Current Market Insights
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Current Market Insights
Episode 90: CPI Cooldown Sets Stage for August Rate Cut
Sydney’s property market remains stable as inflation data supports a likely August interest rate cut. With vendors and buyers anticipating a spring shift, hosts Ciaran O’Brien and Peter O’Malley break down how CPI figures, policy changes, and affordability pressures are shaping the current landscape.
In this episode:
- CPI hits 2.1%, with core inflation at 2.7%—both within the RBA’s target
- Why August 12 could bring the long-awaited rate cut
- New AML laws set to reshape real estate from July 2026
- Auction clearance rates at 53.5% with 800+ properties going under the hammer
- Domain data puts Sydney’s median house price at $1.7 million
- Are spring vendors heading into a crowded market?
- The renovation boom’s surprising impact on property values
As always if there is a specific topic you would like for us to cover, please reach out and let us know!
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Speaker 2:Welcome to the Current Market Insights podcast brought to you by Harris Partners Real Estate. Each episode we chat with real estate author and industry leader, peter O'Malley, to discuss the current property market conditions and provide insights to assist you on your property journey.
Speaker 3:Hello and welcome to another edition of Current Market Insights. I'm your host, kieran O'Brien, and with me is Mr Peter O'Malley. Peter, hello G'day, kieran. Great to see you. Great to see you again, peter.
Speaker 3:I would like to talk this week about a couple of things that our listeners might find interesting and I certainly do, as someone who's a bit of a data nerd. But we often talk about the RBA, their interest rate choices, how they're influenced by the data, and we spoke last episode about how they ignored the data. They ignored the data for the first time, but one of the things they obviously take into account is the Consumer Price Index, or the CPI, which is one of those measures that we have of how the economy is tracking et cetera and the cost of goods and services, and I do know that, whilst I haven't looked at them, which is on me there were some CPI figures released today, so I thought we might start by getting you to take our listeners through what the data shows and then really what that kind of means for the state of the economy at the moment.
Speaker 1:So today's CPI data, kieran, was quarterly data, not the monthly inflation numbers, yep, and quarterly, understandably, is the RBA's preferred metric because it obviously is capturing a broader sample of the economy. So yeah, most people have probably heard that the quarterly CPI came in at 2.1%, which is right at the bottom end of the RBA's target range, and underlying inflation, which is the one that they are really looking to see come down because it's been stubbornly high in their view, came in at 2.7%. But consensus was that the number would be steady at 2.8 and it came in at 2.7%. So both those numbers the headline inflation and the underlying inflation are well within the 2% to 3% band and they're coming down and unemployment is going up. So most people readily acknowledge that a rate cut will be forthcoming on the 12th of August.
Speaker 3:Last time we spoke about the CPI, we did talk about the fact that underlying inflation was in a reasonably good spot within the target band, certainly a little bit more stubborn in terms of its movements. It's a lot slower to kind of correct or accommodate. The headline inflation, though, was a bit higher last quarter. This is quite low. I don't think we've spoken about CPI, where it's been at the bottom end of the band. Do you have any thoughts or do any economists kind of give indications for why they think headline inflation is so low this quarter as compared with some of the others? Is there a suggestion that it's perhaps reflective of consumer sentiment? Is it just everything that's going on globally is impacting expenditure? Is it reduced government spending? There's so many factors that contribute. I wonder what might be driving the downturn right at this time.
Speaker 1:Look, it's really not easy to follow what's really happening out there if you're following economists' commentary, because so many economists consciously or subconsciously suffer from confirmation bias. Of course, they have a view of the world, and then they'll find a data set that matches their view of the world and spruik it, and the most common phrase used on Twitter is I told you so. Yeah, you know, I predicted this. Everyone predicted the GFC, the 2008 GFC in 2010, didn't they?
Speaker 3:Of course, and everyone you know knew Bitcoin was going to boom, but strangely didn't have any. That's right. Yeah, indeed.
Speaker 1:So I think the 2.1% is a really soft number and reflects what we have anecdotally felt ourselves over the last few months is that the broader economy is struggling.
Speaker 3:Do you think there's any possibility? And you may not know the answer to this question, but given we've talked before about the impact of the US economy on our flow and particularly all of the back and forth around the tariffs, do you think that any of the the kind of uncertainty or impact financially because there has been some in the US of the tariffs, do you think that any of that is, could or may be contributing to any inflationary downward pressure here, just in terms of reduced spending or reduced, you know, kind of trade numbers across the board? Is there any impact in that space or do you think it's, you know, probably unrelated?
Speaker 1:I don't think anything to do with the tariffs other than sentiment has really been impacted fundamentally.
Speaker 3:Okay.
Speaker 1:Yeah, so there's a lot of noise around the tariffs, of course, but have the tariffs impacted your life in any way?
Speaker 3:Look, not that I've noticed. I mean, everything's more expensive anyway, so there could be some kind of higher duties or taxes, but I feel like everything's so expensive anyway I wouldn't even notice it so much.
Speaker 1:Correct and you know, Trump only came to power at the beginning of this year. We're about to head into August. He hasn't fully enacted his tariff position and he's doing deals, so I don't think that where we're at right, here and now, the tariffs have played a major role, if any role. In where the economy's at, I think households are under pressure with cost of living and with mortgages.
Speaker 3:Oh look, I certainly feel that and yeah, I'm not alone. I must admit I sometimes struggle to accept that Trump's only been in power since January. It feels like he has been a headline news for the last decade.
Speaker 1:But that's not a hidden thing. Both of those are true. He's been back in power from January and he has been a headline for the last decade because, you know, he dominated the Biden presidency essentially, didn't he, of course, yeah.
Speaker 3:Set his own narrative. Yeah, look interesting, Do you think that? Obviously you know. Economists think that this is enough economic data to lock in a rate rise, Rate cut, Sorry, rate cut. Pardon me that was a Freudian slip. The data suggests that it's a certainty. Do you think that that headline inflation number is low enough and unemployment is rising enough to facilitate a larger than 25 basis point cut?
Speaker 1:Well, if you did see a 0.5% rate cut on the 12th of August, it would be the clearest admission from the RBA that they got it wrong in July. Michelle Bullock did a press conference or a keynote speech late last week, completely unapologetic about not cutting rates in July and fully justified the position of holding rates at that particular meeting To the degree that she had some questioning whether she'd even stay on hold during August. Now the data today has probably allowed the RBA board to cut rates in August, as is widely expected. But yeah, the RBA weren't out for apologising, you know, as little as five or six days ago. So to think that they would now go with a larger reduction than 0.25% is improbable. I think there's a case for it, but I think it's improbable realistically.
Speaker 3:Yeah, look, that certainly makes sense. I must admit, there's a part of me that likes the idea that she's unapologetic. I feel like I want someone on the you know, the board of the RBA who is decisive Whether they make the right or wrong decision. You could argue back and forth and semantics around how they use the data, but I much prefer she's unapologetic about the decision.
Speaker 1:Yeah, okay, she was decisive, but the board wasn't decisive because they were split 6-3. Six wanted to stay on hold and three wanted to cut, so that's not decisive, that's a tightrope.
Speaker 3:No, it's not, but at least look. Yeah, I mean they're holding firm on their decision and you know, I appreciate that a little bit when it comes to some of the other financial leadership in the country may not be as robust as the RBA, that's for sure. Yeah, moving forward, then. Peter, I want to just change tack slightly before we get into our market wrap for the day, but I wanted to talk with you at the moment about a finance-related topic. It's something that we have talked about, not as a direct podcast topic before, but it's something we've certainly mentioned in passing in relation to conduct and possible misconduct, and I know that there's been some changes to how money laundering is. It's been watched, I mean, it's been in the media over the last six months in particular, if not longer, but there's been some changes in the way that money laundering is viewed from a real estate perspective and the implications it can have. Can you give us some insights into what's actually happened, who's made these changes and what it really means?
Speaker 1:So, austrac from July 1, 2026, anti-money laundering and counter-terrorism financing obligations will apply to certain services and industries typically provided by the following businesses known as tranche two entities, and the first profession mentioned there is real estate professionals, such as real estate agents, buyers, agents and property developers, dealers in precious stones, metals and products they're coming for your gold, kieran Lawyers Not much there, mate Lawyers conveyances, accountants, trust and company service providers. So it's fairly catch-all. Look, I'll let others decide how realistic this anti-money laundering and counter-terrorism financing is genuinely the counter-terrorism part of it? Um, I know, globally, that's obviously. We've all read that's a massive issue is um? Is the local real estate agent facilitating counter-terrorism financing? Um, probably not. But do real estate agents across the country at large get exposed to questionable transactions and turn a blind eye? Possibly and this is putting an onus on the real estate industry that if you are found to be negligent and willfully blind to improper practice, you're on the hook, which we haven't been today I again at a cursory level.
Speaker 3:I think this is a good thing. Uh, you know there's been plenty of media. I joked with you off air about the strathfield property market might collapse. Now, because you know it's a, it's a local joke that it's all uh purchased through money laundering at a like. In a practical sense, though you you say like confidently that real estate agents are exposed to questionable transactions. What does that look like in reality, though? I mean, you know you've been in the industry a long time. I've been involved in property sales. I mean, at the end of the day, if a trust transfer comes in post-sale what you know, what kind of things do you think an agent might notice and go? You know what I just I don't know.
Speaker 1:A red flag is unexplained wealth. So a 23-year-old coming into your real estate office and buying a $5 million house where is that money coming from? It's unexplained wealth. Someone who doesn't have a job buying a house coming from? It's unexplained wealth. Yeah, someone who doesn't have a job buying a house, someone who might buy pay 12 months rent in advance in cash yeah.
Speaker 3:But I mean, okay, let's go back to the, say the second one there, right, which? Someone who doesn't have a job buying a house as an, a real estate agent? Practically, do you gather that information? I mean, do you go out and say, hey, what's your employment? Like someone purchasing, is there actually any scope for agents to pick up on some of these things, or is it more going to be an incidental? Just you know gut feeling or intuition that says, hey, something smells a bit off here.
Speaker 1:I think the criteria is, first of all, does it you know the ATO criteria does it pass the pub test? So did you really go to Las Vegas for that conference, or did you go because you wanted to watch Celine Dion sing or whoever was playing at the time?
Speaker 3:Yeah.
Speaker 1:Does it pass the pub test? And that's where a lot of the judgments will be made around real estate agencies. What's a reasonable expectation of the agent in these circumstances? And we have been told that where we're in doubt we should report. So what they're saying to real estate agents is we don't want you to be the judge or to confront anyone to ask them to explain the whereabouts of their wealth. To ask them to explain the whereabouts of their wealth. If you have reason to believe that it's unexplained wealth and could be as the result of questionable funds, you are to confidentially report that incident and that's all you have to do and you've met your obligations, and then it'll be up to the authorities to take a closer look from there.
Speaker 3:You might not know the answer to these questions I'm sure you don't but did the AUSTRAC give any indication from a practical sense how easy and or challenging it is to make a report for an agent? Is it something that they might just go? I can't be bothered because there's so much paperwork involved. Or, to your knowledge, you know, is it the plan? It will be a very simple, you know, online form and we're done kind of thing. Because I wonder it might be great in principle, but if it's onerous, is anyone actually going to go through with it?
Speaker 1:I don't think it'll be onerous. No, but they are asking the real estate industry to be their eyes and ears at that level of the transaction and you know different people have a different view on that.
Speaker 3:I mean again, in principle it sounds good. I think more people looking out for shady activity is not a bad thing. But yeah, I must admit I also have to wonder too. If I was to buy a house and my agent had some concern or question over my wealth acquisition, I don't know if I'd be upset if all of a sudden, you know, austrac and the ATO were asking me questions about things. I mean, if I've got nothing to hide, obviously it doesn't matter. But I don't know, I wonder, can you be unfairly placed on a hit list because of someone's suspicion?
Speaker 1:Let's you know. I see tonight the bikies are in the news. What did I see tonight? Apparently, there's one firm taking over another and police are worried that it's going to start a new turf war, Right? So let's say, for example, that the bikies come into your real estate office and start, you know, paying deposits on multimillion-dollar properties in cash, or paying rent two years in advance in cash, and it's kind of like you know where is this money from?
Speaker 1:This is clearly questionable. Yeah, there's a position for saying the reports are anonymous, so you can be anonymous and you never need to tell the person you're reporting on that you've reported them. But there is a chance that it could be traced back to the real estate agent's tip-off or the accountant's or whoever the professionals are that need to, you know, report this activity essentially. So I think what you'll find is that when people who behave that way or conduct their business that way are conscious of these anti-money laundering laws, they will just drive their the smart ones, the smart crooks, if you like will just drive their behaviours deeper, so they're less obvious.
Speaker 3:Improvise, adapt and overcome, peter, that's right.
Speaker 1:Well, they're not going to do stupid things like try and pay 12 months rent in advance in cash. They will find different ways to pay the rent, in a more drawn out, less conspicuous fashion, for example.
Speaker 3:Yeah, oh, look, certainly there's always. Yeah, I love the idea of, of, uh, you know, government taking action on some of these things, but also, yeah, it's fraught with uh challenges and concerns. Be interesting to see how it actually plays out and hopefully it does contribute to getting rid of some of the the behaviors you know, because it's it's certainly making in some, in some pockets. It makes housing, uh, incredibly expensive and can incredibly expensive and just contributes to the overall issues in Sydney, which is a bit of a weird but maybe appropriate segue into our market wrap for tonight. A couple of things to touch on.
Speaker 3:Obviously, we've got the auction clearance rates which we always talk about, but I just very quickly wanted to get your thoughts. I know you're not a big fan of Domain's data or they've got a tendency. Particularly when we talk about auction numbers, they have a tendency to report the more positive side of their findings. But there was an article this week in the Herald with Domain's house price index suggesting that the median in Sydney had eclipsed 1.7 million for the first time. That number aside, you know, taking it with a grain of salt in this discussion, what do you think the major driver is? If that number is accurate. What do you think the major driver is in the last quarter in particular to really push house prices up, and I know we touched on a few possibles. But what do you think is the reason that if it has gone up so much?
Speaker 1:what's the short-term driver of that? Oh look, I think the higher end of the market uh is performing stronger than the bottom end of of the market around the city and um renovations people. You know the standard of housing is so much higher now. People spend so much more on their homes, doing them up than what they previously did. So naturally that is pushing property prices up because they're looking to reclaim the money they've invested in it. And then from there, when we look at a generational shift in house prices, and how did they get so high compared to previous generations? Well, most previous generations were single income households and most households now are double incomes. I wouldn't say double incomes, no kids, because it's quite often a working family where mum and dad do go to work to pay the mortgage and the child care and the child care. So what's uh, what's unfortunate about that is we're working harder to live in the same sort of homes that previous generations did, but both both parents now need to work to to make ends meet yeah, you constantly see that that uh comparison.
Speaker 3:Right, you know, the the tire salesman in the 60s had five kids and a wife who stayed at home, had three cars and a house, you know, for his wage, which obviously we can't compare like for like, uh, and yeah, there are many factors that drive it.
Speaker 1:Um, it's certainly yeah, they lived basic, if you think about those homes they just lived, so much more simpler than what the current generation do, and the standards of finishes, multiple bathrooms, the mod cons that are in these homes, it's all reflected in the sale price at the end. Then you can throw in. On top of all of that, when you're looking for reasons, is the old chestnut which we seem to land on every week open immigration policy, no new dwellings, price bubble forming.
Speaker 3:Yeah, and you know, chris Minns, delivering three 3D printed houses a year kind of thing is not helping the issue. Just anecdotally, on the point about renovations, I was only discussing with a friend this week who lives in Clovelly. Just about you know I grew up in that area and just how much it had changed. And they were saying on their street I think out of 12 or 14 houses they said there was like 11 or so are currently undergoing renovations. You know it's a prolific 100%, you know where the wealthy is.
Speaker 3:These people are capitalising and they're improving their standard of living, their size, and work from home changed a lot of people's opinion of how they live and if they have the capacity to increase that space. And, of course, you're not going to spend X amount of money without recouping X plus five right. It just doesn't make sense.
Speaker 1:Well, I was in an appraisal this afternoon and they said to me do you think the fact that there's a large DA development application that's gone in for next door, do you think that'll impact on our campaign? And I said not really because this could happen to any home in Birchgrove, like all of these underdeveloped homes are going to be renovated at some stage in the near future and at least the buyer of your home can see what's going in next door.
Speaker 3:Oh, and quite often they can say well, I like the plan, that's possible for us, it's worth even more to us now, you know, because there is potential. Yeah, very interesting. On that note, then, given last week we spoke about the auction clearance rate and how it was actually holding pretty firm and you know slightly up on where it had been for the past nine months or so, how did we end up this week on what kind of volume, and has that volume increased or decreased from last week?
Speaker 1:Look, it pushed up marginally. So for the week in Sydney and this includes midweek auctions and Saturday auctions, or 800 scheduled with a clearance rate of 53.5%, which is about steady on last week. Which is about steady on last week, 200 sold prior, 228 sold under the hammer, 25 sold afterwards, 246, I should say, were re-advertised as private treaty. So I think the auction clearance rate would be nudging 60 if they did cut interest rates in July. And when I say that I felt personally they should have cut interest rates in July. That's not. I don't think the property market needed a rate cut in July. I think the broader economy, I think households did. We read so much into the auction clearance rate about the strength of the economy, but that's just one facet and one sale process of the property market. I just think that households really needed that July interest rate cut, but I accept that the property market didn't, because it's been solidly performing between the high 40s and the low 50s and will probably push up into the 60s if and when the RBA do cut rates. What we are seeing in the market, I must add this is another one that we're seeing a lot of at the moment vendors In their negotiations, vendors who are on the market at the moment are saying but the market's going to rise when they cut rates, so I'm going to hold off. We're talking market wrap. That's real vendor psychology at the moment.
Speaker 1:And what I have cautioned a number of clients in the last week or so is that by the time the RBA cut rates, the spring stock will come and it will come fairly solidly for the next two months, whereas stock levels are fairly tight still at the moment, given we're about to turn the corner for the final month of winter. And you will find more competing sellers will come into the market after the rate cut, not necessarily more buyers. The buyers that are in the market might be keener to get a deal done before this supposed jump in property prices occurs after the rate cut. But yeah, vendors are in, I guess, an emotional or not entirely logical state, are really overplaying in their own mind what this rate cut means for property prices in the short term. Yes, if you keep cutting interest rates over a sustained period, you will create a property boom. We learned that in 2020 and 2021. But anyone that's looking for a property boom in September after the rate cut in August is going to be disappointed.
Speaker 3:I think there's a couple of really good points in that answer. Peter, you're always full of like good adages and learning points, but you always say you know, if you the amount of time it takes to ramp up a campaign and get ready, if you wait for the cut, you're too late. You know because by the time you get on market all the other stock has already arrived. And you always say that if you you don't know the top till it turns, you don't know the bottom till it rises. Right, and I think it's exactly that it could boom off the back of this rate cut. But the buyers that are waiting for the cut are already there and ready and the stock that's available will become what they're after. And as you say, you know, we even compared with last week 800 this week on the auction schedule, 743 last week, almost identical clearance rate, almost identical sort of pre-auction, post-auction, et cetera numbers. So the market is very slowly starting to creep up in terms of volume.
Speaker 2:Yeah.
Speaker 3:And it's holding. And, as you say, if a rate cut comes, then those buyers are just going to say, well, now I've got a little bit more strength, let's go. And spring always is a flood and, as you know, like off the back of a rate cut, it could be an even bigger tsunami.
Speaker 1:This time around. And then what? Well, the two rate cuts that we've had so far in 2025, being February and May they created really good selling conditions in the immediate two to three weeks after that and then, for one reason or another, the impact of the rate cut washed off, and I think my forecast at this early stage is you'll see something similar here in Sydney, where you'll see a couple of good weeks after the August 12 rate cut and then it'll settle down heading into September. The weather turns for the better and a lot of stock comes on, and then a bit of complacency builds in the buyers. There's a lot around at the moment.
Speaker 1:I don't need to get caught up in an auction against a heap of other buyers. I'll just I'll just sit back and see what happens. And even during boom years, the market always comes back in terms of clearance rates a little bit at the peak of spring, as too much stock comes to market at once, and we've had our strongest listing month of the year in July, and it's people gearing up for the spring campaigns and we're doing our best to get them to market early to take advantage of the tight stock levels from winter.
Speaker 3:Oh well, exactly because it takes eight weeks to get ready, you know if you're going to prep after the July rate cut, you really?
Speaker 3:Or August rate cut, sorry, you're already, you know, thinking October to get on market. Look. Really great chat tonight, peter, some Some interesting topics and an insightful market wrap, because I think it is important for anyone out there who is potentially thinking about selling the importance of what A a spring cycle means and we've talked about that before on the podcast but particularly what a spring surge means in the context of falling interest rates, which you know, with a cash rate of 3.85%, if they were to go to a sizable cut, we might see mortgage rates come down to the low fives, if not under, for the first time in a long time, and I think, psychologically for me anyway, that 5% barrier is a tough one and I think if you get below that from a mortgage perspective, the confidence goes through the roof that actually it's not that bad anymore. So certainly interesting times ahead. Indeed, thanks Kieran, thanks Peter, and thanks to everyone for listening to Current Market Insights. We look forward to speaking with you next time.
Speaker 2:Thanks for joining us on the Current Market Insights podcast brought to you by Harris Partners Real Estate, the podcast providing real estate insights you won't find anywhere else.
