While the average Australian is strapped in tight against cost-of-living turbulence, a smooth touchdown for the economy remains within range, writes NAB chief economist Alan Oster.
For those with substantial liquidity, now could be an ideal time to pursue that long-coveted weekender in Portsea, as rising interest rates, higher land taxes and broader inflationary pressures converge to drive motivated sellers into the market. As history often demonstrates, periods of economic volatility can unveil opportunities for the cash-rich to capitalise on depressed asset valuations born of financial strain. In the current cycle, such opportunities are relatively scarce. While Victoria’s elite seaside locale may be on the cusp of increased activity, property values across Melbourne as a whole are lagging behind other cities after decades out in front.
Tasmania too, which has boomed in recent years, is exhibiting signs of housing market stagnation and may be heading for a correction. Meanwhile, initial signs of deceleration in Perth, Brisbane, and Adelaide are only perceptible against the backdrop of record highs witnessed earlier this year. Despite these ongoing regional variations, our projections still anticipate an average Australian house price increase of 7% this year, followed by a more modest 4% next year.
STEERING THROUGH FISCAL CLOUDS
While mortgagees eagerly await the respite that a cash rate cut would bring, the Reserve Bank seems a while off enacting this. Our current forecast envisions the official rate reaching a neutral setting of 3% by 2025 or 2026, with economic growth rebounding to approximately 2% (a marked improvement from the current 1%). The confluence of falling interest rates and certain businesses prioritising market share over price could serve as a dampener on inflation, potentially bringing it within the RBA’s target range.
Despite the absence of widespread retrenchments, the economy’s lacklustre performance is insufficient to maintain the current unemployment rate of 4.2%. Our projections indicate the rate will hover below 5%, yet this seemingly benign outlook belies a more nuanced reality of prolonged subdued growth before a return to robust economic momentum.
On the global stage, two pivotal factors are set to shape Australia’s economic trajectory. China’s slowdown and the spectre of a US recession could catalyse interest rate cuts while at the same time exerting downward pressure on equity markets, crafting a challenging landscape for both investors and policymakers.
Consumer sentiment surveys indicate lingering fears that Australia’s recovery could be disrupted by external shocks; a concern echoed in retail sales data showing that most households are feeling the pinch. Many are economising with essentials like groceries and clothing while postponing major purchases such as vehicles. Despite this broad pullback in spending, however, a silver lining is the relative absence of home loan defaults. While we have seen a modest uptick in mortgages exceeding 90 days in arrears, the overall incidence remains at a historically low level. And despite nascent signs of distressed property listings in certain catchments, the data does not point to an incoming wave of such sales.
RECOVERY ON THE RADAR
Barring the anomalous period of the Covid-19 pandemic, the economy is expanding at its most sluggish pace since the recession of 1991. While it is true that earlier predictions for a turnaround have proved somewhat optimistic, there is reason for cautious hope that the worst of the downturn is behind us. Astute navigation of the economic cycle involves recognising that certain assets are due for appreciation while others experience a frustratingly protracted recovery.
With the anticipated combination of lower interest rates and improved consumer confidence likely to be mirrored by an uptick in property prices, whether to place that bid on the dream home now or next year comes back to careful consideration of timing.
As we emerge from this period of subdued growth, it is imperative to shift focus towards enhancing productivity and innovation. Yesterday’s solutions may prove inadequate for tomorrow’s challenges. The nation’s ability to navigate these changes successfully will hinge on its willingness to embrace technological advancements, foster a culture of innovation, and maintain a clear-eyed assessment of both risks and opportunities.
The information contained in this document is gathered from multiple sources believed to be reliable as of the end of September 2024 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this document. NAB Private Wealth is a division of National Australia Bank Limited ABN 12004 044 937 AFSL and Australian Credit Licence 230686