Edition #6 - Inflation Eases Within Target Band, Aussie Million Dollar Suburbs Revealed, Fastest Suburbs for FHB's & Units Catching Up To Houses

Inflation Eases to 2.7%, Sitting Within RBA's Target Band

The Australian Bureau of Statistics (ABS) reported that inflation has fallen to 2.7% in August 2024, down from 3.5% in July, marking the lowest level since August 2021. The drop is primarily driven by government energy rebates, which resulted in a record 17.9% fall in electricity prices, and a decline in fuel prices. Without the rebates, electricity prices would have slightly increased.

Despite inflation now being within the Reserve Bank of Australia’s (RBA) 2-3% target range, RBA Governor Michele Bullock warned that this might be temporary due to the rebates. The RBA forecasts that inflation won’t sustainably return to the target range until 2026, requiring the RBA to maintain restrictive monetary policy for the time being.

Housing costs, particularly rent and new dwelling prices, remain significant contributors to inflation, while food and non-alcoholic beverages also saw price increases. On the other hand, transport costs dropped slightly due to lower public transport fares in some states. Underlying inflation measures, excluding volatile items like fuel and electricity, have also dropped but remain elevated at 3.4%.

Record Number of Australian Suburbs Join the Million-Dollar Club

The CoreLogic Million-Dollar Markets report for August shows a record 29.3% of Australian suburbs now have a median house or unit value over $1 million, up from 21.7% in January 2023. This marks an increase of 218 million-dollar markets in the past year, with Sydney and Brisbane leading the rise, each adding 46 suburbs to the list.

Sydney continues to dominate with 448 house and 107-unit markets above $1 million. Brisbane’s property values surged 65.1% since COVID-19, eroding its previous affordability.

While Perth saw significant growth, Melbourne and regional Victoria experienced price declines and fewer million-dollar markets. National growth has slowed, but more suburbs are expected to hit the million-dollar mark soon. Affordability remains a challenge, with borrowers needing close to $200,000 in annual income to service a mortgage on a $1 million home.

Suburbs Where First Home Buyers Can Save a Deposit the Fastest

PropTrack’s latest Housing Affordability Index shows the average time to save a deposit in Australia is 5.6 years. Western Australia is the quickest at 3.8 years, while New South Wales takes the longest at 6.5 years. Rising property prices and high mortgage rates have worsened affordability, with mortgage capacities dropping by up to 30%.

However, first-home buyers can use alternatives like government grants, Lenders' Mortgage Insurance (LMI), or schemes like the Home Guarantee Scheme. Other options include using superannuation, a guarantor, or "rent-vesting" — renting in one area while buying and renting out in another.

Unit Prices Catching Up to Houses Amid Declining Supply

Over the past decade, the price gap between houses and units has widened dramatically. In 2014, houses in capital cities cost 9% more than units, a gap that grew to 45% ($285,000) by April 2024 due to the pandemic housing boom. This was driven by low interest rates and demand for more space.

However, recent data suggests this gap may be peaking, with the premium slipping to 43% in August. A decline in unit construction approvals, especially in Melbourne and Brisbane, has led to reduced supply, which could push unit prices higher. Development of new apartments has slowed due to rising construction costs, and most new projects target high-end buyers, leaving fewer affordable units available. As supply tightens, demand for existing units is expected to increase, potentially closing the price gap with houses.

Sam Giardina - Finance Broker - Clio Financial

PH: 0422 269 868

E: [email protected]

W: www.cliofinancial.com.au

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DISCLAIMER: This article is intended for informational purposes only and does not constitute financial advice. The content is based on current market data and research but may not be applicable to your personal circumstances. Before making any financial decisions or taking action, you should consult with a qualified financial advisor.