General Market Overview

Official Cash Rate

Official Cash Rate
The RBA’s May cash-rate hold at 4.35% is the fourth 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 approximately October 2024, with reductions of c. 75-150bps spread over the following two years. The cash rate increases which occurred 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 April 2025, noting there is little variance between the entities.

Inflation

Consumer Price Index
The Australian Bureau of Statistics announced the CPI rose 1.0% this quarter to March 2024. Over the twelve months to March, the CPI rose 3.6%. Notably, the most significant price rises over the 3-months were rents (+2.1%), secondary education (+6.1%), tertiary education (+6.5%) and medical services (+2.3%). The CPI still sits outside of the ABS 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.

Population & Employment

Population
Australia’s population was estimated at 26.82 million in September 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 growth rate, with WA having the highest growth of 3.3% YoY to September 2023, and Tasmania growing the slowest at 0.3%. NSW and VIC both grew at a respectable rate of 2.3% and 2.9% YoY, respectively.

Employment
As of April 2024, the Australian unemployment rate increased to 4.1% seasonally adjusted, increasing from 3.9% in December 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 4.25%, 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 rose 1.9% MoM in March 2024, seasonally adjusted. Whilst positive, this responds to a 9.5% MoM drop in December 2023, primarily driven by a 22.4% fall MoM in unit approvals whilst house approvals were relatively stable falling only 0.6%. As such, monthly approvals remain well below the previous decade average, by virtue 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 0.6% MoM in April 2024, marking the 15th consecutive month that Australia’s property price have increased, with the national median dwelling value now $779,819. Sydney remains the most expensive place to buy property with a median house price of $1.4m, increasing 0.4% MoM, having increased 0.4% each month for the past three months. 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
Vacancy rates in Sydney have hit the worst level on record, dropping to 1.11% in February 2024 from 1.3% in January 2024. The vacancy rate was 1.3% in January 2023 reflecting a tight rental market with no immediate signs of abating, which will continue to see pressure on rents.

House Rental Rates
Australia’s rental market experienced a reacceleration of growth over the first quarter of 2024, leading to further record asking rents. Combined capital house rents surged 5% over the quarter – the steepest quarterly gain in 17 years and the second-highest on record. In Sydney, median dwelling rental rates increased 13.9% in the 12 months to March 2024. While rental conditions displayed the seasonal strength that tends to impact the first quarter of the year, the supply-demand imbalance driven by strong migration and lingering house issues is certainly still at play on 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.

This article is for information purposes only. It does not take into account your objectives, financial situation or needs. Any opinion expressed in this article are of the author and is subject to change without notice. Readers are reminded to exercise caution and use their own judgment when interpreting and applying the information contained in this article.

Stay Connected

Private credit improves SMSF portfolios

SMSF investors can access private credit opportunities through the Zagga CRED fund, which is a unitised version of the Zagga Feeder Fund. The underlying investments for the offering are high-quality, mortgaged-secured loans in the commercial real estate sector.

Unemployment rises and the economy remains weak

Markets are volatile. Weak economic conditions and falling inflation has rekindled expectations of interest rates cuts in Australia and much of the industrialised world in coming months… The next readings on inflation and unemployment will be critical in the timing of those cuts.

Why the capital stack is vital in commercial real estate

Debt is one of the most fundamental layers of the commercial real estate capital stack. Explore the nuances of the different layers of debt and equity to understand the important role of debt in the overall capital stack.