Believe it or not, we are already one-tenth of the way through this new year - 2024 and as somebody interested in property you're likely to be wondering what’s ahead for our housing markets.
There have been lots of clues in the news over the last week or two that I discussed with Dr. Andrew Wilson including what the Reserve Bank’s February rate decision means for interest rates moving forward, what's likely to happen to inflation, the latest building approval figures and how our auction markets have started the year.
Putting all these together should give us some indication of what’s ahead.
The RBA Board held rates steady this month, as expected by almost everyone.
While the policy decision was well anticipated, it was something of a shift from the RBA’s own views from three months ago.
In the most recent commentary, the Board stated:
“While recent data indicate that inflation is easing, it remains high.
The Board expects that it will be some time yet before inflation is sustainably in the target range.
The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.”
Reserve Bank governor Michele Bullock said she is yet to be convinced inflation is on a sustainable path back to target and further interest rate rises could not be ruled out.
Governor Bullock stated that the Board were “not ruling anything in or out” and that is not surprising,
Although we might have liked her to say that rate cuts are on the way, that could have made us more confident and start buying or borrowing again, which would have an inflationary effect.
Watch this week’s Property Insider chat as Dr Andrew Wilson explains that while recent data indicate that inflation is easing, it remains high, and the RBA expects that it will be some time yet before inflation is sustainably in the target range.
In its Statement, the RBA explained:
"Inflation continued to ease in the December quarter. Despite this progress, inflation remains high at 4.1 per cent.
Goods price inflation was lower than the RBA’s November forecasts. It has continued to ease, reflecting the resolution of earlier global supply chain disruptions and a moderation in domestic demand for goods.
Services price inflation, however, declined at a more gradual pace in line with the RBA’s earlier forecasts and remains high.
This is consistent with continuing excess demand in the economy and strong domestic cost pressures, both for labour and non-labour inputs.
Returning inflation to target within a reasonable timeframe remains the Board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment.
The Board needs to be confident that inflation is moving sustainably towards the target range.”
Watch this week’s Property Insider chat as Dr Andrew Wilson shares his views on how inflation tracks oil prices (with a lag) and that maybe we didn’t even need all those interest rate rises.
The total number of dwellings approved fell 9.5 per cent in December (seasonally adjusted), after a 0.3 per cent rise in November.
Watch this week’s Property Insider chat as Dr. Andrew Wilson explains that building approval levels remain chronically depressed and there is no end in sight for our housing shortage crisis.
In 2023, there were 59,174 private other dwellings approved, compared to 73,041 in 2022.
This reflects a 19.0 per cent annual fall.
Total dwelling approvals fell in Victoria (-18.4 per cent), South Australia (-11.8 per cent), and Tasmania (-2.7 per cent). Meanwhile, Queensland (8.2 per cent), Western Australia (7.9 per cent), and New South Wales (2.0 per cent) rose.
Approvals for private sector houses were driven lower by South Australia (-5.3 per cent), New South Wales (-2.6 per cent), and Queensland (-0.4 per cent), while rises were seen in Western Australia (2.2 per cent) and Victoria (1.2 per cent) in December.
The value of total building approved fell 6.4 per cent, following a 10.4 per cent drop in November.
The value of total residential building fell 3.7 per cent, with a 3.8 per cent decrease in new residential building and a 2.8 per cent fall in alterations and additions.
The value of non-residential building fell 10.6 per cent, after a 19.8 per cent fall in November.
We know that, even though new dwellings are approved, that doesn’t mean that they get built.
Particularly for medium and high-rise apartments, which currently are not financially viable to build.
The chart below shows how unit building approvals have decreased over the last decade as developers are not prepared to take on commercial risk.
We know the government is keen for developers to build 1.2 million new dwellings over the next five years and is hoping that apartments will be the answer.
However, suggesting we build where land is the most expensive ( in the inner and middle ring suburbs), using expensive construction techniques and hoping to deliver affordable housing is unrealistic.
The second auction weekend for 2024 has again produced generally solid clearance rates for nearly all capitals, with listings continuing to track well above the numbers reported over the same weekend last year.
Brisbane had the strongest auction clearance rate of 78.9%.
Auction clearance results for the other capitals were: - Melbourne - 72.1%; Sydney - 77.2%; Adelaide - 78.4% and Canberra - 57.9%.
The national auction market reported a clearance rate of 72.9% at the weekend which was well above the 66.0% reported over the previous weekend – and also higher than the 70.8% recorded over the same weekend last year.
Capital city weekend auction markets have commenced 2024 with continuing solid to strong results which are set to continue over coming weekends with the RBA confirming interest rates on hold again over February.