Want to know where interest rates are heading? You may not like the news | Property Insiders [Video]

Key takeaways

Interest rates have remained high for longer than we had hoped, even as wars rage and the geopolitical climate darkens.

Even optimists have been confounded, as inflation has been difficult to control with higher interest rates.

Dr Andrew Wilson explains why the US Federal Reserve is predicting just 1 or 2 rate falls this year, compared to the 6 rate cuts they were predicting earlier this year, and speculates that interest rates may even rise.

The latest unemployment rate in the USA is 3.8%, compared to 3.90% last month and 3.50% last year. This is lower than the long-term average of 5.70%, and the strong labour markets in Australia are likely to keep interest rates higher for longer.

Dr Andrew Wilson shares his latest data on the great returns property investors are achieving, including how rent growth has outpaced capital growth and how rental yields for units are even stronger than those for houses.

Mixed weekend auction results over school holidays, with Adelaide having the strongest auction clearance rate of 78.5%. The national weekend auction market reported a clearance rate of 70.9%, which was again higher than the previous weekend's 69.5%.

Auction sales surge to begin 2024, especially in Sydney, where close to 40% more properties sold at auction compared to the same period last year.

Most property investors would give their second garage to know what’s going to happen to interest rates, wouldn’t they?

While earlier this year many commentators thought interest rates would fall by the middle of the year, now the narrative is that interest rates will remain higher for longer than we had hoped.

Even as wars rage and the geopolitical climate darkens, the world economy has been an irrepressible source of cheer.

This time last year, most international economists were concerned that high-interest rates would bring about a recession. Now even the optimists have been confounded.

Just like prior to COVID-19, most Central Banks had difficulty raising inflation with low interest rates; now Central Banks are having difficulty bringing inflation under control with higher interest rates.

In our weekly Property Insiders chat Dr Andrew Wilson, chief economist of My Housing Market shares an update on some of the latest news that gives us a clue to the direction of interest rates and our economy.

Significant shift in US outlook for rates

Watch this week’s Property Insider chat as Dr Andrew Wilson explains how interest rates in the United States will be higher for longer and how this will affect interest rates in Australia.

We discuss a number of factors that will keep interest rates higher for longer in the USA and why it is unlikely that interest rates will fall here any time soon:

• US inflation has been higher over three consecutive months, and now the Federal Reserve is predicting just 1 or 2 rate falls this year, compared to the 6 rate cuts they were predicting earlier this year.

• Interestingly, the New York Fed speculated that there could even be a rise in interest rates in the US.
• Oil prices are higher, and this flows through into many sectors keeping inflation high in the US and around the world.
• Just like in Australia, labour markets are booming in the USA with the latest unemployment rate reported at 3.8%, compared to 3.90% last month and 3.50% last year. This is lower than the long-term average of 5.70%.

• High retail sales in the USA are continuing despite the rising cost of living.
• Building approvals are falling sharply, which means there is no supply-side relief, just like we’re experiencing in Australia

Labour market remains strong - despite higher rates

Another factor that is likely to keep local interest rates higher for longer is the strength of our local labour markets.

What’s this week’s Property Insider video as Dr Andrew Wilson and I discuss:

• February jobless figures in Australia were slightly higher at 3.8% than the previous month’s 3.7%. But these figures are still incredibly low, showing how strong our labour markets are.

• The RBA has a 4.2% unemployment rate pencilled in for Q2 2024. This will need to be revised down, but with GDP growth below trend, they will likely hold onto their gradual cooling forecast
• Apart from the January, the unemployment rate has been below 4% for 2 years now
• The participation rate was down to 66.6% from 66.7%, but still near monthly record highs

Residential investment returns

What’s this week’s Property Insider video is Dr Andrew Wilson shares his latest data on the great returns property investors are achieving.

With rents skyrocketing, gross yields for homes have risen over the year as rent growth has outpaced capital growth.

And rental yields for units are even stronger than those for houses.

Of course, the main way property investors get their returns is through capital growth, so when combining growth and yields, the following charts show how well investors are doing.

How about shares?

The following chart from Dr Andrew Wilson shows the performance of Australian houses versus shares since 2007, just before the Global Financial Crisis.

Obviously, shares are more volatile and residential Real Estate has the benefit of gearing giving you better returns on your investment dollar.

Mixed weekend auction results over school holidays

The school holiday period continues to provide mixed results between capitals although listings remain elevated compared to the same period last year.

Adelaide had the strongest auction clearance rate of 78.5%.

Auction clearance results for the other capitals were:- Melbourne - 69.4%; Brisbane -65.6%; Sydney - 66.6% and Canberra - 74.5%.

The national weekend auction market reported a clearance rate of 70.9% which was again higher than the 69.5% reported over the previous weekend – but slightly lower than the 71.1% recorded over the same weekend last year.

National auction numbers were predictably lower with 1559 listings versus the previous weekend's 1719, but still significantly above the 1087 listed over the same weekend last year.

Weekend auction markets have continued to report solid results through the April school holiday period, with continuing high numbers of listings compared to the same time last year.

Auction sales surge to begin 2024

Each week, Dr Andrew Wilson and I dissect the weekend auction results because they are good “in-time” indicators of both buyer and seller sentiment.

Of course, high auction clearance rates are also a good indicator of higher property values moving forward.

So far this year, the number of properties sold at auction has surged, especially in Sydney, where close to 40% more properties sold at auction compared to the same period last year.

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.