Episode 106: Rate Hike Reality — Sticky Inflation, Borrowing Power & What Comes Next

Hosts Ciaran O’Brien and Peter O’Malley unpack the RBA’s latest rate hike and why inflation in Australia remains stubbornly above target. We explore how the next six weeks could reshape sentiment, borrowing capacity and price momentum, while comparing Sydney’s serviceability risks against other cities and assessing whether policy proposals around land supply can truly shift the housing balance.

We also discuss:

• Cash rate rising to 3.85% with mortgage rates sitting in the high fives to low sixes
• RBA signalling inflation likely to remain above target for an extended period
• Why the board opted for a smaller, steady hike instead of a 0.5% move
• Global market volatility versus Australia’s domestic inflation drivers
• Government spending and wage policy contributing to persistent price pressures
• Borrower resilience alongside growing serviceability risks in Sydney
• The typical six-week lag before rate hikes fully impact the real economy
• Rental market stabilising with modest increases and rising house-sharing trends
• Policy discussion around potential military land sell-offs and supply constraints
• Practical guidance for sellers, buyers and investors navigating a shifting cycle

As always if there is a specific topic you would like for us to cover, please reach out and let us know!    

Transcript

Setting The Agenda: RBA And Property

SPEAKER_02 0:00

Welcome.

SPEAKER_00 0:07

Welcome to the current mumming number of the podcast. What do you want the hummers realist? Meeting up, Mr. We came up with realist and welcome and industry lady, Peter Mumley, to discuss the current property market condition. Providing Mr. Mummers to assist you on your property journal.

The Rate Hike And Mortgage Impact

SPEAKER_01 0:30

Hello and welcome to another edition of Current Market Insights. I'm your host, Kieran number one, and with me is Mr. Peter O'Malley. Kieran, how are you doing? I'm doing pretty good, Peter. It's uh every week I feel like I say to you, hey mate, it's been a big week and we're going to talk about all things property. But uh, as we mentioned last episode, we were coming up to the RBA's announcement on interest rates, which, you know, I guess in our circle makes it a pretty significant week. So today's episode, I really want to talk about uh briefly what the RBA kind of had to say. I don't want to go too deep into their statement, but just touch on what what kind of sentiment was there and then really talk about what their decision means for the property market more broadly, what it's going to mean for our listeners out there who are selling, and what it's going to mean for those listeners that are trying to buy at the moment. Yeah, thanks, Kieran.

Reading The RBA’s “Sticky” Inflation

SPEAKER_02 1:18

Look, in a blow to mortgage holders, more so than home buyers, because home buyers can factor in this rate hike before they make an offer. But in a blow to mortgage holders, the cash rate has gone to 3.85%, which means mortgage rates will roughly now hover in the market somewhere between sort of 5.85 and possibly 6.1%. Um look, it must be said that uh interest rates and mortgage rates are only returning back to where they were in July. Uh so it's certainly not the end of the world. We're out in the property market today. I think the agency had about 10 or 12 open houses today. All of those were attended. Um, so buyers certainly shrugged it off today. So uh it's not going to turn the card table upside down with one move. But in reading the RBA statement from Tuesday's meeting, um, I look for repetitive messages, messages that the RBA really want uh the public and the money market to take hold of. And uh it says uh twice in their statement the board considers that inflation is likely to remain above target for some time. Yeah. So the the RBA have assessed that interest rates are not just uh um um sorry, inflation is not just spiking here, but it's ingrained in the economy, and um we can all debate and speculate on what's really causing that. Um, but but the RBA see it as sticky, and uh this won't be the last rate hike, is the reality of it.

Why Not A Bigger Hike

SPEAKER_01 2:50

So we last time there was rate rises, we did I did ask you about whether or not the RBA in their statement uh might position themselves to be a little bit more aggressive. And even last week I asked you whether or not you thought they might go a little harder than 0.25. Given that their underlying messaging is pretty consistent that they think inflation might be embedded, it may stay above target. Why do you think they have opted not to go a little bit harder right now and potentially you know ease a series of increases which could be more damaging?

SPEAKER_02 3:21

Oh well, let's okay, well, let's talk about what the RBA target is. First of all, that's two to three percent inflation rate. Correct. And uh inflation is uh, as we know, running at 3.8%. Uh the RBA are capable and have the mettle to to you know impose a half a percent interest rate hike on the economy if they deem it necessary, and they did four times um in 2022 and 20 uh uh over 2022 and 23, but that's when inflation was above five percent. Yeah. So they had to get it down very, very quickly. The RBA is not wanting to um jolt the market or the economy here, it's wanting to bring it to heel in in in a uh steady fashion uh so that um the the economy is not you know jerked around. There's no need to hit the economy that hard. It's yes, it's uh inflation's higher than they'd like, but it doesn't justify 0.5%. So that was never really on the on the cards, but um I think money markets uh have it sort of uh 50-50 as we speak that there will be another rate hike in uh in March uh 2026. I think that's on St. Patrick's Day, actually, March 17. That was unfortunate. Yep. Uh yeah, so let's hope that St. Patrick says a prayer for all of us and gives us a reprieve, but uh no promises.

SPEAKER_01 4:39

No promises indeed. One of the uh interestingly, this week there's been a bit of chaos. You talked about money markets. There's been a bit of chaos globally in the money markets, and I know you and I spoke off air during the week uh prior to the announcement about whether or not the RBA might actually go ahead with a uh interest rate rise given what was going on. You know, gold markets collapsed, Bitcoin went through the floor, silver collapsed. I mean, markets that were performing incredibly strongly, you could say, you know, quite bullish, uh, had a pretty bad week. Are you surprised that the RBA went ahead and still lifted rates in the midst of this kind of uncertainty in the markets, the money markets more broadly?

Why Australia’s Inflation Stands Out

SPEAKER_02 5:16

Uh look, um, by the time the decision uh of the interest rates for Australia came around, things had sort of settled a bit. Gold had rallied off its um off its buster. There's clearly manipulation of the gold and silver market going on. Gold crashed after Tuesday and then boomed on Friday. Yeah. Um, so that that's really volatile at the moment. Uh Bitcoin um was back is now back to where it was five years ago uh uh during COVID. I I've never been a uh a Bitcoin um proponent. Um, so I you know I wasn't surprised um to see that really getting knocked around, but that's what's happening, and that would hurt many people that are heavily invested in it, that's for sure. Yeah. Um but there's other things going on, like the Indonesian stock market has been absolutely thrashed. Um we said in um our talking property segment previewing 2026 that what's going on in Japan is a massive issue with the yin carry trade. So um, but look, the reality here, and this is uh the the reality for the Australian government and the Australian people, is that inflation is is essentially under control and falling all around the world, except Australia where it's rising. Yeah. And Australian in the developed world, Australia now has the highest inflation rate. And why is that? It's government spending. Yeah. Yeah. So the government uh are realistically the uh um the primary cause, not the sole cause, but the primary cause of why inflation is rising to the degree it is. And clearly the uh an RBA governor is not going to come out and throw a rock at the uh the treasurer of the country uh under those conditions, but there would be some pretty direct conversations behind the scenes, and that's what we're seeing now from um the Albanese government, and I'm not saying any of this is wrong or right, but the reality is they're pumping a lot of money um uh and support towards the vulnerable members of the community, which is keeping the inflation rate high. So, like if we go back to those minimum wage rises that uh the Albanese government imposed straight after coming to power uh in in 2022, um, as we said at the time, it's very hard to argue against a modest uh um increase in the minimum wage to people that are you know at the entry-level earnings, but the reality is it feeds inflation. Yeah. Uh so this is the uh conundrum that the government and the RBA have in front of them is Labour want to support their base, and the more they support the base, that is a contributor to the inflation rate. And the RBA, as you're seeing here, have no tolerance for a rising inflation. So it's interesting times ahead.

Cost Of Living And Borrower Strain

SPEAKER_01 7:58

Oh, look, it is, I think cost of living is a real issue, uh, as you mentioned, for the vulnerable. I mean, being on minimum wage is challenging to begin with. The cost of everything is expensive at the moment, you know, rent included, which is another major contributor. Uh, before we really just have a look at what the impacts are likely to be for the property market, I just want to get your quick thoughts on how you think this interest rate uh rise will compare with the equivalent interest rate and therefore equivalent mortgage rate last uh last time that it was this high? Do you think that uh from a mentality perspective, because we've we're coming back up off a cut last rate movement, uh do you think that there is likely to be a little bit more of a challenge for people who in their minds may have been considering that we were on a downward trajectory for some time and all of a sudden we bounce back up? Do you think that that you know psychologically or or realistically plays any role or has an impact on people and how they weather this increase?

Timelines: When Hikes Hit The Economy

SPEAKER_02 8:55

Oh, look, the early signs are the people just took that rate hike uh, you know, from a uh a market psychology perspective, they took it in their stride. Yep. Um, as I said earlier, there was no change in in buyer behaviour in the property market. I felt at the start of the year that if there was a rate hike, which I was pretty certain there would be at some stage early, um, that uh the market could comfortably handle one uh rate hike, it'd be okay with two, wouldn't like it. If you start getting wiping all three cuts from last year off and going up from there, um I I think that there's trouble. Well, and and I and and I think there will be struggle uh uh um from that point, Kieran, because the last time rates were at that level, as we've said, um quite honestly, without disclosing anyone's personal circumstances, there were there's people phoning into real estate offices tapping the mat saying, I can't I can't afford to keep this uh investment property primarily at that stage. Some people were doing the same with their primary residence, sadly. Um, but yeah, so uh if we saw a cash rate get back to uh uh mid-fours, which means mortgage rates are uh mid-sixes, yeah, uh that'd be that'd be very, very damaging for the Sydney property market. There might be some other markets that can withstand that because they're coming off lower bases, but for the Sydney property, anything and the reason Sydney's so impacted is everyone in Sydney, well not everyone, but people maxed out their borrowings when you know when the property market was booming during COVID. Yeah. So as rates go above COVID, COVID um era interest rate levels, those borrowers are already maxed out, if that makes sense. Yeah, yeah. They're uh above the serviceability threshold. Correct. Whereas when you start talking about um um the Brisbane market, it only really started booming coming out of COVID and it hadn't actually peaked for 13 years, as we've discussed in the past. So they had a lot of leverage to pay higher mortgage rates based on their earnings, whereas Sydney siders on the whole were were largely tapped out already.

Rental Market Heat Versus Stability

SPEAKER_01 10:59

Yeah, well, it's you know, I do feel for, and we touched on this recently, but I feel for people that are buying, you know, potentially first homeowners that have taken advantage of this 5% you know into the market initiative, have borrowed up to potentially up to the cap, and then any rise is going to be troublesome. Uh, but to you know, to put into perspective, I I have close friends that live out of Sydney in the regions. Um, and even with interest rate rises, their their mortgage payments are less than you know, I know for a single you know, studio apartments in Sydney pre-rate rise, uh, which as you say means that Sydney is a really unfortunate position that uh you know max borrowings here, it can be quite hard to service. So given that uh, you know, the rate rises here, there may be one coming next month, there may be one coming uh, you know, not long after that, if if things continue the way they are. Uh, and you mentioned that so far this weekend there hasn't been much of a change in terms of the property market in terms of buymentality. Um, what do you think the likely flow on is going to be for the market? And how long do you think it'll take before that really that you know that impact is actually felt?

Selling Military Land: Policy Or Pitch

SPEAKER_02 12:03

Well, a rate cut or a rate hike takes about six weeks to hit the hit hit the real economy. Yep. Uh so all you could really judge uh at this point in time about Tuesday's rate hike is is market sentiment and market psychology. Um so uh yeah, but about the time the RBA have to make a decision on are we going to hike again or sit back and and and and assess what the last um decision's been, um the the the real economy will only be really feeling the impact of having paid out you know extra 0.25% on variable home loans, etc. etc. So we must keep in mind that the last time, Kira, and this is a uh a subtle point, but but but not insignificant, but the last time interest rates went for uh experienced their first uh hike for the cycle was May 2022. Yeah. But a lot of people had fixed their mortgage rates up to four years at that point, two, three, and four years. So they had really good notice that rate hikes were coming and they could adjust. You know, if you if the plane's heading for the mountain, you can adjust accordingly. Where with this rate hike, it went from the market set for a rate cut on Melbourne Cup Day, the m the data turned quickly, and I was like, hang on, these these are these are more than likely going to go up from here, don't worry about going down again. Um, and if you're on a variable uh home loan, uh you didn't have much adjustment time. Yeah, that's that's another element to this. Uh, for all of those reasons, I think the RBA, and plus the fact that the RBA tend to only respond to quarterly inflation numbers, not monthly. Yeah, the RBA will clearly know that um the imp the true impact and the full impact of the rate hike will take time to work its way through the economy. I'd be surprised myself if they did increase interest rates on March based on where we're at. I think they'll wait till the April meeting, um, or it might be May or early May, but they'll wait for the meeting after March to get all the data in.

Closing Thoughts And Next Steps

SPEAKER_01 14:12

Yeah, it's certainly an interesting period ahead. Uh, final kind of point then today, Peter. I I know it's it's still quite early in the year, but I wanted to get a sense of uh I've talked about the rental market a little bit, but just want to get your take on what you are seeing in the market at the moment because we've kind of come out of that primarily rush season where you know international students come in, there's lots of competition, there's huge, you know, the stuff you see in the paper, there's a thousand people out the front of an apartment in the city or Marrickville or whatever it might be. Uh, I just want to get your take on where the rental market is at the moment, uh, what kind of intensity you are seeing uh in terms of applicants and and volume, uh, and whether or not you are still seeing the kind of tension in the market where uh potential renters are coming quite aggressively and offering above market rates, etc. Obviously, not encouraged to do so, but people do. Uh whether you're still seeing that intensity or whether things have just calmed a little bit in the market?

SPEAKER_02 15:07

Uh look, it's it's stable at the moment. Um uh there's modest increases there, renegotiations. So the whole uh notion of uh queues, you know, down Bondi Road uh for a one-bedroom unit, it's not quite that environment that we were seeing two two, three years ago. Um, but days on other indicators, days on market, um, availability, um, tenants clubbing together rather than sort of uh you know, a couple uh you know, taking a two-bed, two-bath unit, for example, and now might be a couple taking a two-bed, two-bath unit with a friend who's in a spare bedroom. Yeah. So they're offsetting it uh those ways. So you'd still say that landlords are getting the best of it, but it but it's not an outright frenzy. Um, that's how I describe it at the moment.

SPEAKER_01 15:58

And then on that point, final topic, and you don't have to give too much on this, but the Albanese government recently announced roughly three billion dollars worth of government sell-offs for primarily military land all over the country. Uh, but as an example, in Sydney, they've talked about Victoria Barracks in Paddington, uh potentially being shelved, you know, shelved as it is and given to developers. What do you think the the government's kind of play here is? Do you think that this is election to me it feels like electioneering as a way of saying, hey, we're going to free up all this land, aren't we doing so much uh to help the housing crisis? Do you think in reality uh that it's likely to go that way? And will it actually provide any meaningful uh volume, I guess? Uh and I say that with the information that last time they tried to clear off some military bases, it got shuttered uh because community feedback and and you know, I think even some internal parliamentary committees looked at it and said this is not viable. Uh do you think it's likely to happen? And do you think it's its focus is going to be the affordable housing space, or is this just a bit of electioneering by the government who want to get re-elected?

SPEAKER_02 17:03

Uh look, um I I I think at a non-political level, only in Australia, could we sell military bases when we're on the most fraught uh times that the world has seen.

SPEAKER_01 17:18

Yeah.

SPEAKER_02 17:19

Could could we even contemplate selling military property for housing? Yeah. It's actually it's actually it's so bad it's nearly funny. I'm surprised he's not selling off navy ships to have floating accommodation, right? Yeah, it's just uh he kind of beggars belief, but that's not to say that the other side um might not have contemplated something similar. Um I I would hope I would hope not and think not, but who knows? I know that uh in in in government's books the these properties have been underperforming and dormant for a long time, but I think that's the sign of a truly wealthy and healthy economy and and country that can can have prime property you know positioned and in place should should the worst happen and things break out. Like uh Well, how do you how do you get it back if something does happen? Right?

SPEAKER_01 18:09

That's the issue, you know. And they're in the locations they're in for strategic reasons. Now, you know, to be fair, most of the bases on the list are not operational in the the kind of sense of of a vast majority of the other bases, but still they're strategically positioned to respond to a threat in our major kind of access points, which yeah, it seems odd to me.

SPEAKER_02 18:30

Uh it's it's really odd. I I I don't obviously I'm not privy to all the information um and and and I haven't read up on it. I've just been watching um you know the the headlines on it and thinking surely not. Um surely we can come up with another solution.

SPEAKER_01 18:46

There you go. Surely. Maybe they can 3D print it, mate. Uh look, really great discussion today, Peter. I think uh I I always enjoy our our talks post-RBA interest rates, but I also don't because you know rate rises are hard for everyone to deal with. But I think it's important, as you say, that we acknowledge that the the RBA have made a decision that is proactive and hopefully, hopefully, uh in a quarter's time we'll have some positive run on the inflation rate. Uh but if not, then we certainly need to be mindful that the market may continue to go from here and and the RBA may need to step in again. But uh as always, I really appreciate you coming in and talking to us about this topic and and talking to our listeners today. My pleasure. Thanks, Kieran. Thanks, Peter, and thanks to everyone for listening to Current Market Insights. We look forward to speaking with you next time.

SPEAKER_00 19:32

Thanks for joining us on the Current Market Insights Podcast. Brought to you by Hummer's Partners Real Estate. The podcast providing real estate insights you won't find anywhere else.