The RBA has raised the cash rate continuously over the last 5 months: from 0.1% to 0.35% in April, 0.85% in May, 1.35% in June, 1.85% in July, and 2.35% in September 2022 in a bid to curb overrunning inflation.
As the cost of borrowing increases, there is less liquidity in the economy, and in turn, the demand for goods and services is reduced.
Our Senior Economist Dr. Kevin Hoang has carried out a review of the market’s reactions following the RBA’s tightening monetary policy and the implications for the housing market.
The average fuel price has been trending down in the last 2 months across all capital cities in Australia. For example, in Sydney the price of E10 fuel was 202.6c/l in June, 2022, 194.1c/l in July, 2022, and 169c/l in August, 2022 (NRMA Weekly Fuel Report).
As the global economy started to cool down, the demand for energy has reduced: global oil prices have decreased from $120/bbl in June, 2022 to the current level at around $90/bbl.
The prices of fruits and vegetables have decreased significantly over the last month thanks to warmer weather that helps crops to come through. Lettuce prices that were $12/each a month ago have gone down to $2.5/each at Coles.
The major retailers, including Coles, Woolworths and ALDI have committed to keeping the price of almost 200 "essential trolley items" the same until the end of the year: some of the items are flour, sugar, oats, eggs, tea bags, coffee, pasta, frozen peas, cheese blocks, bread rolls, bacon.
Housing prices are being corrected in the major capital cities during the last 3 months to August: Sydney (-5.6%), Melbourne (-3.6%), and Brisbane (-1.6%) (CoreLogic daily home value index). However, because there is high housing demand in the rental market, investors and first home buyers will likely return shortly as prices become more affordable.
The ‘market correction’ state we’re in at the moment is familiar to us, as we’ve experienced it over the past few decades. It’s largely driven by short-term factors such as interest rate changes or business cycles.
In fact, our extensive data and analytics show that the market correction state is quickly followed by a rapid recovery, which is driven by long-term factors such as population growth and the accumulation of wealth. Therefore, there is only a small window of time that buyers can scoop good deals during the next few months.
In addition, strong fundamentals are there to support price growth in the Australian housing market. These include:
High population growth: Australia's population growth is three times higher than the OECD average. Australia's long-term population growth is 1.7 percent per year, while the OECD average is 0.5 percent; the USA is 0.7 percent, and New Zealand is 0.7 percent. High population growth has been the major driving force behind consistent property price increases in the long term.
High demand: Australia is a small and open economy, strategically located in the Asia-Pacific region with a mega market of billions of people. There is a strong and growing appetite for the Australian lifestyle from middle-class people in the region. This is one of the drivers of consistently growing property values in Australia over the last decades and into the future.
Property is a long-term hold and whilst we’ll always have peaks and troughs and markets being affected by both local and global conditions, we can see that over the past 35 years the median capital growth has been 7% YoY.
Cash rate (%) and annual price growth (%)
Cash rate (%) and median price ($) of detached houses, Sydney
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