Local Market Looking Good

This week’s Reserve Bank decision to keep the official cash rate on hold at 3.6 percent will be welcomed by those carrying the burden of the recent surge in interest rates. Inflation remains well outside the 2-3 percent band palatable to the Reserve Bank, but they finally appear ready “…to provide additional time to assess the impact of the increase in interest rates to date.”

February’s inflation figures reveal a 6.8 percent rise over the past twelve months, a pull-back from January’s 7.4 percent and December’s 8.4 percent annual inflation numbers. The downward trajectory in inflation seems clear. Some economists have boldly claimed interest rates have now peaked, suggesting that the next rate move will be a cut.

Housing remains a major driver of inflationary pressures, particularly construction costs and residential rents. Rental affordability has deteriorated across almost all capital cities as the supply crunch leads to rapidly rising rents. So far, cost-of-living pressures are no match for population gains and short supply, with underlying demand continuing to put upward pressure on rents.

Core Logic’s latest data set has Perth at the top of the national rental list for houses with a 12.7 percent increase in twelve months and continuing its upward trajectory. Local apartment rents have jumped by a similar amount, up 13.1 percent since last March. Elsewhere, house rents have peaked and whilst most capital city rents are up on a year ago, they are now falling or steady. Rents in Melbourne are on a sharp incline as government laws introduced last year begin to impact supply. In Victoria, a typical sample of 100 house sales included 27 rental homes of which only 9 were retained as rentals. The damage caused by government over-reach is now on full display.

Lack of supply is not contained to rentals with new ‘for sale’ listings down 17.7 percent on last year and trending downwards. Total listing numbers are down too, 19.5 percent below the five-year average. Sales volumes have started to pick up too with auction clearance rates in east coast cities consistently above 70 percent in recent weeks.

This lack of supply is beginning to impact property values with property prices across the nation turning positive again last month, up 0.6 percent marking the end of 10 months of falls. Perth remains the only capital to have recorded positive growth over the past month, quarter and year. Other cities continue to adjust with Hobart pulling back 12.9 percent in the past year, Sydney is down 12.1 percent as is Melbourne (9 percent) and Brisbane (8.6 percent).

The Reserve Bank’s decision to hold on further rate increases, combined with an underlying supply shortage is likely to breathe new life into property markets despite affordability constraints in cities such as Sydney where median dwelling values are at $1,014,393. Perth’s median house value of $567,111 and unit median of $409,253 has us remaining the most affordable state capital in Australia.

Migration rates, supply shortages, strong economy, high wages and relative affordability continue to underpin values in our property market. REIWA’s prediction of 2 to 5 percent growth by end of June is looking more likely as our market gains momentum.