What awaits our economy now that we enter a COVID-normal world?
Well, last week, in its quarterly statement on monetary policy, the Reserve Bank of Australia (RBA) gave its usual three scenarios.
If the upside scenario is fulfilled, Australia will experience a booming economy thanks to strong house price growth, increased household spending, sustained global recovery and continued COVID suppression .
The RBA predicts that this could lead to an unemployment rate as low as 3.25 percent this time around next year.
The RBA’s most likely central scenario makes the economy roar again, as borders reopen to tourists, workers and students, leading to strong economic growth and a drop in the unemployment rate to around 4% in the middle of the ‘next year.
Even the bearish scenario for the RBA, which could occur due to poor health outcomes and lingering uncertainty about the economy, still looks good enough.
Of course, market commentators are speculating on rising interest rates and, unsurprisingly, some are predicting declining property values ââagain.
The same goes for a rate hike and what would that do to our real estate markets at a time when soaring prices are pushing the boundaries of affordability.
And what is happening to our real estate and rental markets?
These are some of the questions I ask Andrew Wilson – Australia’s leading housing economist and My Housing Market chief economist – in this week’s Property Insiders chat for Yahoo finance.
Are we going to experience a pre-election economic boom?
Now that nearly 80% of Australians over the age of 16 are fully vaccinated and activity restrictions have been relaxed significantly, the RBA is seeing our economy recovering rapidly.
Their revised economic forecast will establish a supportive environment heading into the federal election which we will most likely have in March or May of next year.
The RBA said as the economy opens up, the “strong momentum” evident before Delta’s outbreak is expected to resume.
âConsumer spending is already rising and will be supported by rising incomes as employment picks up, even if income tax support is removed.
âThe strong growth in household wealth this year should boost consumption. The household savings rate has been high during lockdown periods, but is expected to return to pre-pandemic levels over the next two years. “
But what does all of this mean for interest rates?
While inflation has picked up, it remains low in underlying terms.
Inflationary pressures are also less than in many other countries, not least due to the more modest wage growth in Australia.
Most importantly, the board will not increase the cash rate until real inflation is sustainably within the target range of 2-3%.
This will require that the labor market be tight enough to generate significantly higher wage growth than it currently is. It may take some time.
The board is prepared to be patient, with the central forecast being that core inflation will not exceed 2.5% at the end of 2023 and for only a gradual increase in wage growth.
With inflation at best just in the mid-range target at the end of 2023, but wage growth set to remain subdued in comparison, this continues to confirm that 2024 – at the earliest – remains the current expectation of the RBA. for the next official rate increase.
Official rates were last increased in November 2010, 11 years ago, with average inflation of 2.9% compared to the previous year and average ABS wages growing remarkably by 3.4%, thanks to the mining boom.
In contrast, annual wage growth has averaged a record low of 1.5% over the past 12 months and is likely to be limited by recent prolonged lockdowns in NSW and VIC.
The opening of borders and the resumption of mass migration will also act to slow wage growth.
With wage growth at record highs and a surge in core inflation, the worrying prospect of declining real wages will only harden the RBA’s clear resolve and subdue irrational speculation on higher rates. – for the moment.
In the meantime, a number of our big banks have increased their interest rates on fixed rate home loans.
Rental market update
There is a chronic rental shortage emerging as rents rise. Vacancy rates, especially for homes, are low and continue to decline.
While the besieged downtown high-rise apartment market continues to show high vacancy rates, they are declining and will continue to decline as students and immigrants return to Australia.
Overall rents are increasing outside of Melbourne.
Another weekend of good auction results
Watch this week’s Property Insider video as we discuss how most cities continue to deliver generally strong results for sellers.
Auction close-out rates typically decline during the close of the spring auction season, due to increased listings.
And this weekend, with more properties for sale, closeout rates were down, but still strong in Sydney and Melbourne.
On the other hand, Brisbane recorded a booming customs clearance rate of 89.5%.
Sydney auction market
Sydney recorded its lowest weekend customs clearance rate since the market was hit by lockdowns in July, and the second lowest of the year so far.
Sydney recorded a customs clearance rate of 76.1% this weekend, which was well below the 81% the previous weekend and also now remarkably lower than the 78.4% recorded during the same weekend. last year.
The recent surge in listings in the Sydney Market continued over the weekend and helped lower liquidation rates, with 994 homes sold at auction, the highest Saturday November total for six years and much above the 887 from the previous weekend and the 776 registered for the same weekend last year. .
Melbourne auction market
Melbourne’s auction market collapsed, following the outcome of the previous weekend’s Cup Holiday boomtime, recording the slowest liquidation rate for six weekends.
Melbourne reported a customs clearance rate of 76.5% on Saturday, which is well below the 80.5% the previous weekend, but higher than the 73% recorded in the same weekend last year.
While the 1,095 homes auctioned this weekend were lower than the 1,193 the previous weekend, they were well above the 480 auctioned the same weekend last year.
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