Welcome to this week’s Property Edge Newsletter!

Dive into the latest on Australia’s surging real estate market and the Reserve Bank’s latest interest rate decisions. Discover what’s driving demand and how it impacts you.

National Market Overview

Interest Rate Decision: No Change Yet

Households will have to wait a bit longer for interest rates to drop as recent inflation data hasn’t persuaded the Reserve Bank of Australia (RBA) to cut rates. At their meeting on Tuesday, the RBA board decided to keep the official interest rate at 4.35%.

Key Data Influencing the Decision

The decision was influenced by the latest figures from the Australian Bureau of Statistics (ABS), showing the Consumer Price Index (CPI) increased by 1% during the June quarter and 3.8% over the past year. While the quarterly inflation rate held steady, the annual rate was slightly up from the previous quarter’s 3.6%.

Underlying Inflation Trends

The RBA’s preferred measure, the trimmed mean, which excludes volatile price changes, indicated a decline from the last quarter, suggesting that inflation is easing as expected. Despite this, RBA Governor Michele Bullock stated that a rate cut is not imminent.

Economist Predictions and Market Reactions

Optimistic economists are predicting rate cuts as early as November. However, Bullock emphasized that a rate cut is “not on the agenda in the near term.” She mentioned that while the board considered both a rate rise and a hold, cutting rates was not a viable option right now.

Inflation Trends Over the Past Year

Big Banks’ Outlook on Rate Cuts

Despite the RBA’s decision, major banks remain hopeful for future rate cuts. Commonwealth Bank and Westpac predict a 25 basis point cut by November, while ANZ anticipates a cut in February. NAB economists are more cautious, expecting the first cut in May next year.

Bank Predictions for Rate Cuts

Economic Context and Market Reactions

Inflation remains a significant concern, but recent data from the US indicating a weakening labour market could reduce the likelihood of further rate increases. Following this data, financial markets adjusted their expectations, now seeing a lower chance of rate hikes in the immediate future.

Recent Market Activity

The ASX 200 experienced significant fluctuations, plunging 3.7% on Monday following a 2.1% drop on Friday, only to rebound slightly by 0.41% on Tuesday.

Historical Context of Interest Rates

The cash rate has been increased 13 times since May 2022, holding steady since the last rise in November last year. The RBA board noted that while inflation has fallen significantly since its peak in 2022, it remains outside the 2-3% target range and is proving to be persistent.

Outlook and Expectations

The RBA’s latest projections suggest it will take some time for inflation to return to the target range. Consequently, policy will remain restrictive until the board is confident in the inflation trajectory.

Home Prices Hit New Record Despite High Rates

Despite high interest rates, Australia’s median home value reached a new record in July. The PropTrack Home Price Index showed only a slight national price increase of 0.08% for the month. However, areas with relative affordability, like Perth, Adelaide, and Brisbane, saw significant year-over-year growth.

Regional Price Growth Trends

Affordable regions in Sydney’s west have also outperformed pricier northern and eastern parts of the city. The overall housing market remains robust with more properties listed for sale and steady sales volumes.

RBA’s Inflation Target Adjustment

In its latest monetary policy statement, the RBA adjusted its inflation target return timeline. Underlying inflation is now expected to fall below 3% by late 2025, reaching the midpoint of the target band in 2026. The assumed path of the cash rate also suggests a reduction to around 3.3% by the end of 2026.

Final Thoughts

While the immediate future sees stable interest rates, the big banks and economists predict potential rate cuts later this year or early next year, provided inflation continues to ease.

Why Everyone Wants A Piece Of Australia

Australia is experiencing a housing crisis as both foreign and local buyers compete for property investments and residential homes. With population growth and a shortage of available housing, the market is under significant pressure.

Brisbane’s Soaring Prices and Low Listings

In Brisbane, property listings are 34 percent below the five-year average, making it the second-most expensive capital city in Australia, just after Sydney. This shortage is a symptom of the broader housing crunch affecting the nation.

Rising Property Values Amid Population Boom

Australia’s population growth, combined with a limited housing supply, has intensified the housing market issues. The proportion of overseas-born residents exceeded 30% for the first time since 1893, while home values increased by 8.1% last year, bouncing back from a 4.9% decline in 2022.

Impact on Major Cities

Brisbane’s housing market, with listings significantly below average, is experiencing rapid price growth. In Perth and Adelaide, where listings are over 40 percent below average, home values have risen by 22 percent and 14.4 percent, respectively. Sydney remains the most expensive city, with median house prices reaching record highs in 2024.

Increasing Foreign Investment

Australia’s foreign-born population grew by 494,000 people in 2023, bringing the total to 8.2 million. Foreign buyers now make up 10 percent of the new housing market, a six-year high, with significant contributions from India, China, Nepal, and the Philippines.

Property as a Safe Haven

Many wealthy individuals view Australia as a stable and safe investment destination. According to migration consultancy Henley & Partners, 5,200 millionaires relocated to Australia in 2023, outpacing the United States.

Shifts in Foreign Buyer Demographics

While Chinese investment is expected to decline due to economic challenges and changes in visa policies, demand from Southeast Asian countries like Vietnam, Indonesia, and Singapore is rising.

Domestic Market Dynamics

The volume of property transactions has decreased, reflecting the influence of post-pandemic buyers who are financially resilient. Housing Industry Association data shows a 34 percent annual decline in transactions, and property settlements dropped by 18.6 percent in 2023.

Challenges for First-Time Buyers and Low-Income Migrants

High housing costs disproportionately impact first-time buyers and low-income migrants. A report by CoreLogic and ANZ revealed that the proportion of income needed for median rents reached a record high of 32.2 percent, and servicing a new mortgage peaked at 48.9 percent.

Government Measures to Address Housing Stress

The Albanese government aims to reduce net migration from 528,000 in 2023 to 260,000 by 2025 and plans to build 1.2 million homes over the next five years under the National Housing Accord. However, developers have delayed projects, leading to a decade-low in dwelling approvals.

The Importance of Migration for Economic Stability

Despite the housing challenges, migration remains crucial for Australia’s economy. Callam Pickering, an economist at Indeed, asserts that population growth is essential to avoid recession, as demonstrated by Australia’s narrow escape from one in Q1 2024.

Conclusion

Australia’s housing market, with its multicultural appeal, continues to attract significant interest from both domestic and international buyers. The government’s adaptive migration policies and ongoing housing initiatives aim to navigate the challenges and sustain economic growth.

Thanks for reading this week’s Property Edge Newsletter. Stay tuned for more insights and updates on Australia’s dynamic property market. See you next week!

Warmly

The Property Lovers Team