More pain to come before any gain for home owners

HOME owners are likely to be hit with several more interest rate hikes as the Reserve Bank of Australia tries to curb lifting inflation, Fortlake Asset Management founder Chris Baylis said.

Markets have raised the chances of another rate hike as soon as this month after RBA boss Michele Bullock said it would be a “live” possibility at its March 17 meeting.

The central bank lifted the cash rate to 3.85% at its February meeting in response to a dramatic increase in inflation through the second half of last year.

Baylis, a former UBS fixed income portfolio manager, said Australia was an international outlier in having an ongoing issue with “simmering inflation”.

“A lot of that comes back to the fact that we preference the jobs market, the labour market, over inflation,” he told the Australian Conveyancer What’s Next? summit on Tuesday.

“Because of our inflation rate simmering away and reprioritisation towards the labour market, it does mean we ultimately need the cash rate to move up another two or three times.”

Despite inflation concerns, he said the nation’s property market looked resilient, pointing to very strong fundamentals and “huge supply constraints”.

“You’ve got all of the green tape, council tape, you name it, it’s all there,” he said.

“That creates imbalance between what people need now versus when they can get it and that is why we’ve always got this tension in the property market.”

Even so, it was not an even picture across the country.

Baylis said geographically specific “dispersion” was leading to capitals like Perth and Brisbane outperforming larger cities like Sydney and Melbourne on property.

In the case of Sydney, he said the higher value end of the market was very volatile, with large swings week to week, while there was “very good tension” in lower value areas.

“Then what you’re getting is that those people who can’t afford Sydney are obviously migrating across to places like Perth and Brisbane and that is keeping  inflation high and population growth high in those states. 

“What we see from a pricing perspective and a value perspective is that detached housing is doing very well. Dwelling investment is very high and we expect that to keep on going.”