Economic outlook… the rocky road to recovery

Many of our clients are asking us what’s happening in the market at the moment.

It’s certainly an interesting time for our economy, as we wait for the Budget to be delivered next week.

We checked in with what a few trusted economists are saying, like my old UNSW Economics tutor Peter Switzer and CoreLogic’s Tim Lawless.

The bottom-line points to a rocky road of recovery from 2024, with things getting a little worse before it gets better.

Interest rates – beginning of the end

Most economists like Peter Switzer have been predicting that interest rates rises may have reached their top, but on Tuesday 2 May, our RBA Governor surprised us all with another rate rise to curb stubborn inflation.

We now have our fastest and most aggressive rate hike in history as this graph shows.

Yet Peter Switzer pointed to the one graph below for why he thinks we may be on the rocky road to recovery.

AMP’s Pipeline Inflation Indicator (Blue Line) is already on the downward trend and is predicting big drop in overall inflation.

 

But a big fall in inflation could also coincide with a big rise in unemployment, which may be exacerbated by the effects of the mortgage cliff of over 800,000 borrowers having to switch from the low “COVID pandemic” fixed rate home loans to high variable rate loans later this year.

The good news according to Peter, if you can see it that way, is that we may even have room for an interest rate cut by year’s end, to avoid recession!

Housing prices bottomed out

So, what about housing prices? The better news is that according to CoreLogic’s research director, Tim Lawless, is that it’s becoming increasingly clear the housing market has moved through an inflection point.

“Not only are we seeing housing values stabilising or rising across most areas of the country, a number of other indicators are confirming the positive shift. Auction clearance rates are holding slightly above the long run average, sentiment has lifted and home sales volumes are trending around the previous five-year average,” he said.

From annual price falls to quarterly green shoots of property price rises….

Australian housing values look to have bottomed out, after a second consecutive monthly rise was recorded in April. CoreLogic’s national Home Value Index (HVI) increased by 0.5% last month, following March’s 0.6% lift.

Sydney is leading the upswing, however the four largest capital cities have all recorded a rise in home values over the past three months.

What does it mean for Australian Retirement Living prices?

Surprisingly, good news. Why? Because most of residents can look at the long-term trend with their housing, and across most capital cities, are selling their homes between 40-60% more than 3 to 5 years ago.  

Armed with this knowledge from our Marketability Tracker, our Sales & Marketing team have been pushing new stock pricing between 20-30% more in 2023 than 2022 to cover for construction costs and inflation.

As the wave of baby boomers continue to march into our sector and given the significant shortage of new retirement living stock in the market, we can’t see these retirement living prices slowing in the short to medium term.

Unless of course, we slid into recession.

Over to you Dr Chalmers, we wait with bated breath for the relief your budget may bring the industry and the economy as a whole!

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