Welcome to the New Year.
When we ask ourselves the question of what the new year holds economically, the best place to start is interest rates. The projection from the chief economist are a mixed bag - with NAB and Westpac backing a rate drop and ANZ backing a modest rate increase, CBA are sitting on the fence having recently changed their forecast from rise to cut. The RBA governor, Glenn Stevens, has indicated that he is still cautious about any talk of interest rates rising given the current market sentiment is still measured as low. He is however receiving some opposition from business leaders who propose that the fall in the AUD (now hovering on the 80cent/USD) will lift sentiment.
Overall the forecast is still for interest rates to remain in the historically low brackets for the medium term. The cash rate has remained a historical low for the last 18 months.
This sounds like good news for home owners and investors, but this has not played out in housing prices, with the majority of the capital cities experiencing a reduction in the average house prices (including the Eastern States that had previously been fuelling a pricing bubble). Perth prices (overall) have definitely stagnated or fallen. This has been brought about by the talk of an overheated Australian market. Whilst this talk of an overheated market is now holding back pricing it is also having an effect on demand, with housing approvals nationwide down on the previous quarter and down on the same period last year.
Many economist have predicted that the Perth will have a “tough” economic year, given the uncertainty in the mining sector, and this will flow on to the housing activity (buying and selling).
I find this view a little negative. Given that housing prices are pushing down and interest rates will remain low, we could hope to see the current demand levels continue and activity remain stable. We will just need to give the market some confidence of economic stability for this to remain true.
Of other economic interest… we expect rental yields to continue to fall by up to 10% (this is a product of low interest rates) and we expect housing surrounding mining to continue it’ sharp fall in value.
The AUD is tipped to drop further over the next calendar year.