Inflation hits 7.3%
Interest rates increased again this week, with the Reserve Bank of Australia (RBA) raising the cash rate by 0.25% on Tuesday. This rise is the first time interest rates had increased on Melbourne Cup day since 2010, when the RBA raised the cash rate to 4.75%. The cash rate is currently 2.85%, but as the RBA has expressed quite clearly, they will keep raising rates until inflation is under control.
Last week the Australian Bureau of Statistics (ABS) released the latest inflation figures. The current annual inflation rate recorded in the September quarter showed an increase of 7.3% and was above the forecast of 7.0%. With employment figures remaining strong (supporting consumer demand) and inflation above the forecast, it was somewhat fortunate that the RBA did not raise the cash rate by 0.5%. The next chart demonstrates that inflation is trending upwards at a very steep rate, and way above the target 2-3% range, despite the rapid increase in interest rates illustrating why there is no doubt the RBA will continue raising the cash rate.
The following chart shows the cash rate increases over the past seven months are not the steepest Australia has seen (that belongs to the six-month period in 1994). However, further increases are forecast with the current interest rates not reducing inflation, making this rate rise period likely to be the most significant in the past 30 years.
With the continuing increase in interest rates, Perth prices experienced another slight decline this week. Perth recorded a 0.09% fall for the week, taking our dwelling price growth to approximately 3.4% for the year. The following chart demonstrates the negative effect of increased interest rates on Perth’s property prices. However, this does not mean all suburbs will be experiencing price falls. As borrowers face increased lending constraints and smaller loans, suburbs with lower median prices will theoretically see increased demand.
Perth dwelling prices fell by 0.2% in October. However, this is an excellent result, and Perth currently outperforms all the capital cities. The average capital city decline in October was 1.1%, including falls of 2% in Brisbane, 1.3% in Sydney and 1.1% in Hobart. To put this into perspective, if we assumed every capital city had a median value of $500,000 at the beginning of October, by the end of October, Brisbane would have a median price of $490,000, while Perth’s median price would be $499,000. In other words, the fall in October for Perth is minimal at worst.
According to Corelogic, Perth has a median dwelling value of $559,000 while Adeliade is $654,000, Brisbane $728,000, Melbourne $767,000 and Sydney $1,036,00, even though prices in Sydney have fallen by nearly 10% since the first rate rises in May. We continually mention Perth’s affordable property prices as one of the main reasons interest rates have had a markedly smaller effect than other capital cities (except Adeliade), as demonstrated in the next chart.
This week Perth recorded 1,032 transactions, and as the chart below indicates, this is the largest weekly sales volume since interest rates started increasing back in May. The 8,235 listings for sale is consistent with last week but still historically low and well below the industry-accepted equilibrium of 12,000. The resilience in Perth’s dwelling prices is also due to these impressive demand figures and low supply levels. Fortunately for tenants, listings for rent did not decrease further this week, but the 1,708 properties available for rent reflect the current crises facing the rental market.
Reproduced with permission from:
Ryan Brierty,
in house economist from Michael Keil @ michaelkeil.com
