Property update
The RBA?had their July meeting on Tuesday and left?rates on hold at 4.1%.This is only the second time they have paused since the hiking cycle?began?in May 2022. However, the statement warned of more hikes to come as the decisions?will be driven by key employment and inflation data.?"Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve."?Last week we had the Central Bank Forum in Sintra, Portugal. All the big guns were there - FED's Powell, ECB's Lagarde and BOE Bailey - they were all hawkish and all warning that interest rates will need to stay higher for?longer.
So, what does this mean for the Australian property market? The latest CoreLogic report has the national Home Value Index rising?1.1% in June - that is up 3.4% since the low in February 2023. On Monday this week we saw a?lot of positive housing data come out. Housing loan?commitments??+4.8%, Building Permits for May were?+20.6% (forecast?was 3%). Now that the RBA have paused in July, does this give the housing market the ability to continue to defy gravity??
The main reason cited for the continued elevated prices has?been that?of a simple supply and demand issue. Talking to Rob Skeen from Oasis-Skeen Buyer's Agency he was saying listings on Realestate.com are?40% down on November 2023. They are getting a lot of enquiries from potential?buyers that need professional help to find the right property. Not helping this situation is the?post Covid wave?of migration that is due to hit our shores this year, and the lack of new properties actually being built.
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On the other side of this equation we talk to the mortgage brokers who are having to deal with people coming off 2% fixed?mortgages onto?6% variables. One?mortgage broker?told us he felt more?like a counsellor when having these refinance?conversations with borrowers. So when does the dam burst and owners?simply cannot afford their mortgage and have to put it on the?market??Certainly some owners will be forced?out, but not sure that this is going to turn?into a rout. Wages have been going up and unemployment is at the lowest levels since the?mid?1970's. So if owners are confident they?can remain employed on a competitive wage then it may take a while for any capitulation. And if and when these properties do hit the?market there seems to be plenty of demand to absorb any new supply. Investors too are starting to return to the market drawn to the high rental returns. Again Rob from Oasis-Skeen gave?me an example?of an inner Sydney city established unit under $1million yielding circa 7% gross. That's a great?yield for Sydney.
So, whilst the market is anticipating 2 more hikes from the RBA this year, and a terminal cash rate of 4.6 %, the feeling is that blue chip suburbs in major cities can survive what may be a?bumpy road ahead. Another consideration is the level of the Australian?dollar. Currently we are around 0.66 cents which is towards the lower end of historical ranges. (It was lower?in the GFC and Covid.) A cheaper AUD makes property more attractive to offshore buyers, who are becoming more and more active post Covid.
It appears that we have multiple opposing forces here - higher interest rates, supply and demand, immigration, looming recession and the level of the currency. It is also difficult to talk about "Australian?property" in general terms. Inner city blue chip trades differently to regional property. Strata properties?trade differently to freehold etc. Overall, history?tells us that buying property is a long term trade, and if we do get a pull back, for whatever reason, we often look back and think, " well, that was a buying opportunity."