RBA finally cuts rates

Posted by Gavin Chau

Day 46 of renovations. It’s been a tough start to the year for me… Between work and a full renovation of a property, I completely missed the inshore black marlin season and the post-spawn big king season. I also missed most of the summer holidays with my kids. Now my fishing mates are heading up to South West Rocks for the annual pilgrimage to fish mecca because the spanish mackerel are on.

Despite a dangerous coastal bar crossing, this is one of my favorite places in the world. Where the warm, clear water rushing downhill from the Coral Sea, like a giant conveyor belt, crashes into the nutrient-rich cooler southern water, creating an edge that is filled with life.

The water volume is equivalent to 16,000 Olympic swimming pools moving down the coast every second. Hopefully, I can make it there later in the season as the EAC recedes back north and that current edge reappears. It’s somewhere I want to show Tina and the kids when they’re old enough.

The small, quiet township is like a time capsule of Australia in the 1970s: weatherboard houses, low population densities, and neat lawns. But the land prices are certainly not. They’ve increased from $450,000 to $750,000 in the last four years. Such is the way of the central bank policy decisions. Nothing can escape their reach.

The RBA finally cut interest rates today, marking the first cut in four years. I feel nothing but relief, and based on the messages flying around between my WhatsApp groups and the internal Blue Wealth emails and Teams chats, it seems like everyone was watching this more closely than the Melbourne Cup race. The banks will take about 12-14 days to pass that through to us. The good news is that the first rate cut is almost always followed by a second rate cut the following meeting. I have talked extensively about this, and this rate cut will see the final leg of the property market play out. Every major upswing in the Australian property market has been driven by stimulus in the way of rate cuts. There are about two to three years left of growth in the major capitals of Australia, and these are usually the times when we see growth rates in the double digits, often in the 15-20% per annum range.

This respite from the higher rates we’ve seen is much needed. One in five jobs now belongs to the public sector, and four of five jobs created belong to sectors requiring government spending. The government has been printing jobs to keep the economy afloat.

A range of stupid policy decisions have caused inflation to be higher than it should be. If it weren’t for the gas cartels exporting all of the Australian LNG and then requiring us to re-import it, our electricity prices would be around one-half of what they are currently. This, in turn, would make manufacturing and production costs far lower in Australia. The recent immigration policies have also boosted inflation while failing to fill the skills shortages.

We saw a widespread rotation of capital from more expensive properties to cheaper ones last year, and it has continued this year as people are increasingly getting locked out of the middle and upper 25% of the housing market. It is likely that we have hit an event horizon in the housing market, and the number of units being built in larger capital cities is outstripping the number of houses. Since 2023, units and townhouse sales have also overtaken house sales as people move to smaller and cheaper options that they can afford. This has also driven up prices of attached dwellings and cheaper options, which grew at a faster pace than the more expensive options. Three-bedroom units and townhouses are now a realistic substitute for houses in Sydney and the bigger metropolitan capitals for many Australians.

Posted by Gavin Chau, on 18th Feb 2025