WA’s population growing at 2.3% annually
This week we have a lot of important data to review, including the latest population and employment figures from the Australian Bureau of Statistics (ABS), which are major drivers of property prices.
We always lament that it takes the Australian Bureau of Statistics (ABS) six months to release the latest population data. However, the December 2022 quarter figures demonstrate that WA’s population is growing at rates last seen during the mining boom ten years ago. WA’s population is growing at 2.3% annually, the highest rate in Australia. The population growth is driven by both overseas and interstate migration, with the following two charts revealing that WA received 3,113 from over east and 11,727 from overseas for the quarter.
Employment remains strong despite the increased labour supply in the local economy due to increased migration. WA’s unemployment rate remained unchanged at 3.6% in May. This good result indicates WA’s overall economic strength despite the Reserve Bank of Australia’s (RBA) best efforts to slow the economy so that unemployment rises and inflation falls.
Unfortunately for mortgagors, the drop in Australia’s unemployment rate from 3.7% to 3.6% (seasonally adjusted) will only encourage the RBA to increase interest rates next month. The following chart reveals that unless inflation drops in May, the gap between unemployment and inflation is now widening after a period of the gap closing, and the RBA will almost certainly raise the cash rate again. The markets are also pricing two more rate rises after previously indicating rates would go on hold. We should have the May inflation figures next week.
Despite the rising interest rates and the prospect of more to come, Perth’s increasing population growth, and strong employment figures, and the lack of newly constructed dwellings supplying the market, are reducing the supply of established residential properties and raising prices. Although Perth property prices recorded their smallest increase this week since late April, the 0.1% rise means Perth prices have increased by more than 2.5% for the year, as illustrated in the “Perth Property Price Growth 2023” chart below.
We believe that unless the unemployment rate rises well above 4.5%, there will be only a limited increase in supply due to mortgage delinquency. The following chart is from the Bankwest Curtin Economic Centre 2023 Housing Affordability Report, which I co-authored. The chart shows that although there has been a sharp increase in mortgage delinquency over a very short period due to the steep rise in interest rates, they represent only a fraction of mortgages. However, this dynamic may change in 2023 as mortgages swap from fixed to variable rates.
The RBA’s dilemma is to bring down inflation without crashing the economy, driving up unemployment, increasing mortgage delinquency and, consequently, causing people to lose their homes, particularly recent first-home buyers who are the most vulnerable.