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The global economic environment looks to be shifting away from increasing inflation this month. What does this mean for the property market’s downswing?
Nerida Conisbee, Ray White’s chief economist, explained that many of the major drivers of inflation in Australia have begun to recede in costliness in the United States, painting a picture of what we can expect on our shores when the Australian Bureau of Statistics (ABS) delivers July’s inflation figures.
The US share market has begun to rebound. The S&P 500 has increased by 15 per cent since mid-June. Inflation has slowed, down to 8.5 per cent from 9.1 per cent in June — with this decrease driven by two factors heavily affecting Australia’s inflationary pressures: fuel prices and supply chain improvements.
Crude oil prices have fallen 25 per cent, from $120 to $90, while the Baltic Dry Index — which measures the cost of shipping worldwide — has experienced an 80 per cent decline. Given the significance of these factors on the national inflation increase, the outcomes experienced in the USA provide us with insight into our own inflationary future, according to Ms Conisbee.
She explains that with inflation pulling back, so too will the need to hike interest rates.
The ASX 30-day interbank cash rate futures are predicting rates peaking at approximately 3.6 per cent in mid-next year. Some big four lenders, such as ANZ, at the end of July, anticipated the cash rate to hit 3.35 per cent in November before dropping to 2.85 per cent late in 2024.
Importantly, for Ms Conisbee, sentiment on where rates will peak has changed over the past few months.
But what do all these conditions mean for the property market’s downswing? CoreLogic outlined it was “on par with the global financial crisis” at the start of the month due to the acceleration of price declines in five Australian capital cities, notably Sydney and Melbourne, where values fell 2.2 per cent and 1.5 per cent, respectively.
Ms Conisbee believes that with these changing conditions, a swifter conclusion to the current market downturn is likely.
She cited the rise in clearance rates — which last week marked a 12-week high by hitting 60 per cent for the second consecutive week — as well as the rise in number of active bidders per auction, up to 2.5 in August, and the increase in the gap between the higher prior offer and auction sales price, which in Sydney this month has increased from 8.6 per cent to 10.6 per cent.
While acknowledging that interest rate increases are unlikely to end anytime soon and that a return to record-breaking house price growth isn’t likely to be on the horizon yet, the likelihood of a sustained market downturn and large price declines looks to be steadily dissipating, according to the economist.
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