Official Cash Rate
Official Cash Rate
The RBA’s February cash-rate hold at 4.35% is the second consecutive decision to hold the current cash-rate. All four of the big four banks are forecasting that the cash rate has peaked at 4.35%. The big four banks predict rate reductions will commence late 2024, with reductions of circa. 75-150bps spread over the following two years. The cash rate increases throughout 2022 and 2023 will likely continue to dampen the real estate market over the short term. The graph opposite illustrates the forecast cash rate movements from each of the big four banks out to November 2024 based on the forecasts.
Inflation
Consumer Price Index
There was a drop on the monthly CPI indicator from 4.3% in November to 3.4% as of December 2023, marking a consistent fall in CPI from 5.6% in September. The CPI was at an annualised rate of 4.1% in Q4 2023, down from 5.4% in Q3 2023 and 6% in Q2 2023. Despite a downward trend through 2023, inflation is still historically high. Whilst inflation has eased both QoQ and MoM indicating it has passed its peak, inflation will continue to have an impact on costs and dwelling prices, compounding with increasing demand for housing. The RBA forecasts CPI to be within the 2-3% target range in 2025 and to and to the midpoint in 2026.
Population & Employment
Population
Australia’s population was estimated at 26.63 million in June 2023, with growth of 2.4% YoY. The rate of growth has begun to increase with borders reopening and migration normalising with the annual population change consistently increasing QoQ from 1.2% in Q2 2022 to 2.4% in Q2 2023. Population growth previously forecast to peak 1.4% per annum by 2024-2025, before gradually declining back to 1.2% per annum through to 2033. The quarterly population statistics have exceeded these forecasts. Net overseas migration in the year ending June 2023 was 518,000, which increased 155% from 203,000 a year ago. This exceeds the net overseas migrations forecast for 2022-2023 which was expected to be 400,000 before slightly decreasing to 315,000 in 2023-24.
Employment
As of January 2024, the Australian unemployment rate was 4.1% seasonally adjusted, increasing from 3.9% in December 2023. NSW was in line with the national average with an unemployment rate of 4.1% per annum, decreasing 0.5% MoM. The RBA forecasts the unemployment rate to continue easing out but to remain below 4.25%, which is a slightly more moderate forecast than previous 4.5%, slightly easing pressure on a tight job market.
Housing
Dwelling Approvals
Total dwelling approvals fell 9.5% in December 2023. This was primarily driven by a 22.4% fall MoM in unit approvals whilst house approvals were relatively stable falling only 0.6%. While approvals had trended a little higher through 2023, monthly approvals remain well below the previous decade average, with factors including high interest rates, land values and construction costs contributing to the subdued development application levels.
Median Dwelling Price
Within the Metro Sydney area median dwelling prices are now 2.4% below the peak in January 2022, prior 2.6% in December 2023, and have risen by 0.1% QoQ and 0.2% MoM. The bounce in Sydney price trends through 2023 stems from positive demand drivers including shortages in supply, increasing international migration and stabilising borrowing costs. Following the plateauing of prices since the peak in January 2022, Sydney house prices are now expected to remain firm throughout 2024.
Vacancy Rates
Vacancy rates in the Metro Sydney area were at 1.3% as at January 2024, maintained from 1.3% in January 2023 reflecting a tight rental market with no immediate signs of abating.
House Rental Rates
Median dwelling rental rates have increased 9.7% in the Metro Sydney area in the 12 months to January 2024. Annual growth in rent values remains elevated on the decade average (which is 3.0% per year nationally) with annual growth in rent values accelerating slightly from the 8.1% lift in the 12 months to October 2023 to 8.3% to January 2024. Rental rates are expected to continue to remain strong into 2023, with strong population growth and lingering housing issues.
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.
