Weekly Market Update (10 Nov 2023)

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Weekly Market Update (10 Nov 2023)
  1. Cash Rate (Source: RBA)
    The Reserve Bank of Australia has announced an increase in the cash rate target by 25 basis points to 4.35% and an increase in the interest rate paid on Exchange Settlement balances to 4.25%. Inflation in Australia is still too high and persistent, and while goods price inflation has eased, the prices of many services are rising. The central forecast expects CPI inflation to continue to decline but at a slower pace than expected. The Board believes that raising interest rates will help bring inflation back to the target range. The Board had previously held interest rates steady since June to assess the impact of previous rate increases. However, recent information suggests a higher risk of inflation remaining higher for longer. The economy is experiencing below-trend growth, but it has been stronger than expected. Underlying inflation and housing prices remain high, while household consumption growth is weak. The Board’s priority is to return inflation to target within a reasonable timeframe. There are still uncertainties regarding services price inflation, the effect of monetary policy, and the outlook for household consumption. The Board will continue to monitor data and risks to determine if further tightening of monetary policy is necessary.

 

  1. Australian Apartment outlook (Source: CBRE Australia)
  • Rent outlook: CBRE now expect median rents to grow by $120/week (+26%) between 2023-2028, across 53 precincts in Australian capital cities. A number of precincts are likely to see mid/high 30% rental growth.
  • Vacancy: We expect capital city vacancy will fall further to 0.8% by 2028, from 1.8% in 2023. These tight conditions will endure as vacancy stays at around 1/3rd of the previous decade average of 2.5%.
  • Demand to rent: Over the next 10 years, demand is expected to benefit from the triple boost of rising population (+3.9m), rising jobs (+2.6m) and rising income (+$36k). Monthly apartment rents are 30% cheaper than alternate buy options at current prices.
  • Supply: CBRE forecast the future supply of apartments to range from a high of 80,000 (expected in 2026) to as low as ~60,000 in 2024 and 2027. Australia’s forecast population growth requires apartment supply of ~75,000 pa to avoid further falls in vacancy.
  • Sydney: Apartment delivery to average 14,000 pa over 2024-28, well below 33,000 pa demand for housing stock. Vacancy rate is set to fall from 2.2% to 0.8% and avg. rent growth of 6% pa to 2028.
  • Melbourne: Apartment delivery to average 10,000 pa over 2024-28, nearly 40% below Sydney. Demand for housing stock (apartments and communities) is likely to average 38,000 pa over the next 5 years. This should continue to drive down city-wide vacancy from 1.7% to 0.9%.
  • Brisbane: Apartment delivery to average 6,500 pa over 2024-28. Demand for housing stock (apartments and communities) is likely to average 16,500 pa which will drive down city-wide vacancy from 1.1% to 0.8%.
  • Construction and capital value: Historically, capital values have grown at 3x construction cost growth. But in the past 3 years, construction costs (+37%) have out-stripped value growth. In our view, capital value for residential projects will accelerate significantly higher to ensure a healthy ecosystem for developers.

 

  1. Total Property Listings (Source: SQM Research)
    Residential property listings in Australia saw a slight decline of 0.9% in October, with 243,221 properties listed on the market. New listings increased by 2.7%, except in Sydney and Darwin. Distressed property listings rose by 5.2%. The national combined dwelling asking price reached a record high of $805,680, with an increase of 1.2%. Older listings decreased by 5.8%, but still showed a 15.6% increase over the past year. Distressed selling activity increased in New South Wales, Western Australia, and the Australian Capital Territory. Asking prices for houses and units saw an overall increase. Despite the rise in distressed listings, vendors remained confident, leading to the record high asking prices.

 

  1. Australian economic and financial markets update
    The global economy is facing challenges such as high inflation, rising interest rates, and geopolitical tensions. The International Monetary Fund predicts sluggish growth for 2023 and 2024. In Australia, the economy is still performing strongly, despite concerns from the Reserve Bank of Australia (RBA). While consumer and business confidence has fallen, the unemployment rate remains low and retail spending is still high. However, inflation is a concern and the RBA is trying to balance controlling inflation without causing a recession. Australia also has a housing shortage, and construction costs have risen. Overall, the economic outlook is mixed, with challenges and opportunities for both the global and Australian economies.

 

  1. CoreLogic Auction Results (Week ending 5 Nov 2023)
    (Total Auction / Clearance Rate)

    – Sydney: 1,059 / 65.6%

    – Melbourne: 468 / 57.7%

    – Brisbane: 150 / 64%

    – Perth: 18 / 38.9%

    – Canberra: 146 / 57.5%

    – Adelaide: 178 / 78.1%

    – Tasmania: 1 / 0%

    – Combined Capitals: 2,020 / 63.9%

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