The Reserve Bank of Australia (RBA) is in no hurry to adjust policy. Instead, the bank is currently questioning whether it is effective as a monetary stimulus. For instance, the two rate cuts made by the Reserve during 2016 had little impact on inflation and consumer spending. Economists suggest that this may be due to the uncertainty surrounding the labour and housing market. Furthermore, the RBA suggest that the output for growth and inflation in Australia will change little over coming months. Hence, they are suggesting that it may take up to 2-years before inflation will reach its targeted levels.
Inflation and the Economy
During the September quarter inflation was as expected. However, this is still lower than targets of between 2 to 3 percent. At present, inflation sits at 1.5 percent. Subdued growth in labour costs and low-cost pressure globally mean inflation is expected to remain under RBA targets.
Low-interest rates are supporting domestic demand, and lower exchange rates are aiding the trade sector. Globally the economy is strengthening, though this is at a lower than average pace. On the other hand, the Australian economy has moderate growth. Although mining continues to have an impact but is being offset by growth in other areas. Residential construction, public demand and exports are all growth areas. Household consumption is reasonable but appears to have slowed. Plus, business and household sentiment are still higher than average.
Latest Consumer Price Index data suggests an increase of just 0.7 percent. Thus, the annual figure to September 2016 was a lacklustre 1.3 percent. Furthermore, consumer confidence has dropped by 1.1 percent in November 2016, compare to a rise of 1 percent last month. This decrease was the first in three months as consumer confidence increased in the property market and financial sector. Evidentially, the highest consumer confidence recorded was in January of 2005, when it reached a level of 127.67. Whereas the lowest level of confidence ever recorded was when Australia entered recession in the 1990s. In November 1990, the rate was 64.61.
Labour Market Data
Mixed conditions are present in the labour market. While the rate of unemployment has declined, there is still a considerable variation in employment growth. Part-time employment is growing strongly, but employment, on the whole, has slowed. In the near term though there is indication that the labour market will strengthen.
Housing Market Conditions
Capital gains remain positive across Australian capital cities. Although, the rate of growth has slowed compared to previous months. During October, dwelling values rose 0.5 percent. Regardless, this figure is lower than the 1.0 percent rise in September and 1.1 percent rise in August. However, dwelling values are 7.5 percent higher than 12-months ago.
Every capital city in Australia has recorded a rise over the last three months. All except Adelaide which recorded a -1.3 percent decline, Hobart (-2.8 percent), and Perth (-1.5 percent). Canberra recorded the highest quarterly rise of 5.6 percent.
Sydney continues to stand out in annual capital gains. Dwelling values in this city are now 10.6 percent higher than 12-months ago. Detached homes in Sydney are also showing a gain of 10.9 percent and units 9.1 percent. Such increases indicate that there is a healthy balance between supply and demand in the Sydney region.
Overall, supervisory measures introduced by APRA have strengthened housing market lending standards. Some lenders are even said to be taking a more cautious approach. Accordingly, turnover in the housing market has slowed from record highs recorded in 2015. A considerable supply of apartments may affect the housing market over the coming months. While, property market experts suggest that this will only be short-term. Investors who are looking at long-term prospects need not be concerned as the market is expected to stabilise.
Are you looking for a competitive home loan? Then it is time for you to discuss your options with an eChoice Broker. We can help you save more!
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!