As the pandemic becomes endemic , what are the main influences on Australian property now ?
Is the pandemic over ? Likely not by a long shot but there has certainly been a change in how our economy operates over the past month - fewer masks , retreating threats of lockdowns and less front page news on COVID-19 cases . While COVID-19 is no longer the main influence on the market , the outlook is in some ways becoming more complicated . There continues to be a lot of uncertainty around finance , particularly the outlook for interest rates and restrictions to finance . Positively , international borders are now open however there are problems - recent floods and skyrocketing construction costs being the main ones . And to make things even more complicated , we will have a federal election this year , the date is yet to be determined and we ’ re yet to hear any major policy changes . This year , we ’ re in a very different stage of the cycle . Prices are slowing already in our biggest cities , while rents continue to rise . Smaller cities are now benefiting from affordability and strong economic growth . In 2022 price growth will continue but we ’ re looking at a very different market to the turbocharged conditions of last year .
1 . Inflation and interest rates
This month interest rates remained on hold and the RBA announced that they were prepared to be patient in their handling of monetary policy . This comes at a time when inflation looks like it will continue to rise and there continues to be significant global uncertainty .
It ’ s likely that the RBA will wait until at least the March quarter inflation figures have been released to get a better idea as to how much prices are rising . The latest inflation figures for the December quarter showed that inflation was still at manageable levels ( 3.5 per cent in the December quarter ) but there is continued pressure on pricing . The December quarter figures were boosted by construction costs and fuel . Both of these continue to get more problematic .
Construction cost hikes are having big impacts on the building industry . Meanwhile oil prices keep rising , and have been made worse by the Ukraine / Russia conflict . Crude oil has hit $ US100 per barrel and is expected to continue to rise . While this has led to significant petrol price rises for Australian consumers , our lower reliance on Russian gas and less Government stimulus has meant that our inflation rates remain lower than many other parts of the world - e . g ., US at 7.5 per cent and UK at 5.5 per cent .
Fundamentally , an Australian interest rate rise will do little to prevent oil prices rising and will have a limited impact on construction costs . It will , however , slow the economy which would hopefully go some way to slow price growth .
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