How unemployment and interest rates impact the Aussie property market.
The Australian property market is a dynamic landscape, influenced by various economic factors. In recent times, unemployment and interest rates have emerged as crucial components shaping its course. The interplay between these factors poses challenges for homeowners and potential buyers alike.
In this blog post, we'll delve into the key insights from recent articles, explore the impact of rising unemployment on the property market, and understand why the conventional approach to rate increases may not be working. But fret not, because by the end, we'll introduce you to Property Mates, the solution to making your home buying journey easier.
Rising unemployment has become a critical concern for both homeowners and the housing market. The Reserve Bank of Australia (RBA) believes that unemployment needs to increase to bring down inflation. However, this strategy presents challenges. As unemployment rises, some individuals may be forced to sell their homes, adding pressure to an already volatile market. Additionally, as interest rates go up, servicing mortgages becomes more expensive, pushing people closer to the edge.
Fact: The unemployment rate in June remained at a record low of 3.5%, defying RBA's attempt to slow down the economy.
Interest Rate Paradox
Interestingly, the previous rate increases have had limited impact on the economy due to unique circumstances. Firstly, the pandemic started with interest rates at virtually zero, leading to an unusual starting point for this cycle. Secondly, inflation was higher when the rate hikes began, and the labor market was tighter, creating a complex economic situation.
Fact: During the pandemic, interest rates were virtually zero, leaving the RBA with a late start in raising rates.
Housing shortage dilemma
One of the critical challenges facing the property market is the shortage of housing. Despite a surge in population growth and migrant inflows, builders are struggling to keep up with demand. Delays in construction have exacerbated the housing shortage, with new apartment developments facing financial viability challenges. This situation has put a strain on the property market, leading to increased competition among buyers.
Fact: New apartment developments would need to sell for 25% above current market prices to be financially viable
Auction Markets: A mixed bag
Amidst these challenges, the auction markets have shown resilience. Despite the winter season being typically slow, auction clearance rates have remained steady, favoring sellers. Brisbane leads the pack with an impressive 82.5% clearance rate, while other major capitals like Melbourne, Sydney, Adelaide, and Canberra also maintain strong results.
Fact: The national auction market reported a clearance rate of 77.3%, well above previous weekends.
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