1 . Interest rate rises
Housing markets are sensitive to the cost of finance . More particularly , the more expensive the city , the greater sensitivity to what happens to interest rates . This is why we tend to see Sydney move more closely with interest rate changes , compared to Perth , for example , which moves with the commodities cycle . Smaller regional areas are also less sensitive and are more in line with local economic conditions and population growth .
Interest rates will rise at some point and this is why the recent release of the June quarter ’ s inflation rate was so important . It was no surprise that inflation moved past the Reserve Bank of Australia ’ s ( RBA ’ s ) inflation target of two to three per cent and hit 3.8 per cent . For now , this is certainly not a cause for alarm - most of the increase reflects that in the June quarter last year , childcare became free for many people and fuel costs reduced dramatically .
Added to this were more normal conditions and this meant people spent more . We are also seeing employment shortages in some parts of the economy as a result of negative overseas migration and this is pushing up wages . Problems with global supply chains are pushing up the prices of some imported products . All of these lead to inflation .
CPI (% ANNUAL CHANGE ) 1949-2021
30.0 25.0 20.0 15.0 10.0 5.0 0.0 -5.0
Sep-1949 Jul-1952 May-1955 Mar-1958 Jan-1961 Nov-1963 Sep-1966 Jul-1969 May-1972 Mar-1975 Jan-1978 Nov-1980 Sep-1983 Jul-1986 May-1989 Mar-1992 Jan-1995 Nov-1997 Sep-2000 Jul-2003 May-2006 Mar-2009 Jan-2012 Nov-2014 Sep-2017 Jul-2020
Source : ABS , Ray White
As to how soon the RBA moves on interest rates will depend on whether inflation remains stubbornly high . Best case , inflation will start to come down as the economy continues to open up again and interest rates don ’ t move for some time . Worst case , we see interest rates move upwards quickly over a short time period .
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