Interest Rates, Housing Market Trends, and Migration Shifts

Hi, Andrew Bell here with this fortnight’s report, where I’ll be covering a range of interesting updates.

Firstly, let’s discuss interest rates. The message is becoming increasingly clear: markets are reacting erratically to every piece of information. We’ve seen forecasts range from interest rates dropping by mid-year to no increase until late next year. In May, the Reserve Bank Governor addressed what is now being called “sticky inflation.” While inflation has dropped significantly from its peak of 7.8% in December 2022 to the mid-3% range, the prospect of interest rate reductions remains off the table until inflation hits the 2-3% target range. The Governor indicated that if the downward trend does not continue, a rate hike, rather than a cut, could be in the cards to control inflation.

In late April, markets were predicting an interest rate cut in October 2024, only to change that prediction to no reduction until April next year just 24 hours later. This volatility underscores our uncertainty about future trends until longer-term patterns emerge.

Interestingly, despite higher interest rates, housing prices continue to rise. In April, home values nationwide increased by 0.6%, matching the gains of the previous two months and marking 15 consecutive months of growth, according to CoreLogic.

Looking ahead, recent figures from the Australian Bureau of Statistics show a 1.5% increase in total housing finance, which is 13.3% higher than a year ago. Investor finance also rose by 1.2% to $9.5 billion, up 21.5% from last year. This suggests a potential increase in rental properties, although we must acknowledge that this is from a near-zero base.

The surge in real estate prices has led to a significant wealth effect. Sydney has been named the world’s eighth wealthiest city, with 147,000 millionaires, 205 individuals with over $100 million in wealth, and 20 billionaires. Melbourne, Perth, and Brisbane also ranked among the top 50 wealthiest cities globally.

Interestingly, the pandemic-induced migration trend is reversing. While there was a massive move to regional Australia during the pandemic, the return to office work is making city living desirable again. Migration levels have significantly declined in most areas except regional Queensland and Western Australia, which are now experiencing higher migration levels than pre-pandemic highs. For example, the Gold Coast saw nearly triple the number of migrants in 2023 compared to 2019.

However, the Gold Coast faces a housing shortage, benefiting current residents but posing challenges for new arrivals. Residential project approvals have hit a 10-year low, with only 3,299 building approvals between July 2023 and January 2024, compared to 5,941 in the 2022-2023 financial year. This shortage has pushed the average housing sale price on the Gold Coast into the $1 million-plus bracket and continues to rise.

Finally, a note on the ongoing housing crisis. Last year, the $10 billion Housing Australia Future Fund was announced with much fanfare. However, bureaucratic hurdles are stalling progress. A significant issue is that many builders lack the necessary Workplace Health and Safety certifications for Commonwealth Tenders. Up to 70% of community housing projects, about 18,000 homes, could rely on builders who have never needed federal certification. Achieving this certification takes 8-10 months, which is impractical for many medium and smaller builders, especially in regional areas. Consequently, these capable builders might opt to work in the private sector instead, further delaying the delivery of affordable housing.

Government bureaucracy strikes again.