Home prices higher over the year (PropTrack)

Home prices move higher

Capital city home prices increased by 0.35 per cent in August according to PropTrack, to be 3.4 per cent higher than a year earlier. 

Despite many doom and gloom forecasts, the market has been surprisingly resilient in the face of a large and rapid increase in interest rates. 

Prices are slightly lower than a year earlier in Hobart (-4 per cent), Darwin (-1 per cent), and some parts of regional Australia. 

Overall, thought, it's been a case of onwards and upwards for the capital city markets, with the next move in interest rates likely to be down, in the face of a massive dwelling shortage. 

Melbourne's office attendance more than halved

Office woes

Been a bit quiet on the blog this week as I've been presenting at a few regional events, in Port Macquarie, Newcastle...and on this Friday in the afternoon I'll be presenting at Circular Quay in Sydney with Chris Bates from Blusk (please email me if you want a ticket). 

The Reserve Bank of Australia released its September Bulletin, which had some interesting insights as usual.

Notably, in the commercial property space, Melbourne's office attendance as at February 2023 was still below half of the levels seen pre-pandemic.

Presumably this will have improved over the past 7 months, but still it's an alarming drop.

Sydney's recovery is faring somewhat better, with occupancy up to around two-thirds of the pre-pandemic level by February this year.

Source: Reserve Bank of Australia

Office vacancy rates in Australia are tracking at around 15 per cent, which is the highest figure reported since the early 1990s recession, although commercial bank exposures in Australia are reportedly relatively low in global terms this time around. 

Office rents have naturally fallen from their pre-pandemic highs, although they have now stabilised and may even be rising a little, while Aussie office asset values have dropped by close to 10 per cent (though not as much as in other countries, such as the 20 per cent declines seen in Europe). 

Wages growth peaks

In another interesting section was a consideration of the slowdown in wages growth.

Official ABS measures of wages growth have reported surprisingly tepid increases in wages, all things considered. 

RBA liaison considers a range of more timely measures of wages growth, ranging from business surveys to enterprise agreements, and other private sector measures.

The numbers vary, but overall the most timely measures seem to suggest that wages growth is peaking and rolling over.

Source: RBA

This makes sense given record immigration and the slowing economy. 

State budgets this week revealed many grand plans for building more housing, but the underlying issues remain.

While population growth is now running at a record high of around 650,000 per annum, new housing starts have slumped to decade lows, falling by 23 per cent according to the latest Housing Industry Association survey of Australia's largest 100 homebuilders. 

The Victorian state government is introducing yet another slug to landlords, this time in the shape of a 7.5 per cent levy on short-stay rental income.

Meanwhile lending settings remain exceptionally tight, making life extremely difficult for first homebuyers and prospective landlords (in fact, more landlords are selling, exacerbating the rental crisis). 

Inflation expectations ease to 19-month low (ANZ cuts rates)

Inflation expectations drop

The interest rate hikes are working their magic

2-year inflation expectations fell to the lowest level since February 2022, according to the latest ANZ-Roy Morgan survey.

This sort of reading is consistent with inflation returning to the target range.

Good news, even in the face of a recent rise in fuel prices. 

Crucially, rising fuel prices should now lead to lower consumption (unlike during the pandemic when the stimulus cheques were flying around and household savings rates were at very high levels). 

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ANZ cut its 3-year fixed mortgage rates by 30 basis points this week.

Source: ANZ, broker channels

H/t Eric Wu, broker channels. 

Property Masterclass live (Sydney)

Property Masterclass

This week I'll be hosting a live event in Sydney.

Pick up your free ticket here (or click on the image below):

2-Sense: Business insolvencies at 15-year highs, office towers take a hit & population surge

2-Sense

This weekend on the Australian Property Podcast, Chris Bates and I discussed the big 3 property news stories of the week.

Tune in here (or click on the image below):

You can also watch the video version here:

Population up by a record +182,000 in Q1

Population balloons

Australia's estimated resident population increased by a record +181,600 or +0.7 per cent in the March quarter.

The annual growth increased to +563,200 or +2.2 per cent, and it's now certain that we'll see record high annual figures recorded over the next six months. 

Source: ABS

Net migration accounted for +152,000 of the quarterly increase, with around +30,000 accounted for my natural population increase (births minus deaths).

Source: ABS

Over the year population growth of +563,000 is a record high, with this figure set to soar to around +650,000 or more as the year progresses. 

Over the year to March there has already been thumping population growth in New South Wales (+156,300), Victoria (+161,700), and Queensland (+124,000).

The fastest rate of population growth was recorded in Western Australia +2.8 per cent). 

Source: ABS

The economy would need to create +35,000 jobs per month to absorb this rate of population growth, which won't be possible, and clearly housing supply won't be able to keep up either, underpinning the property market.

Similar trends are playing out in New Zealand and Canada, it appears. 

The population today sits at around 26,775,000, which is about where we'd have got to with no pandemic.

Source: ABS

An extraordinary rebound. 

Slack increases in labour market

Part-time jobs rebound

There were some potential seasonality issues in last month's jobs figures, meaning that we were always likely to get a bit of a catch-up this month, as I noted on the Twitter early this morning.

And indeed, employment increased +64,900 in August, although it was almost all part-time work in nature.

After accounting for revisions, total employment was around +75,000 than reported last month at a record high 14.1 million. 

Population growth is running at an unprecedented rate, but this solid trend in employment growth was enough to hold the unemployment rate at 3.7 per cent, for now at least.

Despite this, slack in the labour force is clearly now increasing.

The underemployment rate has increased from just 5.8 per cent in February to 6.2 per cent, while the underutilisation rate is now 10.2 per cent, having fallen as low as 9.3 per cent in October 2022. 

This is a Goldilocks result, with the rising rate of underutilisation pointing to slower wages growth ahead, and no further requirement for interest rate hikes. 

James Foster ran through the detailed figures here.

Jobs ads easing (immigration at all-time high)

Job ads easing

Job ads decreased by -0.4 per cent in August (or ads), to be -6 per cent lower than a year earlier.

Although job ads remain at a historically strong level for the time being, a range of forward-looking indicators are now pointing towards the unemployment rising towards 4½ per cent over the months ahead. 

Source: Jobs and Skills Australia

The easing in conditions has largely been a capital city phenomenon, driven mainly by Melbourne and Sydney. 

All of this is further consistent with the interest rate cycle having peaked, with rate cuts likely to follow in 2024, as articulated by Bill Evans of Westpac:

Source: Westpac

Westpac's latest consumer sentiment figures showed a renewed decline in sentiment, but interest rate expectations easing and house price expectations continuing to rise. 

Source: Westpac

Tight lending settings and the related housing shortage are likely to be a key factor here.

Developers have poured scorn on the idea that Australia will be able to supply the promised 1.2 million dwellings over 5 years, suggesting that a net addition of 120,000 new homes each year might be a more realistic level, if we're lucky.

This week's arrivals and departures figures confirmed ongoing strength in net long-term and permanent arrivals at a much higher level than previously expected.

Shane Oliver from AMP charted the surge:

Big numbers.