eChoice RBA Commentary for December 2017.
The official cash rate continues to stay at 1.5% as:
• Inflation sits at 1.8%;
• The Australian dollar hovers around .75c US;
• Wage growth continues to stagnate; and
• The housing market continues to slow.
While economists keep suggesting that rate rises are around the corner, economic data doesn’t support the move. As a result, the Reserve Bank of Australia (RBA) has left interest rates on hold, yet again.
Here’s the deal: looking back at historical data, it has now been just over seven years since we experienced an RBA rate rise. This unprecedented seven-year run began in November 2010 and hasn’t looked back since. The last record between rate rises topped 59-months – Dec 1994 to Nov 1999. Now: this record broke in October 2015, and we’ve since added another 25-months. But, it looks like the run will continue for a little longer.
What’s the bottom line? Well, the latest data indicates retail sales, wage growth and inflation are weaker than expected. Plus, the housing market is continuing to slow as investors sit tight, rather than buy more property.
Source: Reserve Bank of Australia (RBA).
The quarterly RBA monetary policy statement released by the Reserve in November targets growth at around 2% for December 2017. According to the report, the drag on growth is still from the mining boom. Although, this is easing, and will likely end in the next 12 to 24-months.
|RBA Forecast||Dec 2017||Jun 2018||Dec 2018||June 2019||Dec 2019|
|GDP Growth %||2.5||2.75||3.25||3.5||3.25|
|CPI Inflation %||2||2||2.25||2.25||2.25|
Source: ABC RBA Monetary Policy Statement.
Now despite any set-back, the RBA anticipate that the Australian economy will grow at a relatively consistent pace. The most significant factors holding back an RBA rate rise are wage growth and inflation.
But here’s the kicker. Australian wage growth sits around 2% per quarter. This rate is uncomfortably slow and based on shifts in employment types to lower paid work. The less household income available, then the softer consumption becomes. As a result, retail sector spending declines, which, in turn, effects inflation.
CoreLogic RP Data suggest that many investors are easing back on buying as lending conditions become tougher. They also indicate that this investor decline is driving the housing market slowdown.
Nationally, lenders have tightened services so riskier loans are no longer available. Thus, higher loan-to-value ratio loans are harder to secure, along with interest-only loans. Lending rates on investment and interest-only loans have risen, and investors also face the prospect of lower rental yield.
Want to know the best part? At present, the Australian housing market is a mixed bag. Sure, Sydney, Darwin, and Perth saw a decline in dwelling values over November 2017. But, other cities, such as Hobart continue to rise in value, while Adelaide and Brisbane are remaining consistent, with marginal changes in value.
|Capital City Home Values as of 30th November 2017|
|All Dwellings % Change|
|City||Month||Quarter||Annual||Total Gross Returns||Median Dwelling Values|
Source: CoreLogic RPData.
What’s the bottom line? Based on historical data, CoreLogic suggests the Australian housing market peaked in July 2017. Over the last 3-months, Sydney’s market declined by 1.3%. But, according to the Australian Bureau of Statistics (ABS), over the last 5-years Sydney’s housing prices have jumped by 70%. So, in comparison, a 1.3% decline is marginal.