RBA charts tell us the health of our economy and property

Each month the RBA offers its perspective on how Australia Inc. is tracking when it releases its Chart Pack. Australia Economy Concept

I know that charts aren’t everyone’s cup of tea, but I review these each month as part of my regular research.

So here’s a stack of charts and my thoughts on some of the factors that will impact our economy and property markets…

The world economy

Of course Australia doesn’t operate in a vacuum, so it’s important to start with the international context…

While global economic growth is slowing, our major trading partners – in particular China (which is slowing down) and India (which is growing strongly) – are generally outperforming and that’s important for Australia’s economic health.


And while world inflation is low…


Unemployment is falling in the 3 biggest economic regions, meaning their economies are improving:


In short the world’s economy is “behaving itself” and many of the previous concerns of a world recession have faded.

Australia’s Economy

Our economy is also well placed having now grown uninterrupted for a quarter of a century and is growing at around 3%, which is slightly lower than long run averages, but still the envy of many developed nations.


And like the rest of the world, Australia is in a low inflationary environment which is of course one of the reasons the RBA cut interest rates this month as it reconsidered its forecasts for how quickly inflation would likely rise over the coming year or so.


Household Sector

Australians have

Australian household wealth is strong and after a period of stashing our cash after the GFC, and we’re still saving but not as much.

We’re now spending a little more and that’s good for our economy.


Australian households are amongst the wealthiest in the world, with our assets (primarily in real estate) increasing in value faster than our liabilities.


The graph below shows the interesting effect of our current low interest rate environment.

Despite record high levels of household debt, falling interest rates means that this debt is more affordable than ever with average household debt as a percentage of disposable income being at an affordable level.


Our Housing Markets10927901_l

As our mining boom slowed down the government facilitated the recent property boom by encouraging the non-mining economic sector, in particular the building industry, to take up the slack.

This has mostly come through the high-rise apartment boom, which now seems to be coming off the boil.

But the housing market is slowing.

After a sustained period of under-supply, the market is now running ahead of demand, partly as a result of slowing population growth.


With regards to house prices the RBA said:

“A range of indicators suggest that conditions in the established housing market have eased this year from very strong conditions over recent years. Housing prices were little changed in the June quarter according to most published measures.”



At the same time loan approvals to both investors and home buyers are falling, in my view not because of lack of interest or enthusiasm for property, but because of our banks stricter serviceability criteria.

Now that’s not a bad thing – when we got to the point where 50% of home buyers were investors, we where heading into dangerous territory.


Two major drivers for our housing markets

Our housing markets are very dependent on consumer confidence.

There is a direct link between consumer confidence and housing turnover and rising prices.

Consumer sentiment has fluctuated widely recently, but now more of us are optimistic than pessimistic and that’s good for property.


jobs unemployed job work employment

Currently we’re creating jobs and the unemployment rate is steadily dropping, but it could be lower considering as it understates the degree of labour market slack due to the large number of part time jobs that have been created with many Australians working fewer hours than they would like, while others have been discouraged from looking at work at all.

This has created a situation where wages growth remains low and unemployment varies considerably between states.

Of course the states with highest job growth and lowest unemployment have the better performing property markets.


The following graph clearly shows how the service sector is where the jobs growth is occurring.

In turn this is where wages growth will occur enabling people to upgrade their homes, pushing up property prices


The Bottom Line:

All in all, our economy is sound and we’re now in a period of low economic growth, low inflation, low wages growth and a low interest rate environment. 

By the way…the rest of the world has been operating in this environment since the GFC

We were sheltered from this by an extraordinary mining boom and our economy’s resilience to transition from this has been surprisingly impressive.

Of course there are still risks out there – with slowing Chinese growth posing a significant potential risk for Australia.

With inflation likely to remain low for some time the RBA could drop interest rates again later in the year or early next year if the economy weakens or if unemployment pushes up again.

This means as property investors for the foreseeable future we can’t expect the type of strong capital growth in property prices we experienced recently.

By the way…this doesn’t mean it’s the wrong time to invest in property.

What it does mean is that careful property selection is critical as you can’t count on the market to do the heavy lifting.

It also means a more stable property environment with out the booms and busts.


Clearly owning property – your own home and investment properties is the way to wealth in Australia 39653963_l

If you’re looking for independent advice about property  no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.

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Please click here to organise a time for a chat. Or call us on 1300 20 30 30.

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Also published on Medium.

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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

'RBA charts tell us the health of our economy and property' have 3 comments

  1. August 19, 2016 @ 12:56 pm Deane Belfield, Castlemaine VIC


    I appreciate getting your newsletter, however I continue to be frustrated by our (economists) obsession with using GPD as a useful measure of progress. Indeed it can be the opposite. It does not represent sustainable development of growth in any way. In fact if we cut down all our forest and drained our rivers and harvested all the fish from our oceans then global GDP would scale to record heights. Just before global ecological collapse. Its a poor measure and we should be considered using language such as the GPI (Genuine Progress Indicators) which incorporate economic, ecological and societal health. Surely this is what really matters and what people want to see, that is if we don’t want our natural systems (earth’s ecosystem services) to unravel and leave our children’s generation in a disastrous situation. (NB: the word economy and ecology have the same origin: Greek ‘oikos’ meaning ‘home’. Economy is management of home and ecology is study of home, yet we tend to treat them as separate and indeed sometimes as conflicting – due to language such as GDP. Our ‘home’ cannot be traded or expressed in simple monetary terms any more than ‘love’ can be expresses by $).


    • August 19, 2016 @ 5:01 pm Michael Yardney

      Thanks for those interesting comments Deane


    • August 19, 2016 @ 9:01 pm Conrad de Lange

      Hi Deane

      Well said, things need to be viewed holistically. Unfortunately in Western Society the status quo is mostly artificialness and shortsightedness – hopefully just for the time being!


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