Perth Christmas sales & listing results
Perth weekly property sales rebounded from the typically quiet Christmas period, with sales jumping from 203 transactions to 456. This year’s Christmas period trend aligns with the previous three years, as the Perth Christmas Sales chart illustrates, and the sales volume is not remarkably lower than last year, even though the Reserve Bank Of Australia’s (RBA) cash rate was 0.1% compared to the current rate of 3.1%, which is a very positive sign for the local market.
Perth recorded 7,111 properties for sale this week, with listings for the 2022 holiday period showing a similar trend to previous years, as demonstrated in the next chat; however, unlike sales, listing volumes have decreased each year, and 2022 listings are significantly lower than 2021. The decrease in supply implies that the market is not replacing the stock of existing dwellings as fast as the stock is being absorbed. The lower levels of listings could result from potential sellers choosing not to enter the market because of i) the vicious cycle of nothing on the market to buy and ii) the increased interest rates reducing borrowing capacity, so upgrading their home is not achievable.
To further demonstrate the lack of homeowners upgrading to their second or third home due to rising interest rates and how tightening lending constraints support prices in more affordable locations, the following table lists the top ten Perth Local Government Areas (LGAs) for dwelling price growth in 2022. Of particular note is that only two LGAs are above the Perth $540,000 median house price.
Interest rates are a major component of property price growth, and as we all know, the RBA is increasing the cash rate to combat inflation. Unfortunately, the November inflation figures released this week revealed an annual increase of 7.3%. The following chart illustrates that inflation is not coming down and is way above the 2-3% target range, guaranteeing another rate increase in February. Future rate increases are a significant impediment to property price growth in 2023.
The RBA wants to see increasing interest rates reduce households’ income available for consumption. The decrease in demand for goods and services forces firms to decrease supply, which often means workers are laid off (Amazon recently laid off 18,000 workers).
Last week we wrote about an economic principle called the Phillips Curve that illustrates the inverse relationship between inflation and unemployment. The following is a basic example of how the relationship works; labour is a significant component in the cost of production. As unemployment increases, the supply of available labour increases, and real wages stagnate or decrease (real wages include inflation). As real wages decrease, firms can produce goods and services at lower costs, and the decrease in prices leads to lower inflation. Now, this is very theoretical, but it does have practical applications.
To help understand the RBA’s likely cash rate movements, we are introducing a new chart to track unemployment and inflation. We will update this chart monthly and monitor for changes. Until we see the gap between unemployment and inflation closing, rates will likely keep rising.
Reproduced with permission from:
in house economist from Michael Keil @ michaelkeil.com