Australian homeowners have waited with bated breath for the announcement that the property price slump is easing and home prices are stabilising. CoreLogic RPData delivered welcome news on this front in both April and May, prompting the Reserve Bank of Australia (RBA) to leave rates on hold for another month, despite inflation having no growth over the March quarter.
What’s inflation doing?
The RBA are inflation gatekeepers; they aim to keep Australian inflation between 2-3%. However, they’ve not managed to achieve this goal in years. The latest consumer price inflation (CPI) figure released by the Australian Bureau of Statistics (ABS), indicates that the CPI didn’t increase or decrease over the March quarter. Instead it remained the same. Therefore, the rate of 0% growth brought the annual CPI rate down to just 1.33%, a drop of 0.45% when compared to December 2018. The RBA was hoping for an increase of at least 0.2%.
The stagnant CPI, says the ABS, is a result of rising car, education and fruit and vegetable prices, offset by a steep drop in fuel and domestic and international travel prices. These changes were consistent across most Australian capitals.
So, while the RBA discussed the prospect of inflation not moving up as a reason for changing monetary policy at their April 2019 meeting, at the time, they also suggested that unemployment would need to move upward to instigate a rate drop. Unemployment rates released by the ABS in April indicate that this segment remains steady at 5%.
The bank also noted at its April meeting that lowering the official RBA cash rate did not impact on markets as it had done in the past, therefore, the bank was reluctant to adjust rates unless there was a strong case for such a change.
So, what are the latest housing market figures and how has the property price slump eased?
How the property price slump is easing
CoreLogic RPData shows that home prices are stabilising as the rate of decline slowed over the last three months. Looking at CoreLogic’s March and April 2019 data a national price fall of just 0.6% occurred in March, followed by a drop of 0.5% in April.
Highlights over the last three months for the national housing market included a price increase of 5% for dwellings in Hobart and a rental yield of 6% for Darwin property. Also, while some capitals such as Sydney and Melbourne are falling in value, others – such as Hobart, Canberra and Adelaide – have realised gains over the last 12 months. Over this time, Hobart saw a 3.8% gain, Canberra a 2.5% rise, and Adelaide a 0.3% increase in property prices.
So, while property prices continue to fall nationally, not all markets are behaving the same.
The latest CoreLogic report released on May 1, 2019 indicates that the property price slump is losing pace, with Sydney and Melbourne dwelling values falling at rates below 1% for the last two months. Previously, these capitals were recording monthly price drops of over 1%, and in December 2018 Sydney recorded a dwelling price fall of 1.8%.
CoreLogic RPData head of research Tim Lawless also notes that other market indicators such as home loan valuations, ABS household finance figures and auction clearance rates all point toward a positive shift in the market. This movement, according to Tim Lawless, is not strong, but it does signify that the housing market is emerging from the downturn.
The cash rate’s future
Many economists are predicting that the RBA will cut rates over the coming months, but given that the Reserve has sat on the fence for 31 months with inflation sitting below their target for more than three years, then it’s likely that a combination of market changes will need to occur before they make a move to drop the official cash rate.
The Reserve board indicates that low interest continues to support the economy, enables unemployment levels to stabilise and is gradually assisting inflation growth. The Reserve also highlighted that changing monetary policy could not fine-tune economic outcomes and that instead, the Bank was better to act as a ‘source of stability and confidence’.