Official Cash Rate
Official Cash Rate
The RBA’s June decision to maintain the cash rate at 4.35% marks the fifth consecutive time the rate has been held steady. All four major banks anticipate that the cash rate has peaked at this level. They project that rate cuts will begin around November 2024, with reductions of approximately 75-150 basis points expected over the following two years. The cash rate hikes experienced throughout 2022 and 2023 are likely to continue exerting downward pressure on the real estate market in the short term. The accompanying graph displays the projected cash rate trends from each of the major banks through to December 2025, showing minimal variation between their forecasts.
Inflation
Consumer Price Index
The Australian Bureau of Statistics reported a 1.0% increase in the Consumer Price Index (CPI) for the June 2024 quarter, with a 3.8% rise over the past year. The largest price increases were seen in Housing (+1.1%), Food and non-alcoholic beverages (+1.2%), Clothing and footwear (+3.1%), and Alcohol and tobacco (+1.5%). The CPI remains above the RBA goal of 2-3%, indicating inflation is still historically high and will continue to have an impact on costs & dwelling prices, compounded by the increasing demand for housing. The RBA forecasts CPI will be in this target range (2-3%) in 2025. Meanwhile, trimmed mean inflation slightly decreased to 3.9% in the June quarter, marking the sixth consecutive quarter of decline, suggesting a gradual easing of underlying price pressures in the economy.
Population & Employment
Population
Australia’s population was estimated at 26.97 million in December 2023, with growth of 2.5% YoY. The rate of growth has begun to accelerate with borders reopening and migration rapidly increasing, whilst natural increase population growth rate has dampened. All states and territories have experienced positive population to the growth rate, with WA having the highest of 3.3% YoY to December 2023, and Tasmania growing the slowest at 0.4%. NSW and VIC grew at a respectable rate of 2.2% and 2.8% YoY, respectively.
Employment
As of June 2024, the Australian unemployment rate remained at 4.0% seasonally adjusted, increasing from 3.9% in February 2023. NSW fell below the national average with an unemployment rate of 3.9% per annum, decreasing 0.2% from December 2023. The RBA forecasts the unemployment rate to continue easing out but to remain below 4.3%, which is a slightly more moderate forecast than previous 4.5%, slightly easing pressure on a tight job market.
Housing
Dwelling Approvals
For the year to June 2024, 162,892 houses and apartments have secured approval: down 8.5% YoY and 6.5% MoM, indicative of the lowest number of approved dwellings within a financial year since 2011/12. This strongly juxtaposes the 5.7% rise in dwelling approvals during May. The decline has primarily been driven by an 18.8% MoM decline in total unit approvals within NSW; with just 1597 private homes approved in June. This sharp reduction in approvals is reflective of high interest rates, land values and construction costs contributing to subdued development application levels.
Median Dwelling Price
The national median dwelling price in Australia rose again by 0.7% MoM in June 2024, marking the 17th consecutive month that Australia’s median property price has increased, with the national median dwelling value now $793,883. Sydney remains the most expensive place to buy property with a median house price of $1.17m, increasing 0.5% MoM, creating a consistent trend that places quarterly growth at 1.10%. Following the plateauing of prices since the peak in January 2022, Sydney house prices are expected to continue to remain firm throughout the remainder of 2024.
Vacancy Rates
The vacancy rate in Sydney was 1.7% in July 2023, up from 1.4% in June 2023. In June, vacancy rates rose in the CBDs of Sydney, Melbourne, Canberra, and Brisbane. This trend suggests that the demand for rental accommodations from students has likely reached its peak for the winter months. It may also indicate a potential peak in the current cycle, considering the anticipated slowdown in migration rates.
House Rental Rates
Australia’s rental market experienced a slowdown in growth during the second quarter of 2024, with national growth easing to 8.2 In June, rent growth further decelerated to 0.4%, marking the lowest monthly increase since September of last year. In Sydney, median dwelling rental rates rose by 7.9% over the 12 months leading to June 2024. While rental conditions showed typical seasonal strength in the first quarter, the ongoing supply-demand imbalance, fuelled by strong migration and persistent housing issues, continues to influence rental rates.
Forecasts provided above are representations from the below specified sources, this information is not to be relied upon as financial advice and Zagga makes no representations or warranties to its accuracy. Forecasts are constantly updated and should be independently considered by investors.
Sources – ABS, CoreLogic, Domain, SQM, RBA, Westpac, NAB, ANZ and CBA.
For further insights, visit our Market Outlook page and see what our Economist ‘In Residence’, Stephen Koukoulas, has to say.
