The latest consumer price index figures, released by the Australian Bureau of Statistics on Wednesday, showed annual inflation eased to 4.9 per cent in October, after prices grew by 5.6 per cent in the year to September.
With the result undershooting economists’ expectations of a 5.2 per cent increase, the likelihood of a pre-Christmas rates pause is almost certain.
Taking out volatile items including petrol, fruit, vegetables and holiday travel, underlying inflation also fell sharply in October, down 5.1 per cent. Underlying inflation was 5.5 per cent in September.
A surge in foreign students and inbound tourists will dampen the growth-sapping effect of 13 cash rate rises, but progress on lowering inflation means the RBA is not expected to lift rates again, the OECD says.
The Paris-based body expects GDP growth to slow to 1.4 per cent in 2024 from 1.9 per cent in 2023, as cost of living pressures force households to cut back on spendings and weigh on housing investment.
But the economy can expect support from Australia’s record migration intake, which has become a politically contentious topic but has been vital to filling a near-record level of job openings.
“Continued strong working-age population growth and higher exports as foreign student arrivals further recover will partly offset these headwinds,” the OECD said.
The OECD expects the cash rate to remain on hold at 4.35 per cent until the third quarter of 2024, at which point the RBA is projected to start a very gradual easing cycle, taking the cash rate to 3.6 per cent by December 2025.
In November the Reserve Bank of Australia (RBA) decision to raise the cash rate by 25 basis points had understandably caused some concern among potential homebuyers and investors. However, amidst this uncertainty, it’s crucial to maintain a long-term perspective and recognise the inherent resilience of the Australian housing market.
While the rate increase may temporarily dampen market activity, it’s important to remember that this is a cyclical trend that has occurred in the past. The Australian housing market has consistently demonstrated its ability to weather economic fluctuations and emerge stronger.
In fact, despite the recent rate hike, the CoreLogic RP Data Home Value Index has revealed that values are rising in over 80% of Australian house and unit markets. This robust performance underscores the underlying strength of the market, driven by factors such as population growth, urbanization, migration, and continued demand for quality housing.
National home values have increased 7.2% in the year-to-date, and rent values rose 6.0% in the same period.
Median Rents – Oct 2023
National Vacancy Rates – Year to date 2023
For those with the opportunity and courage to persevere, the current market conditions present an attractive entry point to the property investment market. With values on the rise, rental returns continuing to climb, low vacancy rates, and interest rates still low compared to historical peaks, there are bountiful rewards to be reaped for those who can navigate the current market dynamics.
The RBA’s November decision to raise interest rates was deemed by most economists, a necessary step to curb inflation and maintain economic stability. While it may introduce some short-term challenges, it now appears to be working and the long-term prospects for the Australian housing market remain positive. Those who can weather the current conditions and continue to invest in the market are likely to be rewarded handsomely in the years to come.
Are you curious about your position in the market or what opportunities you may have? Reach out to us today for a free consultation and let us help you navigate the exciting world of Australian real estate.
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