eChoice RBA Commentary for August 2017.
The official cash rate stays at 1.5% as:
Inflation sits at 2.1%;
Household debt remains consistent;
The housing market continues to adjust; and
Property prices marginally increase.
The Reserve Bank of Australia (RBA) has left the official cash rate on hold. But, they’re aiming to find a neutral cash rate in the future. This neutral rate will allow greater economic growth, keep inflation stable and increase housing market solidity.
As the economy and international markets steady and regain ground, inflation will rise. At present, Australian inflation sits at around 2.1%. The highest rate in 2-years.
With the RBA’s ideal inflation rate between 2% to 3%, future adjustments will keep this rate stable. Therefore, economists suggest the RBA will raise the official cash rate in 2018 to maintain steady inflation and housing market activity.
According to CoreLogic RP Data, capital city dwelling values have slowed. Although, increases across combined capitals were at 1.8% in June 2017.
Also, dwelling values rose by 0.8% during the quarter. Over the last 3 months, dwelling values increased in Perth, Brisbane, Melbourne, and Sydney. Median home values in most capitals also increased.
|Monthly Capital City Home Values at 30th June 2017|
|City||% Change Month-on-month||% Change Year-on-year||% Change Month-on-month||% Change Year-on-year||% Change Month-on-month||% Change Year-on-year|
Source: CoreLogic RPData
Combined city rents increased by 1.6% over 12 months to June 2017. As such, gross rental yields are now at 3.1% across the capitals. These yields are higher in Canberra and Hobart.
|Capital City Home Values at 31st June 2017|
|City||% Change Month||% Change Quarter||% Change Year||Total Gross Returns||Median Dwelling Values|
Source: CoreLogic RPData
Over the quarter, the housing market continued to ease. Auction clearance rates adjusted to below 70% in Sydney and Melbourne. Consequently, this rate reflects the change in owner-occupier and investor housing finance commitments. However, based on annual growth investor demand is still rising.
While houses are still prominent in Australia as a dwelling type, apartments are becoming important in the housing mix. In fact, according to a recent report published by the RBA, the configuration of homes built in Australia has changed over the last decade. As a result, apartment construction has tripled since 2009. Plus, in 2016, apartments accounted for one-third of building approvals. In comparison, the number of detached houses built in 2016 remained consistent with averages over the last three decades.
Thus, it appears Australia is moving towards high-density housing, which is bringing the nation in-line with international trends. Subsequently, the rise in apartment housing stock is increasing.
When investing in houses and apartments consider:
- Affordability – apartments are more affordable than houses, with medians 30% less for an apartment.
- Property types – apartments suit downsizers, small families, and singles; houses suit larger families.
- Dwelling location – apartment building occurs in established suburbs, near services and employment; houses though may be in areas without infrastructure.