go," Mr Lawless said.
“(And) this (change) could be the cue for housing values to find a floor."
