RBA Cash Rate August 2023 & Australian Housing Market Update

Now there's also a problem brewing further problems brewing in the building sector . So I want to talk about that because it could be an opportunity for some , and then hang around to my property section update , where I want to add a little bit more of a bonus of content .

So I've produced a property market outlook , so I'm going to also be bidding in betting this into this particular update . So let's get straight into it , starting with the US update . And there's been basically no debt ceiling , no bank issues , banking issues to talk about this month .

Really , I want to be looking at basically what's been happening over there , because there has been a bit of an equity run , a bit of a bull run in the equity markets over there as well . So there's a lot of confidence starting to brew in the US market and that's putting that market into okay shape .

So let's first start looking at the GDP results that we saw out of the June quarter and we saw the US economy expanded by 2.4% quarter on quarter from the March to June quarters . It was higher than 2% in the previous period and way above market expectations of a 1.8% increase .

Now , looking a little deeper and taking a closer look at some of those quarter on quarter changes , what did we learn ? We saw non-residential fixed investments accelerate sharply at a reading of 7.7% versus only 0.6% of 1% . Now that led the rebound in regards to equipment investment , which was 10.8% versus negative 8.9% in the previous quarter .

Intellectual property products 3.9% versus 3.1% . Also , private industries inventories , I should say added 0.14% percentage points for a growth versus a negative 2.14 in quarter one . Now that's all positive . On the other hand , consumer spending slowed sharply 1.6% reading versus 4.2% .

That said , it's still overshot market expectations as inflation fears eased , but the labor market remained tight . Consumption of goods slowed sharply , 0.7% versus 6% in the last quarter . Trading on services remained strong 2.1% versus 3.2% .

Public expenditure increased at a much softer pace 2.6% versus 5% , and net trade weighed down on the growth by subtracting 0.12 percentage points , as exports were down 10.8% and also imports dropped at a smaller growth rate at 7.8% . Early residential investment continued to decline negative 4.2% versus negative 4.25% .

In summing up this GDP data , it's clear that consumer is hurting in the US a bit , but it's also points to businesses still finding the going okay . Let's see if this lasts , with high interest rates doing their thing later in the year .

Speaking of those interest rates , what we did see on the back of this better than expected GDP story , after a pause in June , jerome Powell and the Fed board raised rates of further 25 basis points to move the Fed fund rate to a target range of 5.25 to 5.5% , it's highest level since January of 2001 .

That strong employment data , as I just mentioned , with the economy still expanding at a moderate pace , is most likely forced the Fed's hand to keep putting the clamps on to further slow down the US economy . Let's talk about their inflation story now , and it's an improving story in the US overall .

We saw the annual inflation rate in the US slowed to 3% in June , the lowest since March of 2021 , and compared to a 4% in May and compared to a market expectations of 3.1% .

Result the big slowdown in their inflation story stems from a complete reversal of what was last year's huge energy cost surge and the base effect of this high 9.1% reading falling out of the current annual data calculation . Energy costs slumped negative 16.7% in June on the back of a negative 11.7 in May . That's a very strong disinflation reading for sure .

Unpacking this data a bit further , we saw prices falling 36.6% for fuel oil , 26.5% for gasoline and 18.6% for utility gas services . Now we'd love to have that type of energy price falls here in Australia right now . Looking at the other items , what have we seen in the inflation story ? We saw food inflation slowed . We saw 5.7% in June versus 6.7% in May .

Shelter slowed to 7.8% versus 8% . Smaller price increases were recorded on new vehicles 4.1% increase versus a 4.7% in the first quarter of the year and we saw apparel slowed 3.1% versus 3.5% . Inflation services slowed 8.2% versus 10.2% , but that's still a pretty high inflation reading .

Medical services were down 0.8% of 1% and prices of used cars and trucks also declined by 5.2% . Now , their core inflation , which , remember , strips out all of those volatile items . Also , their core inflation , which strips out those volatile items , also dropped to a reading of 4.8% , the lowest since October of 2021 .

So , with their inflation story improving , some commentators are saying that the US will now , more than likely avoid a technical recession of two negative quarters .

For me , the US sentiment does seem to be more positive than what we saw a few months back , but the $64,000 question is the same question we also have to answer here back home , and that is just how quickly will they be able to get inflation down to their targeted range of 2% ?

The longer it takes and the longer that rates stay higher , that will impact their economy more , so they are hence continuing to increase their rates over there to try and whack that inflation genie back into the bottle . In terms of the employment story now , what do we see ?

We see the unemployment rate in the US decreased slightly to a reading of 3.6% in June , which is lower than May's seven month high of 3.7% and in line with market expectations . The jobless rate has fluctuated between 3.4% and 3.7% since March of 2022 .

This is giving the Fed the wriggle room that they need to continue raising rates as a means of combating inflation . The number of unemployed people decreased by 140,000 to a reading of 5.96 million people , and the employment levels rose by 273,000 to a reading of 160 million 0.99 million .

So that is their big numbers , obviously large population over in the US Consumer sentiment now , and we saw the University of Michigan consumer sentiment for the US was revised lower to a reading of 71.6 in July from a preliminary reading of 72.6 .

This was the highest reading since October of 2021 , due to the continued slowdown , inflation , along with stability in the labor markets , boosting their confidence , remembering we did have a pause in interest rates in the US during June , which helped that sentiment story spike . Briefly , look at some of the other business data now and what do we see ?

We see business confidence fell slightly from a reading of 46.9 to a reading of 46 , flat from May to June . In terms of manufacturing PMI index improved from 46.3 to a reading of 49 from June to July . The services PMI index fell from 54.4 to 52.4 from June to July and month on month , retail sales only grew by 0.2 of 1% in the June data .

Those business numbers aren't great and the US consumer isn't really happy about those higher prices that they're paying at the checkout Based on those retail sales . That question still remains about a legitimate bounce back in terms of what we're seeing in the equity markets , or is this going to be a false dawn ?

We are seeing it is summers in full swing over there and so that sentiment could also be lifting on the back of that particular story as well .

For me , it's going to take a few more months to see whether we see that sticky inflation story and that services inflation story being a problem in the US , so it will be interesting to see how that plays out over the second half of 2023 .

Turning our attention to the China story now and their economy isn't quite bouncing back , as I'd also like post their COVID lockdowns or those extended lockdowns that we're talking about In terms of the GDP numbers , we saw that the Chinese economy grew by a seasonally adjusted 0.8 of 1% in the June quarter , surpassing market expectations of only a 0.5% increase , but

slowing sharply from their 2.2% expansion observed in the first quarter of the year . Now , if we actually cast our minds back , economic growth in China used to run at a pace of 5% to 6% . It was almost religiously that their economy was growing at that sort of pace . That is certainly not happening as we see it right now .

So it's very clear that the second biggest economy in the world has been losing its momentum and remains in a state where it's basically the property market over there has had a significant contraction and downturn , and that should be a reminder to us all of just how important a country's property market is to its broader economic performance and prosperity .

So that should be a thought to ponder when it comes to looking at how the property market plays into that in the local economic story of that particular country and , more broadly , when we look at all property markets across all developed countries .

Now , on the inflation front , what I've been reporting is that China's problem certainly isn't inflation , so I've been saying that for several months now . In fact they've got almost like a disinflation story .

There was a reading of zero for their June inflation story over there as well , and with the domestic economy quite sluggish on the back of that property story , it's really clear that there will be the declining demand for their exports and the Chinese government is now under considerable pressure to do more for their citizens and that would probably start to forecast

further stimulus programs to get the domestic consumer backspending again on the back of , hopefully , an improving story there , but also starting to see what's happening with their exports .

Now what I've said about exports is it's actually a good new story for the global economy and , explaining this in simple terms , it means that if the demand for exports out of China slows down . Those Chinese businesses have to reduce their prices to compete to attract the purchases to buy their goods and import those goods into their own countries .

Now that is obviously good news for those other countries because they're not importing inflation with the goods that they're importing through China .

So that's definitely a good new story for most nations and because Australia is one of those nations who imports a lot of goods out of China clothing , electrical , et cetera that actually is a good story for our inflation numbers back here in Australia . Looking at the unemployment story now in China , and what did we learn ?

We saw that China's surveyed urban unemployment rate stood at 5.2% in June , which represents one of their lowest levels recorded in 16 months .

The unemployment rate for the population aged 25 to 59 also remained steady , at a reading of 4.1% in June , while the rate for those aged 16 to 24 saw a slight increase , reaching a new record peak of 21.3% compared to 20.8% in May .

Now , looking ahead for the remainder of 2023 , the government has set themselves a target of creating 12 million new urban jobs to help with improving unemployment for , obviously , the youth in China , given those very , very high unemployment numbers for the young people , obviously in that country .

Looking up the China story now , it's economy that isn't living up to its own expectation and it looks like again more of that stimulus will be needed to see that GDP performance number improve , and so that's their big challenge in terms of what's going to happen over the next couple of years in China .

Okay , let's round out our offshore market economic update by looking at the eurozone , like we always do , starting with their GDP numbers for June . And what do we see ? We saw that the eurozone economy recorded a flat zero result in the June quarter .

Now this follows a negative 0.1% decline in the March quarter , so they technically avoid a recession for the meantime for the moment now , but it is definitely some further headwinds there . In positive news , demand for exports increased by 0.2% of 1% , compared to the initial estimates of only a 0.1 fall , and imports were lower at 1.2% .

So they're starting to get their economies moving , pushing exports out and not being so reliant on imports coming into the country , which is good for economic development locally in the eurozone . In terms of what's been happening in the inflation story there , since my last report , their inflation rate has improved with a reading of 5.5% , down from 6.1% .

It's the lowest reading since January of 2022 , and it was mainly driven down by declines in energy costs , the same as what we saw in the US that I reported earlier . Whilst this downturn trend in the headline inflation is good news .

Their core inflation , which excludes volatile items such as food and energy , increased to 5.5% , which means the ECB , which is the European Central Bank , still has some work to do with interest rates over there . Speaking of those interest rates , what's happened since the last update that I gave ?

Well , the ECB lifted the cash rate another 25 basis points to a reading of 4.25% . Now this is the ninth consecutive increase , and it takes their cash rates to their highest level since October of 2008 .

Now the ECB , like the rest of the central banks around the globe , their challenge is the stickiness of the inflation , and so , ultimately , there's still going to be data lead when it comes to any further movements . So it's a month to month proposition , as they , too , also have the same 2% target range that we have in the US .

So , rounding out the US sorry , the Eurozone's data now , we saw the unemployment rate remain steady at 6.5% .

Consumer confidence saw a slight improvement , again to a reading of negative 15.1 versus negative 16.1 , so still more pessimistic than optimistic in terms of consumer confidence in the Eurozone , and the business confidence fell back into negative territory with a reading of negative.09 points .

So as I sum up , the Eurozone , it's a bit of more of the same , unfortunately for the Eurozone . They too must obviously write out the inflation wave . They've got to continue to keep managing these higher interest rates . So until that inflation story improves , which will then improve their interest rate story , their economic headwinds will persist further Righty-o .

So that wraps up the look at the world economies . Let's turn our attention back home now and start focusing in on the Australian economy , and starting with the RBA first , as I always do . From the 18th of September , we will have a new governor and it will be our first female governor and her name is Michelle Bullock .

And that means that Dr Low will make his final cash rate call next month before Ms Bullock takes over the reins . So what did Governor Low and the RBA board decide to do with the cash rate today ?

Well , pleasingly , for the second month in a row , they kept the cash rate on hold at a reading of 4.1% , which is very much welcome news and relief to most mortgage holders across the country Now .

That said , it doesn't mean the RBA is done with raising interest rates in this tightening cycle , but it's a very good sign to say that we're close to the top of the cycle . If the economy keeps trending in its current direction , it was always going to be a very close call .

With strong jobs data and , given we're still some way off getting inflation back to our target range of 2% to 3% , it was a super close call . So what got us over the line to put the cash rate pause in place is the big question . Well , this is my take in terms of what decided them to keep it on hold .

There was the lower than forecast quarterly inflation read for June , and that was also in concert with the lower monthly inflation data showing an improving month-to-month inflation story . Now , for me , that did most of the heavy lifting in this decision . Add to this the evidence of further fall was in consumer spending . As and higher loan repayments start to bite .

It's starting to bring that conversation together . Now , top it up also with the consideration of a large portion of fixed mortgages coming outside of their expiry periods , and that has also meant that we've got higher loan repayments also coming through for those households as well as some of the previous interest rates , still need to flow through to those households .

So a combination of those points was effectively the reason why they did a rate pause this month . So , as you know , for mine , in summing up these parts , you know again , the job isn't done , we still have more to do , but it certainly is a boost in terms of what's going to happen for the property market and , potentially , property market sentiment .

So we need to be thinking about that . In closing out my RBA section of this update , I wanted to remind you all to remember to lift your eyes .

We all suffer from this recency bias , and I want you to also think about looking beyond the end of 2023 , because , hopefully , by the end of 2023 , we would have potentially reached the top of this tightening cycle .

So when you start to think about that , you need to start thinking about what happens after that , and what we do know is there's an incredible lag effect when it comes to the cash rate .

What I mean by that is is that obviously , the governor and the board know when they really do put the clamps on the economy , it starts to slow it down considerably , and so it's not too long a period before you start to see rates coming back down again , because , again , you see , you know this whole tightening cycle as the fly will leave the economy slowing

down and they go OK quickly we need to start to release the brakes on the economy . So that's why a lot of economists are predicting that the first rate cut will actually happen in early 2024 .

Now , in terms of how much the brake levers are released , I wouldn't say it's going to be back on the accelerator , but we will start to see some cash rate cuts coming in early part of 2024 .

And so that's that should give you some confidence that once you pass through this very , very steep tightening cycle , you're going to be in a position where you're going to see some of those rate cuts happening and that will take a little bit of pressure off the cost of living in those household budgets .

So that's just a little message that I wanted to remind people of , to make sure that you're not suffering from this recency bias or you have any panic attacks , because we will be through this relatively quickly when you think about , you know , long , medium to longer term , but it's obviously these next few months and into the end of 2023 that it's going to be

the most challenging , but I do see that improving significantly in 2024 . All right , now that's going to be on the back of the inflation story . So let's take a look now at the latest inflation data that we had released last week .

So , on the quarterly inflation data front , both the headline and core inflation figures were both lower than the recent RBA forecasts and also they were lower than what market was predicting and forecasting as well . We saw a headline inflation rose by 0.8 of 1% in the quarter to be 6% higher in annual terms .

Now that's down from 7% in the March quarter data and this was the slowest quarterly growth rate since September quarter of 2021 . Looking at core inflation , which is the trim mean inflation , excluding those volatile items , and we saw core inflation fell by 0.75 of 1% in March to a reading of 5.9% in the June quarter .

So , between March and June , down 0.75 to a reading of 5.9% in the June quarter . Goods , inflation pressure has continued to soften , which is very good news indeed .

Now on the service inflation , which tends to be a stickier inflation problem , as we are currently seeing , the data was mixed as the annual pace of service inflation accelerated to its fastest pace since 2001, .

However , and encouragingly , the quarterly price is slowing and it's not too far above the annual 10-year rate of inflation that we're experiencing , leading into the pandemic .

So in summing up the inflation section of my update , I want to also comment on the trend of disinflation rolling through other parts of the developed world that we have been seeing over the last six months or more now , and some economists are reporting that we're starting to see that work through into the Australian economy as well as what I mentioned earlier around

the cheaper Chinese imports . That will also play positive into our inflation story and so we should start to see that improving development of that sort of slowing inflation globally start moving through into positive developments on the inflation front here in Australia . We still aren't out of the wood yet , but the trend is good .

So hopefully , you know , if we can keep that inflation , that wage inflation , down , that's going to be , you know , another positive story for us from the inflation front . It's a good segue into talking about what's happening in regards to our labor force . And what do we learn in the latest data that's just come out ?

Well , after being revised down to a reading of 3.5% in May , the June data read was also 3.5% , beating expectations of a reading of 3.6% in the unemployment rate . This read was really showing the resilience of the labor market , even with the tough cash rate tightening cycle in play . Employment rose by 32,600 jobs in June , near its 50 year lows .

Over the past 12 months , working age population has surged 2.8% as immigration has roared back post the border reopening .

It is my view that , with saving rates now back below long-term averages and with pretty much all forms of spending slowing , although there is a lag in this data , I'm convinced the unemployment that unemployment will increase from this point forward until the cash rate starts coming back down to more normalised levels in 2024 .

Let's look at the consumer sentiment story now and , building on my thesis of the jobs , market will deteriorate from here . What did we see in the data ? We saw the consumers remain deeply pessimistic about the economic outlook , as concerns regarding inflation and interest rates persist .

Even though the consumer sentiment index rose 2.7% in July to a reading of 81.3 , it's remaining in its downbeat range even after the rate pause that we experienced earlier in June . That's how we get this reading . A meaningful shift in sentiment won't occur until folks believe that there are no more rate hikes on the horizon .

Interestingly , the house price rising index , which sentiment towards the housing market continued to improve . The time to buy a dwelling index rose to its highest level since January . Also , the house price expectation index has increased by 45% since February .

Now , remembering , february marked the turning point in property prices and I suspect this has a lot to do with continued pent-up demand over that last year and a half as we saw property prices declining and then we started to see that tightening of supply also occurring .

With consumer sentiment this low on the back of higher inflation , higher cost of living , higher mortgage repayments , its only logical retail spending is continuing to moderate and trend downwards , and that's what we are seeing in the data . Retail spending dropped 0.8 in June , unwinding a 0.8% gain in May led by declines in discretionary spending .

This reflects a continued slowdown because of the reasons I just mentioned . In addition to the unwinding of the base effect from a stronger sales result in May , some pullback in June was expected after sales activity was brought forward into May following earlier than usual end of financial year sales .

Looking through some of this volatility , average spending over the two-month period was only 0.4% higher than April On a rolling six-month basis . The underlying slowing is very evident as spending has been little changed since November of 2022 .

Over the past three months to June , spending rose just 0.4% of 1% , which was in real terms , indicate spending is going backwards once you factor in strong population growth and you account for price increases on the back of higher inflation . On a per capita basis , spending declined 1% in June and 0.3% of 1% over the quarter .

Department stores was negative 5% , other retailers negative 2.2% and clothing and footwear negative 2.2% , recorded the largest falls , as all sectors except food declined . Also , spending at cafes and restaurants appears to be pulling back , as it slipped in June to be 0.3% below May's record high .

Looking forward , I'm expecting retail spending to be under further pressure , as the economy calls and will cost jobs , unfortunately for those folks . Now , building on the spending story , let's take a look at some of the other important business indicators , and we start by looking at , obviously , conditions and confidence .

So business conditions remained unchanged at plus nine index points in June , after recording declines over the past four consecutive months . This was the equally soft read since January of 2022 and suggests that solid conditions enjoyed over the past 18 months are now coming to an end . Trading conditions continue .

For the fifth consecutive month , profitability and employment edged higher , but definitely not recovering the sharp falls recorded in May , meaning they continue to go backwards . Forward looking indicators , particularly forward orders , continue to point for soft conditions ahead as well . And so there's those soft conditions which is going to have an impact on jobs .

Capacity utilization continues to unwind , a trend which started in January this year . Notwithstanding this decline , utilization remains elevated at a reading of 83.5% , which is above average levels .

This shows that , while conditions are easing , there is still some strength in the economy , which makes sense when you overlap that with the current jobs data that we were talking about earlier . Business confidence recorded a flat reading of zero index points .

Confidence has been volatile recently , highlighting the elevated uncertainty facing many businesses , and pretty much hangs in the balance of each RBA rate call at the moment .

What's concerning in the business data this month is the growth in labor costs , that is , higher wages and retail prices , re-accelerated in June , which is not what the RBA is looking for to tackle inflation . Growth in the cost of other inputs was unchanged , which is some better news .

The persistence in inflation pressures in the face of weakening demand will concern the RBA and the new incoming governor . Last month , the RBA highlighted in downside risk to the economy and upside risk in inflation has become more balanced . This is why wage increases from this point are very challenging .

If businesses don't get productivity improvements as part of those higher wage costs , then they will pass these costs on to consumers via higher prices , causing higher inflation , or the alternative is they will downsize their workforce , leading to higher unemployment . So quite an interesting piece of data that came through in that business conditions and confidence read .

Now let's look at the property story Now , starting with , as I promised at the start of the update , I wanted to give a bonus inclusion in this economic and RBA update . So late last month I recorded a mini mid-year property market update and I've attached that to the end of this presentation .

So if you're listening to this in audio , I would encourage you to also look at the link in the show notes or the show description and click over to the PropertyCouch YouTube channel and watch this segment , because I go very deep into charts and so some of that content may be lost when it comes to this audio presentation .

If you're watching in video , I continue on . You'll see all of that data and those charts in high visibility as you go through that Now during this mini update .

I do look at a lot of the general property data that I would look at as part of this economic and RBA update , so I've cut some of those out because I'm going to go deeper on supply side and building approvals and general sort of commentary around that particular area . So make sure you understand that .

The other thing I also want to make worth noting is that I did record this update without the RBA rate decision that we've just had today . So , with this in mind , my thesis was that was potentially a further one to two cash rate increases before the end of 2023 . So take that into context .

That said , I do want to briefly look at the developing challenges in the residential construction sector . I've mentioned again this in the intro as well , and we saw last week .

Well , I saw last week the Australian Financial Review reported in an article from the Housing Industry Association that the cost to building a home has increased by 33% prior to the pandemic .

Now , that's because obviously , you know that's resulted , I should say , in a lot of fixed price contracts are falling over or being made void by builders quite a lot of places around the country .

Now , the main reason for this is quite simple , right , and you think about it , people assigning these fixed building price contracts , you know , 12 months , 18 months in advance .

With the cash rate going up , it's meant that buyers can't actually get mortgages , so they can't get the finance because of those lending restrictions that we're seeing implemented in the market .

And secondly , what we were seeing is builders can't build those properties for the fixed price contracts that they put in place , so they're not necessarily honoring those contracts . They're using SunTek clauses or technical clauses to get out of those particular contracts .

Now , of course , that's very frustrating and upsetting for those people who have those fixed price contracts , thinking they're going to get a home built for cheap . But the reality is those builders would go out of business , you know , if they did potentially build those properties .

And that's obviously what we have been seeing in regards to , you know , the mass closure and liquidation of some of those larger mass builders around the country and a lot of small builders . So it is quite concerning . So what does that trend mean from here ? Well , it is a big if , but I do want to highlight you know what this has resulted in .

The first part about that is when they looked at their forward book , they saw that they had 12 months of lead time of building going on , but in some parts of Australia , as reported in this article , those lead times are collapsing because a lot of those contracts are collapsing and that means that the lead time in some parts of Australia are now down to around

four months . So if this was to continue , what's going to ultimately happen in the marketplace ? Well , there's a clear indication here of what will happen and that is that businesses and you know , building businesses will start to look for more work . They'll have to because they're original planning and their forward books will not be in place .

So this could be good news for new buyers , as it might see some specials or price prices coming down on the back of , obviously , material costs going down , because those material supplies will have less sales .

So I'll need to start discounting and obviously the tradies , who are able to put their prices up quite high during the peak building boom that we had post the pandemic , might have to adjust their hourly rates or their cost down .

So that could be a good news story if you're thinking about , you know , buying a new build home over the course of the next three to six months . That said , when interest rates start coming back down .

You may only have a small window to do so and there might be some other forces that play there , such as the government getting the federal government and some state governments getting their private sorry , their public and social housing bills passed .

That could also increase demand for those builders in that particular market , as obviously there's a chronic under supply of public and social housing . And then you also see , you know stories of the Victorian government in regards to their building insurance premiums . Because of the collapse of those builders , those premiums have increased by over 40% .

So what do I take out of all of that ? I just reinforces in my mind that property supply is going to be significantly under supply for the next several years to come . So as someone who's looking at that , whether you're on or occupying or whether you're in investment that's obviously a pretty good opportunity , but only when demand is flat .

So , as I said , if interest rate pause or they start coming down in 2024 , this is that opportunity where you know you might have this new window opening up for you . But you'll need to act now .

You shouldn't be acting later on , because you'll have a flood of demand coming as soon as those interest rates start coming back down Now before I close out the full update and we move over to the bonus information .

I wanted to talk about the property value results , and so let's look at the home value index release by CoreLogic and what did we learn in the July data ? Well , we saw house prices nationally rose by another 0.7 of 1% in July , which is the fifth consecutive monthly price increase after the bottoming of the market back in February .

So the national housing value index is now up 4.1% , after a 9.1% decline from the record high that we saw in April of 2022 . So let's roll through some of those capital city results and combined regional results as well . So let's see what we saw . Sydney was up 0.9 of 1% for a quarterly increase of 4.5 .

Melbourne was up 0.3 of 1% for a quarterly increase of 2% . Brisbane was up 1.4% for a quarterly increase of 4.2% . Adelaide was up 1.4% , again for a strong increase of 3.2% . Worth was up 1% and the quarterly result was 3.2% . Hobart was flat and for the quarter has eached out a growth story of just 0.1 of 1% . Darwin 0.3 increase and quarterly 1.2% .

Canberra the only capital city market that had a decline in the month . It was negative 0.1 of 1% and a quarterly increase of only 0.7 of 1% . So , combined capitals we saw 0.8 of 1% growth in the month and for the quarter up 3.5% . Combined regional markets only an increase of 0.2 and a quarterly increase of 1.2 .

So we're definitely seeing regional markets slowing their pace of growth . Since , obviously , the pandemic came through and we saw the flight to the regions , we're now seeing some of that elastic band coming back in and people moving back to the capital city centres . Some other observations I want to make from the data .

In terms of the Sydney prices , growth is slowing to a more moderate level after peaking at 1.8% growth in May , increased listings in this particular market and a cooling in sales of the upper quartile , so that top 75% is why we're seeing Sydney prices cooling further .

They're not in decline yet , they are still growing , but it's certainly a market to watch in terms of whether they will cool off for the remainder of 2023 .

There's definitely been an uptick in selling activity in some of the more affordable markets , highlighting Brisbane , adelaide and Perth solid performances this month as demand remains healthy in these particular markets and in a sign to always remind ourselves that we shouldn't be too focused on the national market data , we should always remind ourselves that there are markets

within markets . We saw Perth , adelaide and regional South Australian markets all reach record higher levels in this price cycle in July . So that just goes to show you that there's some really strong property markets out there at the moment . So in the very short term we're still going to be focusing in on demand and supply . That is always the story .

So that recency reading on where that's looking at . So for me I'm going to be watching where the interest rate take new listings . We are really on that precipice where the market is hurting . The economy is quite strained now , quite retarded from its growth prospects that it needs to do . So that is going to start showing up in terms of supply .

Now we know it's not going to show up in terms of new build supply . So the challenge really is it's going to show up in potentially existing property stock coming off these higher interest rates . So that's what I'm paying close attention to . We do know that there's underlying demand .

Obviously , nobody knows just how deep that demand goes , but it's very clear to me that there's definitely going to be a buying window , I see , before interest rates start coming back down and that's going to flood the market with new buyers and new demand and a lot more competition when you're trying to buy . So keep that in mind .

Ok , as I mentioned earlier in closing out this update , we're now going to switch over to my mid-year property market outlook presentation that I produced late last month . It's still very , very timely with lots of recent data in there , so we're going to switch over to that .

Before we do , just a reminder that Bryce and I will do a further , more detailed and extensive market update later this month on the Property Couch podcast . So hang around for that .

After we finish the winter series that we're currently in at the moment , I'll be back again in early September to provide a further economic and RBA update with Governor Lowe's final judgment call as the governor of the RBA in terms of before he hands the reins over to Michelle Bullock . Always remember that knowledge is empowering , but only if you act on it .

Let's cut over to that mid-year property and economic update now . I hope you take something out of this . Just a reminder that if you are watching on audio , I do encourage you to watch this in a video version . So head over to the YouTube channel of the Property Couch and you'll be able to see these data charts that I'm talking to in detail .

So until next time . Bye for now , until we meet again in September . Hello , ben Kingsley here . I'm really pleased to be able to present this effectively mini property market update in July .

Earlier at the start of the year , in February , bryce and myself , on our very , very popular podcast , the Property Couch , delivered a market outlook in terms of where we saw the market heading over the course of 2023 . And obviously I thought a mid-year update would be important .

So I put together this little mini property outlook update for anyone who's interested in the property space Now . Back in February , we prosecuted the idea that the cash rate would only get to around 3.6 to 3.85 . Now we know at current time of recording , the cash rate is currently sitting at 4.1% .

So it's important that we obviously now look at where to from here if we think that interest rates still have a little bit of a way to go in terms of maybe one or two more rate rises .

So I'm really pleased to be able to take a look at the data and share my narrative and my interpretation of that particular data in terms of where I see the property market heading and where I see some opportunities in that property market . So what are we waiting for ? Let's jump straight in to the story Now .

Of course , when you're doing these sort of property updates , it's very important to start with the macro data .

So we're going to do a little bit of a look at most of the macro data that I'm talking about here , and so you can see here I'm starting with the consumer price index , which is the consumer price inflation story , and it's really clear that when you study this and you start to get familiar with it , you can see that obviously during the 80s and obviously into

the early 90s , we had very , very high inflation and that obviously caused very , very high interest rates , which I'll get to in a moment . But the other thing we also saw here is we saw this stubborn story around inflation hanging around for longer .

So you can see that in the quarterly , seasonally adjusted numbers and that's that wage price spiral that I talk about when I do my economic and RBA updates each month .

So we obviously want to try and avoid that and that's what Governor Lowe the now our new governor , who starts on the 18th of September , michelle Bullock is going to be focusing in on in terms of what that story looks like . Now , looking at today's story here , we know how it started .

It was obviously , you know , in terms of Russia invading Ukraine , et cetera , and so we saw this big spike in terms of supply shocks and now it's still hanging around in regards to , obviously , that localized demand or service led inflation that we've got coming through .

So the good news story is it is trending lower , but we don't want it hanging around for too long . We want to be able to get down to that lower inflation story . Now I mentioned this earlier around what it sort of means for the cash rate . So it's a blunt instrument I should say that we've got in regards to how we measure that .

So we can see here's this story of the cash rate coming down off those record high levels that our parents will talk about in terms of the interest rates they had to pay when they were growing up . But when you start putting that story next to each other , you can start to see a little pattern emerging around that particular story .

So I want to sort of come in here and show you what I mean by that , so you can see here's that sort of improving inflation story through the early nineties and that's that number coming down through here as well .

And the other thing I want to sort of focus in on and obviously , as inflation has grown , we start to see this sort of story playing out as well in terms of this higher and sharper cash rate movement that we've currently seen .

But when we start to put it into context , we can see that we've had interest rates or the cash rate around this area before and in fact this was sort of our more normalized rate levels that we did enjoy once we really did improve productivity and we got rid of that inflation story and we didn't have that wage price spiral experience that we had in the sort

of late 80s , early nineties , when we reset the economy and focused on productivity . So this is obviously the story that we've got through here . But now we're hopefully seeing more normalized rates sitting around that sort of three to four percent range . So we're getting very , very close to that tightening cycle coming to an end .

Now this is probably a nice little time to segue into the story around what happens over the longer term when we talk about property . So if you feel like you need to pause this video and study this in more detail , a quick explanation is really simple .

We're looking at around 43 years of data across all of our capital cities and you can start to see that long term returns that we've enjoyed in the property market , even though we've had periods of higher inflation , we've had periods of higher cash rates and so forth .

So making that connection and understanding moving away from the recency bias that we all feel when we're actually making these types of decisions is really nicely spelled out when we compare and see that long term price trend across the market and across all capital cities .

So , yes , property prices don't always keep going up , but if you think about that longer term trend , you can see there that that has been the trend in regards to property prices across the country . All right , so we've now talked about the inflation and the cash rate story .

Let's start to think about what's happening with the consumer , and it's very clear that when you start taking money away from the consumer and you start to slow the economy down , that sentiment is going to obviously adjust and we can see that here in terms of the optimism line , which is above 100 .

We have below that line and we're sort of down in areas that we haven't been down for a long time .

So a consumer sentiment is definitely challenged at the moment and it does feel like the economy will slow and we're going to borderline , you know , sort of test the boundaries of a potential recession , depending on how long interest rates have to remain higher for longer .

So let's move into the other important story here , and why we probably aren't in that sort of more dire situation around sort of going into a recession at the moment is because of this unemployment story or , more importantly , the actual high employment that we currently have across the nation .

So , again , this is a mini update so I'm not going to spend too much time on this , but just look at that unemployment rate line here where we're seeing , you know , the unemployment rate is in the threes , very , very solid in that particular area .

So , as someone who's studying the macro story here and trying to make an interpretation around the property market , this obviously is a really good story because it obviously means that there's slightly less risk of seeing , you know , for sales or mortgage in possession sales , because we do have a fairly strong economy and we obviously have strong employment Now .

So I'm looking , then , at forward indicators to give me a bit of a read on that and you can see , let me go down and take a look at the job vacancies and we can see in terms of these job vacancies that we've got this particular story playing out for us .

So if you start to then take a look at those medium to longer term trends where we currently sit right now , so we are definitely above that trend line in terms of what's going on here .

We still have a fairly strong , robust job vacancy markets and that is also the reason why we're still seeing those interest rate increases , because , you know , we've heard from the governor and also the government of the day talking about the fact that you know , through this mechanism of slowing the economy down , it is going to increase the unemployment rate and they

are forecasting the unemployment rate will settle in the fours , say that , around that mid four level .

So what we do need to see these job vacancy rate numbers coming down because obviously , with more people arriving in the country , we're still seeing , you know , these job numbers strong and those people who are arriving also getting gainful employment fairly quickly .

The other big interesting part of you know , the narrative that we're hearing , hearing out in the marketplace and how that affects sentiment , is this story around this fixed rate cliff . We've had these stories in the past which have amounted to nothing , such as the interest only , you know , conversion into principal and interest loans .

Well , this is another one of those test cases that we're going through right now , and we can really see that we've just passed the peak in terms of a significant number of fixed rate mortgages moving into variable mortgages , and you can see , however , that we've still got this bulk of traffic that is coming through .

Now why is that materially important for context ? Well , if you think about the typical average mortgage 580,000 , if you've gone from a really competitive two year fixed rate sorry , fixed rate of 2% and you're moving to a 6.15 variable rate as an example , we're talking about $1350 in additional repayments .

So that naturally gets a lot of a clickbait and a lot of new stories around that fear mongering about what's going to happen , and so that's why I'm trying to correlate that to the employment story to see whether these people are going to be able to maintain their property story in terms of being able to meet those repayments .

Now , as part of that story , we've also learned a lot about the household and how they're consuming . This is a really nice graph to sort of give you a sense of the consumption and the disposable income . So when we take away , when we increase interest rates , we take away disposable income , and so we can see that consumption , that spending , coming down .

But what we're also seeing here , which is just as important , is that savings ratio is also falling considerably , and I do expect that to come down even further as we see more and more of these households having to pay higher mortgage repayments .

But obviously we got to that level on the back of being stuck at home in lockdowns and not being able to have mobility and also doing any of our spending that we would regularly do .

So that's the story that we wanna see continue to keep tracking as we slow the economy down and once we get to that peak , hopefully we'll see interest rates pause and then , ultimately , we'll see a downturn in terms of an interest rate . Now the next chart is a really important one .

Also , when I start to think about how households are gonna respond Now , I'm on record as saying do whatever you can if you are in a difficult position . Do whatever you can to be able to trade through this period , because it is only gonna be a moment in time .

So what am I looking for in terms of seeing people being able to do that Well , with heaps of jobs available . In terms of what's happening out in the marketplace , you can see that a lot of people are taking on multiple jobs .

So you can see the dip , obviously , that we saw through the first lockdown and the first wave of the pandemic , and then that further dip is a consequences of lockdowns in places like Melbourne and Victoria and those types of things . But the trend is really meaningful in terms of people doing multiple jobs .

So if you're talking about the gig economy or doing some type of work like Uber driving or whatever , we're going to see a lot more of that people taking those second jobs to be able to cover the mortgage as we go through this transition period to get inflation lower .

So that is a good sign for me because I'm looking at the jobs are there , I'm seeing that the unemployment rate is still staying low and I'm seeing people do whatever they can to maintain those properties .

So we're not necessarily going to see a glut of properties coming onto the market , but I am highly attuned to that particular story when it comes to what's going to be happening with property Now on the supply and demand side , or the demand side here we also know this big story which is being made more political every day around this population story coming in .

A little fact that everyone needs to understand is any person coming to the country or numbers of population that are coming to the country are net positive when it comes to job creation . So if you hear any narrative from the Liberal Party or whatever , saying you know it's taking people's jobs , blah , blah , blah , it's not true .

Okay , so ultimately you want to understand that . But what we are seeing here is a significant number , in excess of a million people over a couple of years that are going to be arriving to work and migrate into this country and settle in to the Great Australian Dream .

So that is going to obviously put upward pressure on supply because this is a demand led story in terms of that population growth . So let's go a little bit deeper into that story and now looking at those dwelling approvals .

So we can see here what's really important for me to be studying and what I'm laboring on in my economic and RBA updates is this idea that we can see . There's the decade average you can see in houses and units . So through the home builder program and incentive , we got a massive spike of home building that's occurred .

There's obviously been some unintended consequences of that in terms of supply chain shortages , which has led to some of those builders collapsing . So it's not a great story for some of those people who were getting their first home or building their new dream home . So you can see that coming down .

You can see how volatile the unit market approval numbers are when you've got significant medium and high density approvals coming through , but there really is a construction lag that's going on here that we're also seeing play out in the numbers . So that says to me that supply is not going to arrive quickly , even though demand is continuing to improve .

Moving down on that , let's take a closer look and start to think about where is this tracking ?

So , through our good friends at CoreLogic , we've got access to , obviously , these new listings at a national level , and so I am definitely following this little uptick that we're seeing here with high interest , and Bryce and I will do a further update on the marketplace , hopefully in August , where we can get a sense of the listings coming for the spring selling

season , because at the moment you can see it's clearly below the long-term five-year average and it's clearly below the activity we saw in 2022 . So that in itself , with these new listings , is what's keeping supply down and demand high and why property prices are continuing to grow at the moment . Now let's look at total listings .

So , just remembering that this is new listings , so we've seen a lift here but what we also want to then look at as well what does it mean for the overall supply ? And we can still see that that has made a very limited dint in regards to overall total listings of properties .

And so when we're talking about the potential risk in the marketplace in terms of mortgage in possession sales or people for selling , we are definitely not seeing any of that .

And we're also listening and reviewing the data being released by the big four banks in terms of their distressed or inner rears mortgage holders as well , and we've seen some comments recently that there has been a slight uptick , but again certainly below long-term averages , so we're not seeing any stress levels in the marketplace at the moment .

Let's take a dive now and separate that in to the state and capital city markets , and so , again , if you feel like you need to pause this to study this in a little bit more detail , do so , but you can start to see those trends . Also remembering this is a year-on-year equivalent .

So you might be wondering well , melbourne's not as high as I expected to be , but you've also got to remember that Melbourne's had a very , very low supply of listings for several years now , so that's why that percentage number is a little bit lower than we would normally see compared to those other more active markets .

Obviously , brisbane , adelaide , sydney had very , very strong performances during the COVID , with record low interest rates , whereas Melbourne was continued to be shut down , and obviously that impacted the confidence and the sentiment of the Melbourne market as well . But that just gives you some idea in terms of new listings and total listings .

So study that to get a more sense of the market . Now again , when we did our economic and sorry , our property update and predictions for 2023 , we did say that we thought that the worst was behind us in 2022 , and we thought property prices would start to move because we didn't expect interest rates to go above that 3.6 to 3.8 .

And we did see that supply and demand in balance starting to appear . And guess what ? We were right . So February , march was obviously the period where we saw the bottom of most of those property markets and we're now starting to see price growth in a lot of those particular markets , with obviously exception to the Darwin's and also the Hobart markets as well .

But that just gives you some idea . Now the question is obviously if interest rates and inflation remain stickier for longer , will we see a pause or a lull in the market ? And I've got more to say about that in my closing statements . So again , let's now break those quartiles down and start to study the market in terms of what's happening in different markets .

So it's really clear that classically our two biggest centers , sydney and Melbourne price recovery is always led by the 75% quartile market . They are less affected by these interest rate stories , generally speaking , higher incomes , not as higher mortgages , but also higher incomes in those particular marketplaces .

So it doesn't affect those borrowers as much as the more vulnerable borrowers and those people have got really high mortgages but low incomes .

So we're seeing that in terms of where the price performance is coming from , interestingly , in Brisbane , adelaide and even Perth for that matter , the price performance is coming from the bottom quartile of the market and I suspect that that is definitely a blend of those particular markets , with first home buyers are competing with investors .

We know through , obviously , our own business activities that those three markets are the hottest markets at those entry-level price points and we expect that that's obviously artificially putting pressure on that lower end of the market in terms of price performance and capital growth over that particular period .

Then you obviously go and see Hobart Darwin and the ACT Again Hobart Darwin and the ACT being led by that higher end of the market . So that's obviously a good sign if things are stabilizing in those particular markets as well . Let's move down now and have a look at the auction clearance rate .

So what I'm doing now is I'm going even granular and more time-sensitive data . What you're looking at here is the three months , but what I'm getting down here is this is the week ending the 16th of July , so I'm recording that this week in terms of the performance . So what am I always looking for ? I'm looking for leading indicators here .

So I look at the auction clearance rates as part of those leading indicators and you can see the clear differential between clearance rates this year versus last year . But you can also see the stock levels are lower this year to last year as well .

So that's feeding into higher demand , lower supply , and that's putting pressure on prices on the upward side as well . So that's exactly what we're seeing here .

I don't read a lot into Brisbane , adelaide , perth markets , given you can see the small volumes that are at play here , but certainly our two leading capital city markets have a significant size of auction activity and that gives me a good indication in terms of where the market's at in terms of buyer sentiment and buyer demand . All right .

So what does that mean ? Well , based on that data from this week , we're seeing Sydney 0.3 up , melbourne 0.1 for the week , brisbane up 0.4 , adelaide 0.2 , perth 0.2 , and capital cities combined 0.2 . Sydney's again having pretty strong price performance here 1.4% , melbourne 0.5 , brisbane 1.1 , adelaide 0.6 , perth 0.6 as well . So some pretty strong numbers .

And so , again , are we seeing a dip ? Is this gonna be a dead cat bounce or ultimately , our price is gonna continue to keep growing through that period ? Now the best way to study that is I like to bring this chart up here and again I encourage you to pause so you can study this in more detail .

But the areas that I'm looking at is this particular story here . So I'm looking at new listings compared to last year , so I can see there's been a little spike in Sydney . We can also see in Melbourne terms that the supply of new listings is still insufficient compared to last year .

We can see Brisbane , adelaide , and so you can start to see those new listings and total changes . They are still challenged markets . This is the commentary that I've been making around Hobart in regards to look at the oversupply of listings that they've got and that's why it's the most underperforming market in the country at the moment .

And then obviously you can get a bit of a story around the ACT , darwin and the combined capital . So I look at that from a supply side and then sort of starting to see where that demand story fits into that particular thing . So , in closing , again , it was a mini update .

We'll be doing a further update with Bryce on the podcast in August where we can get some more sensitivity around some of those trend lines that are occurring . But in the short term here are the headwinds right .

So there's still potential for a couple more rate increases and that's obviously affecting sentiment and it's also on the back of inflation remaining stickier , and so that for a lot of people is a means by which they are putting their , they're sitting on their hands and doing nothing , and that to me is an opportunity . So I'll explain that in a moment .

We might see increase in supply , so there will be some people if interest rates continue to go we're seeing the fixed rates that there's definitely some investors who were over committed or are not willing to change the lifestyle elements that they've introduced into their household , so you will see a few of those investment properties coming onto the market , and there's

also no doubt that there will be some overstretched owner occupiers who have bought in that sort of low interest rate environment as part of that particular story as well .

And so the way in which I look at that is I effectively say that there's going to be some risk in that side , but I'm not seeing any material risk in the data and I will continue to keep an eye on that and some sensitivity around that . Now we might also see in terms of the pace of those price increases .

We might see that stalling , so we might see another lull coming into the market , which is really if I'm thinking about investors or buyers who want to come into the market it's actually a good thing , because what it's giving you is the time you missed the bottom of the market . It was February , right ?

So is it now going to be a situation where you've just got this extra window of time to be able to come into the market , because there's no doubt we're going to see , you know , the employment story start to wane a little bit , but we still have this you know situation where supply is going to be materially under-supplied for the market .

So what am I saying there ? There's some short-term buying opportunities , you bet there are . Rental demand remains very strong , so we're going to see improved rents . We're going to see potential slightly higher interest rates which effectively could reopen that buying window . So I call it the timing window before we potentially see this next rush .

So you know we've been talking about there's a lot of pent-up demand out there . We know that people are sitting on their hands , they're not doing anything about things , they're waiting for that time . But the smart money says that . Well , if there is going to be this rush , do you want to be competing against everyone else who comes into the market ?

So , property under supply we are talking about years , not months , in terms of that being resolved . I continue to keep talking about market sentiment . We'll improve . We see it in the short-term data . So when we had that pause in May and the pause last month , you can immediately see activity .

You know we've got research platforms , so we see more activity on those research platforms when people think this is , you know , the worst of its behind us .

Well , once there is more confidence around the tightening cycle being finished and done , we believe that that will start to move that sentiment story and then finally , the sentiment story is going to obviously be charged up further with a significant amount of demand when the first cut in the cash rate to more normalised levels is going to kick in .

So the economists , well-respected economists , are talking about that rate cut happening around you know sort of May Bill Evans is in May , summer , in March , I mean in terms of where that happens . So I'm just calling it first half of next year where we will start to see potential easing of the cash rate .

Now , even if we don't see easing of the cash rate and the cash rate lands at you know sort of 4.6 or whatever it might land at , that's still remembering quite comfortable . You only need to go back to what we were looking at earlier in terms of those long-term cash rates and exactly what happened to the long-term performance of property .

And that's where I want to close it . I want to talk about the long-term rewards . So what we are talking about there is the short term , but you know , those buying opportunities with this lull in the market could also be available to you . But the long-term rewards are going to be driven by the normalising of interest rates .

So they will come off this peak cycle where obviously got strong population growth , the lower inflation and obviously property is an awesome inflation hedge . And then obviously we have seen , you know , wage price growth happening right . So wage growth I should say not wage price growth , but wage growth improving over time .

So that is obviously increasing borrowing power for that next uplift of demand that we also expect to see . So don't lose sight of the long-term story .

It's always my message and my final message , which has been consistent from the day I've been advising people from effectively 2004 to this day is the best time to invest in property is when you can comfortably afford it . In other words , you've done your cash flows , you feel like you've got good job security , you've got some buffers in there .

That's the best time to invest because the long-term returns are going to be significant in terms of how they improve your overall financial position , whether you're buying for owner-occupied purposes or also whether you're adding a couple of investment properties to also supplement your super in retirement .

It's really important that you understand that message and you don't get overwhelmed by the recency bias and also by the negativity that's happening in the market . So if you see an opportunity there , I hope you take advantage of it .

I've always said that again since we started the podcast that knowledge is empowering , but only if you act on it , and that message also remains true . So I hope you've got some value out of this particular presentation .

I look forward to working with Bryson , giving you a further update as we look at more and more data over the coming weeks and sharing that outlook for the second half of the year when we get on the property couch . If you haven't heard of the property couch before , it's Australia's number one property finance and money management podcast .

You can find it on all your good podcast players and if you're watching this on any of our YouTube channels , great . There's obviously other educational content on there as well , so I hope you can check it out . We've got , obviously , the empower wealth community .

We've got the more community for money management and looking after your finances , and also we have the property couch , which is our educational platform that we get all of our messages out on . So thanks again for watching . I hope you got some value . And again remember knowledge is empowering , but only if you act on it .

There are a lot of episodes to catch up on , but it's really important that you start from the very beginning , at episode number one , because episode one through to 20 , share all of the foundational pillars and frameworks that you need to know to get the best out of listening to this podcast .

So I'd recommend that you start there , and the little tip is to maybe start on one and a half speed .

Now , for those of you that are time poor and don't have time to go back from the beginning , don't worry , we've got you covered as well , because we've created a binge guide that goes through all of the details and makes it easy for you to read and get up to speed very , very quickly .

So if you go to thepropertycouchcomau forward slash fast track , you will be able to download that binge guide and you will be up to speed in no time .

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