August 2024

The most recent economic data shows that over the twelve months to the June 2024 quarter, the CPI rose 3.8%.  The unemployment rate increased to 4.20 per cent in July from 4.10 percent in June.  Annual CPI inflation increased to 3.8 per cent in the June quarter, up from 3.6 per cent in the March quarter and still outside the Reserve Banks goal to keep annual consumer price inflation between 2 and 3 per cent. 

The continuing uncertainty regarding both interest rates and unemployment is continuing to impact the slowdown of the real estate market. Residential auction clearance rates are currently being reported at below 60% compared with approximately 75% for the same time last year.  Auction numbers are also in decline with an increasing number of vendors choosing “expressions of interest” as the preferred marketing method.

After five RBA board meetings for 2024, the cash rate has been held steady at 4.35%. In its statement, the RBA said, “Returning inflation to target within a reasonable timeframe remains the Board’s highest priority. The Board’s decision balances the risk that inflation could take longer to return to target with the risk that the labour market could ease significantly more than forecast. The cash rate will need to remain high enough to ensure inflation returns sustainably to the target range”.

Housing loans account for about two-thirds of banks’ total domestic lending and increases in arrears pose risks to the Australian financial system if they result in defaults.  Losses to the banks may lead to lenders sharply restricting the supply of credit to even very sound borrowers.  The state of housing loan arrears can reflect conditions in the broader economy impacting the RBA’s decisions on monetary policy settings

As official interest rates remain on hold, many of the major banks are reducing interest rates independently, particularly on term deposits and for new home loan customers.  While the RBA has ruled out any chance of a rate cut this year, the big four banks aren't so convinced with both the Commonwealth Bank and Westpac predicting that the RBA will start lowering the cash rate late this year and could occur in November.  ANZ economists forecast that the first round of cuts are likely in February 2025, while NAB think the Federal Reserve will wait until May 2025.

The commercial sector of the property market is also showing signs of softening.  Investment yields have distinctly increased by between 0.5% and 1.0%  resulting in a decrease in capital values of between 5 per cent and 10 per cent.  The office sector appears to have been affected the most with changes to working conditions and rising unemployment being significant factors.