Australian Property Prices, Cash Rates, & GDP
Posted by Tristan Angelini on 09 August 2022
As experts predicted, as interest rates surge, Australian property rates fall at rates similar to the onset of the historical event that had transpired in the 1980s called the global financial crisis. If we trace back history, there was a downturn when the interest rates devalued demand for property. According to experts, it looks like the current Australian property condition is set to drop even further just as interest rates increase across the nation.
Recent news reveals that property prices in Australia continue to go down. Around the beginning of May this year, property values have decreased by 2 percent, which includes houses and apartments. Last July, dwelling values dropped 1.3% on average across the nation, according to CoreLogic. Other capitals that have experienced falls include Sydney, Brisbane, Canberra, and Hobart.
CoreLogic’s research director Tim Lawless writes that although the housing market is only three months into a decline, Home Value Index shows that the decline rate can be compared to the onset of the Global Financial Crisis in 2008 and the downswing in the 1980s. In Sydney, this can be said as the sharpest value fall in almost 40 years.
As for Melbourne, dwelling prices have experienced a downturn for five months, with a recorded 1.5 percent decline in July.
The latest news has also said that the Reserve Bank of Australia that for the fourth straight month, the key interest rate has been lifted. The cash rate has been raised by 50 basis points, making it the fastest in almost 30 years to suppress inflation.
Raising the Cash Rate
The Reserve Bank of Australia came up with a decision to raise the cash to 1.85%. This decision came after the bank’s monthly board meeting last Tuesday. This has been said to be the most increase since 1994. The bank’s governor also adds that the Australian economy would most likely end up growing much slower than what was previously forecasted. Due to the cuts, investors were compelled to send the Australian dollar lower against the USD and, at the same time, trim losses for the day.
According to experts, the RBA has lagged behind most of its overseas counterparts in raising the cost of borrowing. This was seen as a solution to take some of the energy out of the fast-rising prices.
Consumer price inflation has been predicted to peak at 7.75% by December this year, according to the RBA Treasurer, Jim Chalmers. They do not see inflation dropping back into the RBA's target range of 2 to 3% until the end of the year ending in June 2024.
GDP Growth Forecast
Experts expect that the GDP growth in 2023 and 2024 will come in at 1.75%. RBA's governor Phillip Lowe also states that the interest rates are one step further to much normal monetary conditions in Australia since the interest rates increase was seen as a necessary step to bringing back the inflation rate to the target. It's also something that was seen to create a more balance in supply and demand in the economy.
Economic growth is slow, just like in other nations. The labour market continues to remain tighter. However, the unemployment rate has declined and is considered the lowest in 50 years. The central forecast in terms of unemployment is to be around 4% at the end of 2024.
Right now, loan repayments will continue to hurt family budgets, not to mention the sting coming from high grocery and energy costs. Subsequent data will come in a couple of weeks which will show wage pressures and the jobs rate.