Perth market out-performs other capital cities
There was no surprise when the Reserve Bank Of Australia (RBA) raised the cash rate by 0.25% to 3.1%. This is the eighth straight monthly increase and the last time the cash rate was above 3.1% was in 2012. Mortgagors with a $500,000 mortgage (close to the average WA mortgage of $470,000) means repayments have increased by $910 a month since rates started increasing in May. The following chart reveals that this is the most significant increase in the cash rate over the shortest period.
It now seems ludicrous that late last year, the RBA said the cash rate would not rise till 2024. The RBA governor Phillip Lowe apologised (sort of) last week for misleading the public.
The following is Dr Lowe’s response to the Senate Economics Committee:
“People did not hear the caveats in what we said. We didn’t get across the caveats clearly enough, and the community heard 2024. They didn’t hear the conditionality.”
“That’s a failure on our part, we didn’t communicate the caveats clearly enough, and we’ve certainly learned from that.”
Sorry, not buying it. The RBA would be highly aware of how their comments were relayed through the media to most Australians who do not read the RBA statement in detail. They did nothing to address or correct how the media was reporting the RBA’s forecast. Furthermore, the RBA would have been acutely aware of the number of borrowers taking out large mortgages, with many borrowing more than six times their annual salary believing that what they heard in the media was accurate; interest rates would not rise until 2024. The RBA would also have understood the impact interest rate rises would have on those who took out large mortgages. However, the RBA did not “communicate the caveats clearly enough” to the media because they wanted people to take out large loans even though they knew of the risks because in their own words:
“it was dire times, and we decided that we would do everything we could,”
Trying to say nobody heard the caveats rather than saying we took a gamble by encouraging lending to support the economy, which has backfired with 1.1 million Australians facing mortgage stress, leaves the RBA’s credibility in tatters. We sincerely hope they can recover the Australian publics’ confidence.
The bright side is that Perth’s market continues to show an abundance of “resilience” (yes, that word again). However, that resilience will be tested next year when mortgagors on low-interest fixed rates convert to variable rates. In the meantime, Perth’s prices held firm again for the fifth consecutive week. The following chart, which regular subscribers would be familiar with, illustrates the current sideways movement, and Perth should hang on to record a 3.38% dwelling price increase for 2022.
According to CoreLogic’s home value index, Perth has been the best-performing of the five capital cities over the last quarter and the second-best over the past 12 months.
To further demonstrate how well Perth’s real estate market is responding recently in the face of rising interest rates, the following chart shows that over the past eight weeks, the cash rate increasing in orange with the trend increasing (the orange dotted line), but also the trendline for the percentage change in weekly price (the blue dotted line) also sloping upwards. This places Perth in a very enviable position compared to the other capital cities.
We have continuously put Perth’s resilience in the face of rising interest rates down to low supply and high demand levels, strong migration, a very healthy economy and employment, low rental vacancy rates and housing affordability. The latest real estate data from REIWA reveals continued demand and low supply, with 8,475 listings for sale, 882 transactions and 1,877 listings for rent. These figures have remained remarkably consistent for an extended period.
Reproduced with permission from:
in house economist from Michael Keil @ michaelkeil.com