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Ben Kingsley Blog post by Ben Kingsley

RBA Cash Rate Decision – August 2018

The Reserve Bank Board of Australia met, and they’ve kept the cash rate on hold for another month. We haven’t seen a cash rate movement since August of 2016.

 

Now, on the positive side, we actually saw growth as good — growth is actually going alright. So, that’s positive.

Business confidence and business investments are actually on the up so that’s a good news story.

But to get the trifecta, we actually need consumers to be doing more spending — and that’s not what’s happening. So, we need to make sure that we can get those consumers a bit more confident.

Why is that? Well, fuel prices and energy costs are going up, which’s obviously a problem for consumers. Also, out of cycle rate rises: consumers are a little bit worried about how much debt they’re carrying (head here for tips to reduce your debt), and if rates are going to go up — so they’re not spending as much. If you combine that with the news around property prices falling around Australia, and you get this sentiment challenge — this is also making sure people are keeping their money in their pockets. We do need that spending to rise because retail spending, consumer confidence, and all those things, are a really important part of getting the economy moving, and also to put more and more pressure on lifting inflation and our wages growth stories. These are the reasons why the Reserve Bank is in no rush to keep the rate going higher.

I want to take a moment to focus in on the property market, because we have seen a lot of news and media stories around property prices tumbling, falling biggest rates of decline

 

The reality is, when we look at some of the declines that are occurring across the market, we’ve actually enjoyed some very, very strong growth in these markets.

 

For example: we saw over 70% price growth from the trough to the peak in the Sydney market — in the last 12 months, this is off around 5.4%. And it might come off by as much as 8 – 10%. But, if you think about it — if you’ve made 70%, and you’re giving back 10%, because it over ran on its cycle, then that’s actually not a bad return. In terms of the Melbourne market, we’ve seen property prices grow by as much as 60%.  And over the last 12 months, this price has come off by around 2.9%. So, again, so again, this giving a little bit back off the top of the cycle always tends to happen

If we look at the annual growth rates of other markets.

We’re seeing Perth is still in decline — so that’s a challenging market. Darwin’s is still a challenging market. But then when we circle back to markets like Brisbane, Adelaide, Hobart and Canberra — these markets are actually increasing.

I want to spend a little minute talking about the markets within those markets.

There are markets, which we have been buying in, that are showing great opportunity. And Melbourne is one of those markets.

You might be saying, “Why are we buying in Melbourne if property prices are declining? Well, this is a perfect case of generalised data versus going down into the subset of data.

If we look at the top quartile of the Melbourne market it is the top 25 percent that is off around 5 – 6%. But, if we look at the middle range — so the affordability range, which is being led by first home buyers; lots of demand in this market — this is actually up by around 6 or 7%. So, in reality that’s still in a growth phase.

And if we look at the lower end of the market, this also has some growth areas of around 7%, 8%, 9% — so that’s the story within the story.

 

Overall, Melbourne’s median price has fallen because the very prestigious top end of the market has come off — but the lower end of the market is also moving closer to that median.

That’s why we’re seeing the drop; but in reality, there’s still growth in some of those markets. There are some buying opportunities inside the Melbourne market. But, if we look at Sydney as a whole, all of those markets — the top 25% quartile, the middle range and the lower range — are declining.

If we look at other markets around the country like Brisbane — the Brisbane market is actually all in growth. The Adelaide market, all in growth. The Hobart market, all in growth. The Canberra market, all in growth. But when we measure these as a collective, and look at the Australian property market — it’s because Melbourne and Sydney prices were so high, they come down and look like a property market’s actually in decline when it’s not.

So that’s an important message for you when you’re thinking about property market. That’s why, just last month, we bought over 30 properties for our clients — they’re seeing the opportunity in the market, just like we are.

Thanks for watching. I look forward catching up with you next month.

 

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