October 1, 2025 • 21 mins
Australia’s housing market is running hot again. Home values are rising at their fastest pace in nearly two years, fueled by rate cuts and ahead of fresh government support for first-home buyers. But with the Reserve Bank keeping rates on hold this week, the big question is when the next cut might come — and what it means for affordability, supply, and renters.
In the latest Bloomberg Australia Podcast, Chris Bourke speaks with economist James McIntyre about the forces driving prices higher, the outlook for rate cuts, and why the supply crunch is likely to keep pressure on both buyers and renters.
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Speaker 1 (00:01):
For September, we saw national home values rise point eight percent.
Speaker 2 (00:06):
It's the highest monthly increase in almost two years. The
Shelbulleck signaling rates could be kept on hold for the
rest of the year and warning government actions to address
the housing crisis are unlikely to have any meaningful impact
on supply.
Speaker 1 (00:20):
We understand that you need a whole suite of measures.
Speaker 3 (00:24):
We need to boost supply.
Speaker 1 (00:25):
We need to increase the capacity of people to own
their own home.
Speaker 4 (00:31):
House prices are surging again, rate cuts are on the horizon,
and first time buyers are getting more help. So is
Australia's property boom back in full swing. Hello, I'm Chris
Burke and welcome to the Bloomberg Australia Podcast. This week
we learned that Australia's house prices arising at the fastest
pace in two years, largely thanks to three interest rate
(00:55):
cuts this year. But with the Reserve Bank keeping rates
on hold this week, the big question is when, or
perhaps even if, the next cut will come. To help
answer that, as well as what all this means for
the property market and for your mortgage, we've brought back
our favorite economist, James McIntire from Bloomberger Economics. James, welcome
(01:15):
back to the podcast.
Speaker 3 (01:17):
Rez. Thanks great to be here again.
Speaker 4 (01:19):
Okay, so the latest data from Cotality on Wednesday showed
Australian house prices rose point eight percent in September and
that was the fastest pace since October twenty twenty three.
That's nice news obviously if you're a homeowner, but not
so great for the many Aussies still struggling to get
on that housing matter. James, were you surprised by those numbers? Yeah,
(01:43):
look a little, Chris. And they're even a little stronger
in the in.
Speaker 1 (01:46):
The capital cities as well, a national point eight and
point nine in the capitals there. And so if we
think about that point nine month on month, if we
play that out over the course of the year, we're
all already at close to double digit house price growth
for the year. And so that is, you know, with
(02:07):
the RBA having only just begun its easing cycle, that
is a little bit of a surprise coming through. But
we haven't seen it. I haven't seen that pick up
being uniform quite yet. It's really a case of those
smaller capital cities Perth, Brisbane, Adelaide that continue to sort
of charge ahead, they've been a bit more affordable, but
(02:28):
there are some signs that things are beginning to pick
up in Sydney and Melbourne.
Speaker 4 (02:32):
Yeah, I think volumes were a bit on the low side.
Is that correct?
Speaker 1 (02:37):
Yeah, they have been, but what we sort of have
seen and there is a risk that if we do
get a flood of listings come through, that's unlikely, but
if it is the strong demand that we've been seeing,
could see things even out a bit.
Speaker 4 (02:51):
Okay, So, as I said earlier, the Reserve Bank left
interest rates on hold at three point six percent this week,
which of course was widely expected, but housing did appear
to be a factor in their thinking. I was ready
the statement that accompanied the decision, I know you economists
pay very close attention to that as well. It contained
(03:14):
quite a prominent line near the near the top actually
of the statement saying that the housing market is strengthening,
a sign that recent interest rate decreases are having an effect.
But you know, as as always with the RBA, it's
hard to tell whether they mean that as.
Speaker 3 (03:29):
A good or bad thing. I can't really tell. Well.
Speaker 1 (03:34):
I mean, in the one sense, what the RBA has
told us in other places is that we need a
strengthening in house prices in order to because of what's
happened with construction costs, to get the supply of housing,
which we desperately need given what's happening with population growth.
To unlock that housing supply, the end price for developers
(03:55):
needs to lift in order to make, you know, so
that they can make a profit to deliver these homes.
So it's a little bit of good, but you know,
a little bit of not so good, given the affordability
challenges that we see for many buyers or in the place,
and the politics around that in particular. So a little good,
a little bad. On the when we saw Governor bull
(04:18):
express conference, she was asked quite a bit about the
wealth effects side of things, and the RBA did talk
a little bit about how private demand was also recovering
a bit, taking over from public sector demand, which has
been the story of the economy for twenty twenty four.
As we rotate into twenty twenty five, we need the public, sorry,
the private side of the economy to step up, and so.
Speaker 3 (04:39):
That consumer spending could get a little bit of an.
Speaker 1 (04:41):
Extra help along by high house prices thanks to the
wealth effect coming through too. So swings and roundabouts for
the RBA helpful for demand, but if there's too much
demand that might mean that, you know, inflation doesn't come
down the way that they're projecting. But on the other side,
if we don't have enough of a house price increase
(05:03):
coming through to help unlock supply, will get rental inflation
coming through and becoming remaining a persistent problem for the RBA.
Speaker 4 (05:11):
There.
Speaker 1 (05:11):
So there's lots of different ways they they they come
at it, some good, some bad, but on the whole,
the way things go with nominal inflation of two to
three percent p random wages growth, you are expecting house
prices to grow every year. It's just about do they
get that goldilok sweet spot.
Speaker 3 (05:30):
Yeah.
Speaker 4 (05:31):
But the big question that well homovers definitely want to
know is what kind of signals were the Reserve Bank
putting out about rate cuts further rate cuts on Tuesday?
Are we getting that Melbourne that Melbourne cut rate cut?
Do you think I know that the inflation appeared to
become a bit more of a concern this week in
(05:53):
the in that decision.
Speaker 1 (05:55):
Yeah, that's that's right. And what was interesting is that
we've seen this with the RBA. I think we're going
to continue to see this with the RBAS, with the
cadence of their meetings. There's four really key meetings a
year after the quarterly inflation readings where they do a
full update of their forecast and release the statement of
Monetary Policy, and then there are the in between meetings.
(06:16):
We think that the rate cut and we've been saying
this for quite some time, we think that the rate
easing cycle this time around for the RBA is going
to be very gradual and data dependent, and the RBAS
said the same thing. And so if at that gradual pace,
we think that that means that those rate cuts are
coming at the quarterly meetings. And so this meeting where
they did sort of sound that, you know, saying things like,
(06:39):
well the monthly inflation data, which they qualified heavily as
being partial and can be volatile, it did suggest that
there might be some signs that the September quarter CPI,
which will be getting before that Melbourne Cup Day meeting,
could be a little bit higher than expected. However, we'll
get the full we'll see the full details. That monthly
(06:59):
CPI reading doesn't contain everything, and we did see RBA
officials such as Assistant Governor Hunter highlighting that really that
monthly CBI isn't.
Speaker 3 (07:11):
As useful as many people think.
Speaker 1 (07:13):
So it is really going to come down to that
quarterly meeting and we think that what we will see
when it comes time to meet again and review things
in November, that the RBA will be pushing another rate
cut out the door.
Speaker 4 (07:25):
And also on Wednesday, the government expanded its home Guarantee scheme.
Now that's going to make it possible for a lot
more first time buyers to buy a home with just
a five percent deposit. What impact is this likely to
have on house prices?
Speaker 1 (07:44):
Well, look, this is really interesting, Chris. So what we've
seen is the government had a scheme to help a
small cohort of potential first home buyers. There were income
caps on it, and there was also a cap on
the property price that the government would help you with
only a five percent deposit to get into a home
(08:05):
as a first home buyer. And what the government's done
is that they've removed the income cap so that every
potential first home buyer, including high income earners, can be
eligible to access this scheme, and then they really dramatically
increase the cap, so, for example in Sydney, increasing it
from nine hundred thousand dollars being the maximum property price
(08:26):
up to one and a half million, which is around
just slightly below the median house price, so really unlocking
a whole bigger pool of buyers and a much much
wider pool of potential properties that this scheme could potentially
help support people buy into. And so we think that,
especially with sentiment around whether it's time to buy a
(08:47):
dwelling being quite recovering or improving somewhat, rate cuts coming
through and people knowing that there is even though it's
going to be you know, a gradual some meetings will cut,
some meetings we won't cut cycle from the RBA rate
cuts are coming. So all of this should add up
(09:10):
to some big support, especially at the lower end of
the market. And so what we saw is that we've
already seen, even though this scheme only comes into effect
for everyone from the first of October. Totality mentioned it
in their release as well, people at those lower end
of the market already seeing some improvements from the interest
(09:32):
rate cuts that we've had thus far. But if you're
a vendor thinking of selling your home, and you know
that if you wait or if you just hold out
for a better price, that there is a big, big
heap of demand coming, or if you're a potential home
buyer that isn't going to use the scheme, you might
be tempted to try and get in in an advance.
And that's what we've seen with these price gains being
(09:54):
a little bit stronger at the lower end of the
market and that momentum seeping into the middle. As this
players out over the next couple of months and over
the year ahead, I think we're going to see this
momentum building from the bottom of the housing market, held
by not just rate cuts but by this first home
guarantee scheme from the government.
Speaker 4 (10:12):
One of the biggest problems of course for Australia's housing
marketers that we aren't building enough homes and that's also
contributing to the higher prices. We got the latest building
approval numbers, which are our best indicator of how well
or how badly we're doing in that area.
Speaker 3 (10:30):
What did they show?
Speaker 1 (10:33):
Yeah, so this is this is the thing, right, if
we do have this demand from people to buy homes,
but if we don't have enough supply coming on, or
we have this strong population growth, the supply of new
dwellings isn't keeping pace. That's going to result in this
house price affordability and rental affordability challenge being.
Speaker 3 (10:51):
Not moving in the right direction.
Speaker 1 (10:53):
And unfortunately, what we saw from the building approvals data,
we got the August data released by the Bureau of
Stats and showed for a second month in a row
that our building approvals have declined. Now you know that
they have been improving a bit recently, so we've got
to sort of, you know, look through some of the
monthly swings and roundabouts. But over the last twelve months,
(11:15):
the rolling twelve months to August, we had about one
hundred and eighty nine thousand dwellings approved. Now that's up
from one hundred and sixty seven thousand dwellings in the
twelve months to August last year. So that's better. That's good.
There's an improvement, some improvement coming through, but it's still
falling well short of the government's target. So the federal
(11:39):
government has a target of one point two million homes
being constructed over five years, and so that equates to
around two hundred and forty thousand dwellings a year. At
one hundred and eighty nine thousand, we're still not there.
And with these monthly approvals not yet moving at the
pace that we need and going the wrong way. You know,
this is sort of not what we would hope to see.
(12:01):
And this comes back to that kind of equation about well,
what can get us there? What will help get us there. Unfortunately,
for those that are hoping that this is going to
be a panacea, this supply increase for affordability, what is
going to help get us there is some of these
price rises for dwellings coming through, because that's going to
mean that, you know, for those looking to build a home,
(12:24):
that it is economic, you know that the economics stack
up that it makes sense to pull the trigger with
construction costs where they are in order to supply those
new dwellings. So we should see as those home prices
arise and interest rate cuts continue to flow through developers,
we'll see that yep, they will become more confident and
(12:45):
think that, yes, this does begin to stack up and
make a lot more sense, and we should see those
approvals continue to tick higher over the course of this year.
We need them to if we're not going to fall
too terribly far behind those targets at the Federal has
said for everyone, and.
Speaker 4 (13:01):
That supply shortfall is also a key factor in rental inflation.
Of course, as you mentioned earlier, those totality figures on
on Wednesday pointed out that the national rental vacancy rate
is at the new historical low of one point four percent.
Speaker 1 (13:17):
At that level of vacancy, that's just an incredibly tight
market and you'd expect there to be pricing pressure there.
And that's also what the totality data shows on rents,
is that rental inflation after having eased from peaks through
twenty twenty three and twenty twenty four, it had come down,
but it started, it's bottomed, and it's starting to tick
back up again. And if we you know, that could
(13:38):
be a challenge for the RBA, if that rental inflation
does begin to re emerge as a problem. So this
is where you know, there is that little bit of
urgency or concern amongst policymakers about well is a supply coming,
because if we do get that rental inflation picking back up,
then that could be you know, the RBA will need
(13:58):
to find roommel swear within the inflation basket if it's
going to meet that inflation target.
Speaker 4 (14:04):
When we come back just how much further, our house
price is expected to climb in the next year or so.
Welcome back to the Bloomberg Australia Podcast. I'm Chris Burke,
and today I'm talking to James McIntyre, who covers Australia
and New Zealand for Bloomberg Economics. Australia's house prices are
(14:27):
climbing at the fastest pace in almost two years, and
the latest bunch of economic evidence seems to be telling
us to get used to it. So, James, as we've
been discussing, there's more rate cuts likely coming, more government
assistance for first time buyers, and nowhere near enough homes
being built. All of those factors are pointing to a
(14:49):
pretty significant tailwind for a housing market that's already pretty hot.
What else is pointing to continued growth in the month ahead.
Speaker 1 (15:00):
I think that there's two factors we should keep in
mind here, population growth and interest rate cuts in when
we're thinking about where things might go over the course
of the year ahead for property prices or the property
market in general. Now, we've been expecting population growth to slow,
and it's eased back from the peaks, but it's remaining
surprisingly resilient. It hasn't fallen back as far as we
(15:25):
might have or thoughts and as far and as fast
as the government has projected, and that's adding extra demand
into the market. But when it comes to interest rate cuts,
I think that's probably the population growth is useful in
terms of boosting the demand, but I think the interest
(15:45):
rate cuts are going to be probably the more important
factor going forward driver and that's the main driver, that's right,
And that's because of what rate cuts do. And what
they do is, you know, when interest rates are lower
for any given level of income, you can borrow more,
and so that borrowing capacity increase. When we calculate it,
we estimate that for every twenty five basis points interest
(16:09):
rate reduction from the RBA, it adds four percent to
the amount that the average household.
Speaker 3 (16:17):
Could borrow or that an individual could borrow.
Speaker 1 (16:19):
And so if we think about the three RBA rate
cuts so far since February this year, we're looking at
a twelve percent increase in borrowing capacity. We think there's
one hundred basis points more over the coming twelve months,
so that's going to be an extra sixteen percent. So
we you know, when we add this all together, we're
looking at a twenty five to thirty percent increase in
(16:39):
ability to pay or in borrowing capacity for the average
borrow or household from the beginning of this year to
the end of next year. And that's you know, people
are competing for these relatively scarce assets, given that the
supply is constrained, and so we think that the natural
(17:01):
thing is that, yep, that boring capacity is going to
find its way or seep its way into prices and
pushing prices higher. So, you know, the gains that we've
seen so far and the pick up in house prices,
that's likely to perhaps not at that same pace as
we move into the second half of the year, but
as we get some momentum coming through in markets and
(17:22):
this extra support from that first Home Guarantee scheme from
the federal government, it's likely that between by the end
of the year and early twenty twenty six we could
see a little bit further jump up in these house
price house prices like or have experienced over the course
of September.
Speaker 4 (17:43):
So, just to be clear, the one hundred basis points,
you are expecting four more rate cuts of twenty five
basis points each over the next year.
Speaker 1 (17:53):
That's right, so yeah, we're expecting that the RBA is
going to be cutting down to two point six percent. Now,
I know, as you know, what everyone's reaction to, especially
that you know that volatile CPI, the monthly one that
the RBA has told us not to look at. Nonetheless,
the sentiment right now following that CPI and following the
(18:17):
RBA's decision is that, oh, well, you know, it's not
going to be that simple, and the RBA might be done.
And we totally agree. I think it's not going to
be that simple. It's going to be gradual, drawn out
affair for the RBA, but as it does draw out,
a slow, steady, continued using cycle. The you know, we
had the other week under freedom of information, the RBA
(18:38):
releasing a lot of internal documents highlighting how they've dowardly
made major downward revisions to their estimates of the neutral
cash rate. That's the cash rate that's you know, not
restraining the economy or all boosting the economy, just keeping
things in a steady state, and they've pulled that down
below three percent. Now we think that there's some easy
(19:00):
in the economy that's still to come, and the unemployment
rate will be grinding higher. We think the RBA is
not only going to need to get to neutral, which
is below three, but go a little bit further to
provide some support to the economy. And we think as
over the course of the next twelve months, that's going
to be increasingly apparent and should drag the RBA into
(19:21):
additional easing, even though it doesn't sound like it today.
And that might be music to the years to those
that are about to jump into the housing market just now,
because there's further rate cuts on the way that could,
as we point out, with those boost to borrowing capacity,
could help spurt prices along over the over the next
(19:42):
year ahead.
Speaker 4 (19:43):
And would you like to put a number on that?
Do you have a forecast of where you expect house
prices to go or what kind of gains you're expecting.
Speaker 1 (19:55):
Well, look, no, thank you, famously, I've done that before. Whoever,
I wouldn't be surprised if we saw house price gains
in around the six to ten percent range over the
course of the of the of the year ahead. I mean,
we're not far off that now, at around just under
five percent annual growth at the national level. And as
(20:19):
I said, you know those zero point nine month on
month increases. If we think of those over a twelve
month you know that's we're already running it at near
a double digit pace. I don't think it's going to
continue that rapidly, but you know, expecting house prices to
grow more than double the pace of inflation and almost
(20:40):
up to ten percent per adum over the course of
the next next twelve months. I don't think that's entirely
unreasonable if we do see the RBA deliver that quantum
of rate cuts that we're projecting.
Speaker 4 (20:51):
So at the very start, I asked the question, is
Australia's properly boomed back in full swing?
Speaker 3 (20:57):
What do you reckon?
Speaker 1 (21:00):
I think that there's some growing momentum and no two
booms or no two booms are alike, but it's a
period of fairly robust house price gains ahead you'd expect
as the using cycle progresses.
Speaker 4 (21:15):
Very measured answer. Thank you, James.
Speaker 3 (21:17):
McIntyre, Thank you Chris.
Speaker 4 (21:20):
If you found today's conversation insightful, be sure to follow
the Blueberg Australia podcast wherever you listen. This episode was
recorded on the traditional lands of the Warungerie and the
Gadagor peoples. It was produced by Paul Allen and edited
by Rebecca Jones. I'm Chris Burke.
For September, we saw national home values rise point eight percent.
Speaker 2 (00:06):
It's the highest monthly increase in almost two years. The
Shelbulleck signaling rates could be kept on hold for the
rest of the year and warning government actions to address
the housing crisis are unlikely to have any meaningful impact
on supply.
Speaker 1 (00:20):
We understand that you need a whole suite of measures.
Speaker 3 (00:24):
We need to boost supply.
Speaker 1 (00:25):
We need to increase the capacity of people to own
their own home.
Speaker 4 (00:31):
House prices are surging again, rate cuts are on the horizon,
and first time buyers are getting more help. So is
Australia's property boom back in full swing. Hello, I'm Chris
Burke and welcome to the Bloomberg Australia Podcast. This week
we learned that Australia's house prices arising at the fastest
pace in two years, largely thanks to three interest rate
(00:55):
cuts this year. But with the Reserve Bank keeping rates
on hold this week, the big question is when, or
perhaps even if, the next cut will come. To help
answer that, as well as what all this means for
the property market and for your mortgage, we've brought back
our favorite economist, James McIntire from Bloomberger Economics. James, welcome
(01:15):
back to the podcast.
Speaker 3 (01:17):
Rez. Thanks great to be here again.
Speaker 4 (01:19):
Okay, so the latest data from Cotality on Wednesday showed
Australian house prices rose point eight percent in September and
that was the fastest pace since October twenty twenty three.
That's nice news obviously if you're a homeowner, but not
so great for the many Aussies still struggling to get
on that housing matter. James, were you surprised by those numbers? Yeah,
(01:43):
look a little, Chris. And they're even a little stronger
in the in.
Speaker 1 (01:46):
The capital cities as well, a national point eight and
point nine in the capitals there. And so if we
think about that point nine month on month, if we
play that out over the course of the year, we're
all already at close to double digit house price growth
for the year. And so that is, you know, with
(02:07):
the RBA having only just begun its easing cycle, that
is a little bit of a surprise coming through. But
we haven't seen it. I haven't seen that pick up
being uniform quite yet. It's really a case of those
smaller capital cities Perth, Brisbane, Adelaide that continue to sort
of charge ahead, they've been a bit more affordable, but
(02:28):
there are some signs that things are beginning to pick
up in Sydney and Melbourne.
Speaker 4 (02:32):
Yeah, I think volumes were a bit on the low side.
Is that correct?
Speaker 1 (02:37):
Yeah, they have been, but what we sort of have
seen and there is a risk that if we do
get a flood of listings come through, that's unlikely, but
if it is the strong demand that we've been seeing,
could see things even out a bit.
Speaker 4 (02:51):
Okay, So, as I said earlier, the Reserve Bank left
interest rates on hold at three point six percent this week,
which of course was widely expected, but housing did appear
to be a factor in their thinking. I was ready
the statement that accompanied the decision, I know you economists
pay very close attention to that as well. It contained
(03:14):
quite a prominent line near the near the top actually
of the statement saying that the housing market is strengthening,
a sign that recent interest rate decreases are having an effect.
But you know, as as always with the RBA, it's
hard to tell whether they mean that as.
Speaker 3 (03:29):
A good or bad thing. I can't really tell. Well.
Speaker 1 (03:34):
I mean, in the one sense, what the RBA has
told us in other places is that we need a
strengthening in house prices in order to because of what's
happened with construction costs, to get the supply of housing,
which we desperately need given what's happening with population growth.
To unlock that housing supply, the end price for developers
(03:55):
needs to lift in order to make, you know, so
that they can make a profit to deliver these homes.
So it's a little bit of good, but you know,
a little bit of not so good, given the affordability
challenges that we see for many buyers or in the place,
and the politics around that in particular. So a little good,
a little bad. On the when we saw Governor bull
(04:18):
express conference, she was asked quite a bit about the
wealth effects side of things, and the RBA did talk
a little bit about how private demand was also recovering
a bit, taking over from public sector demand, which has
been the story of the economy for twenty twenty four.
As we rotate into twenty twenty five, we need the public, sorry,
the private side of the economy to step up, and so.
Speaker 3 (04:39):
That consumer spending could get a little bit of an.
Speaker 1 (04:41):
Extra help along by high house prices thanks to the
wealth effect coming through too. So swings and roundabouts for
the RBA helpful for demand, but if there's too much
demand that might mean that, you know, inflation doesn't come
down the way that they're projecting. But on the other side,
if we don't have enough of a house price increase
(05:03):
coming through to help unlock supply, will get rental inflation
coming through and becoming remaining a persistent problem for the RBA.
Speaker 4 (05:11):
There.
Speaker 1 (05:11):
So there's lots of different ways they they they come
at it, some good, some bad, but on the whole,
the way things go with nominal inflation of two to
three percent p random wages growth, you are expecting house
prices to grow every year. It's just about do they
get that goldilok sweet spot.
Speaker 3 (05:30):
Yeah.
Speaker 4 (05:31):
But the big question that well homovers definitely want to
know is what kind of signals were the Reserve Bank
putting out about rate cuts further rate cuts on Tuesday?
Are we getting that Melbourne that Melbourne cut rate cut?
Do you think I know that the inflation appeared to
become a bit more of a concern this week in
(05:53):
the in that decision.
Speaker 1 (05:55):
Yeah, that's that's right. And what was interesting is that
we've seen this with the RBA. I think we're going
to continue to see this with the RBAS, with the
cadence of their meetings. There's four really key meetings a
year after the quarterly inflation readings where they do a
full update of their forecast and release the statement of
Monetary Policy, and then there are the in between meetings.
(06:16):
We think that the rate cut and we've been saying
this for quite some time, we think that the rate
easing cycle this time around for the RBA is going
to be very gradual and data dependent, and the RBAS
said the same thing. And so if at that gradual pace,
we think that that means that those rate cuts are
coming at the quarterly meetings. And so this meeting where
they did sort of sound that, you know, saying things like,
(06:39):
well the monthly inflation data, which they qualified heavily as
being partial and can be volatile, it did suggest that
there might be some signs that the September quarter CPI,
which will be getting before that Melbourne Cup Day meeting,
could be a little bit higher than expected. However, we'll
get the full we'll see the full details. That monthly
(06:59):
CPI reading doesn't contain everything, and we did see RBA
officials such as Assistant Governor Hunter highlighting that really that
monthly CBI isn't.
Speaker 3 (07:11):
As useful as many people think.
Speaker 1 (07:13):
So it is really going to come down to that
quarterly meeting and we think that what we will see
when it comes time to meet again and review things
in November, that the RBA will be pushing another rate
cut out the door.
Speaker 4 (07:25):
And also on Wednesday, the government expanded its home Guarantee scheme.
Now that's going to make it possible for a lot
more first time buyers to buy a home with just
a five percent deposit. What impact is this likely to
have on house prices?
Speaker 1 (07:44):
Well, look, this is really interesting, Chris. So what we've
seen is the government had a scheme to help a
small cohort of potential first home buyers. There were income
caps on it, and there was also a cap on
the property price that the government would help you with
only a five percent deposit to get into a home
(08:05):
as a first home buyer. And what the government's done
is that they've removed the income cap so that every
potential first home buyer, including high income earners, can be
eligible to access this scheme, and then they really dramatically
increase the cap, so, for example in Sydney, increasing it
from nine hundred thousand dollars being the maximum property price
(08:26):
up to one and a half million, which is around
just slightly below the median house price, so really unlocking
a whole bigger pool of buyers and a much much
wider pool of potential properties that this scheme could potentially
help support people buy into. And so we think that,
especially with sentiment around whether it's time to buy a
(08:47):
dwelling being quite recovering or improving somewhat, rate cuts coming
through and people knowing that there is even though it's
going to be you know, a gradual some meetings will cut,
some meetings we won't cut cycle from the RBA rate
cuts are coming. So all of this should add up
(09:10):
to some big support, especially at the lower end of
the market. And so what we saw is that we've
already seen, even though this scheme only comes into effect
for everyone from the first of October. Totality mentioned it
in their release as well, people at those lower end
of the market already seeing some improvements from the interest
(09:32):
rate cuts that we've had thus far. But if you're
a vendor thinking of selling your home, and you know
that if you wait or if you just hold out
for a better price, that there is a big, big
heap of demand coming, or if you're a potential home
buyer that isn't going to use the scheme, you might
be tempted to try and get in in an advance.
And that's what we've seen with these price gains being
(09:54):
a little bit stronger at the lower end of the
market and that momentum seeping into the middle. As this
players out over the next couple of months and over
the year ahead, I think we're going to see this
momentum building from the bottom of the housing market, held
by not just rate cuts but by this first home
guarantee scheme from the government.
Speaker 4 (10:12):
One of the biggest problems of course for Australia's housing
marketers that we aren't building enough homes and that's also
contributing to the higher prices. We got the latest building
approval numbers, which are our best indicator of how well
or how badly we're doing in that area.
Speaker 3 (10:30):
What did they show?
Speaker 1 (10:33):
Yeah, so this is this is the thing, right, if
we do have this demand from people to buy homes,
but if we don't have enough supply coming on, or
we have this strong population growth, the supply of new
dwellings isn't keeping pace. That's going to result in this
house price affordability and rental affordability challenge being.
Speaker 3 (10:51):
Not moving in the right direction.
Speaker 1 (10:53):
And unfortunately, what we saw from the building approvals data,
we got the August data released by the Bureau of
Stats and showed for a second month in a row
that our building approvals have declined. Now you know that
they have been improving a bit recently, so we've got
to sort of, you know, look through some of the
monthly swings and roundabouts. But over the last twelve months,
(11:15):
the rolling twelve months to August, we had about one
hundred and eighty nine thousand dwellings approved. Now that's up
from one hundred and sixty seven thousand dwellings in the
twelve months to August last year. So that's better. That's good.
There's an improvement, some improvement coming through, but it's still
falling well short of the government's target. So the federal
(11:39):
government has a target of one point two million homes
being constructed over five years, and so that equates to
around two hundred and forty thousand dwellings a year. At
one hundred and eighty nine thousand, we're still not there.
And with these monthly approvals not yet moving at the
pace that we need and going the wrong way. You know,
this is sort of not what we would hope to see.
(12:01):
And this comes back to that kind of equation about well,
what can get us there? What will help get us there. Unfortunately,
for those that are hoping that this is going to
be a panacea, this supply increase for affordability, what is
going to help get us there is some of these
price rises for dwellings coming through, because that's going to
mean that, you know, for those looking to build a home,
(12:24):
that it is economic, you know that the economics stack
up that it makes sense to pull the trigger with
construction costs where they are in order to supply those
new dwellings. So we should see as those home prices
arise and interest rate cuts continue to flow through developers,
we'll see that yep, they will become more confident and
(12:45):
think that, yes, this does begin to stack up and
make a lot more sense, and we should see those
approvals continue to tick higher over the course of this year.
We need them to if we're not going to fall
too terribly far behind those targets at the Federal has
said for everyone, and.
Speaker 4 (13:01):
That supply shortfall is also a key factor in rental inflation.
Of course, as you mentioned earlier, those totality figures on
on Wednesday pointed out that the national rental vacancy rate
is at the new historical low of one point four percent.
Speaker 1 (13:17):
At that level of vacancy, that's just an incredibly tight
market and you'd expect there to be pricing pressure there.
And that's also what the totality data shows on rents,
is that rental inflation after having eased from peaks through
twenty twenty three and twenty twenty four, it had come down,
but it started, it's bottomed, and it's starting to tick
back up again. And if we you know, that could
(13:38):
be a challenge for the RBA, if that rental inflation
does begin to re emerge as a problem. So this
is where you know, there is that little bit of
urgency or concern amongst policymakers about well is a supply coming,
because if we do get that rental inflation picking back up,
then that could be you know, the RBA will need
(13:58):
to find roommel swear within the inflation basket if it's
going to meet that inflation target.
Speaker 4 (14:04):
When we come back just how much further, our house
price is expected to climb in the next year or so.
Welcome back to the Bloomberg Australia Podcast. I'm Chris Burke,
and today I'm talking to James McIntyre, who covers Australia
and New Zealand for Bloomberg Economics. Australia's house prices are
(14:27):
climbing at the fastest pace in almost two years, and
the latest bunch of economic evidence seems to be telling
us to get used to it. So, James, as we've
been discussing, there's more rate cuts likely coming, more government
assistance for first time buyers, and nowhere near enough homes
being built. All of those factors are pointing to a
(14:49):
pretty significant tailwind for a housing market that's already pretty hot.
What else is pointing to continued growth in the month ahead.
Speaker 1 (15:00):
I think that there's two factors we should keep in
mind here, population growth and interest rate cuts in when
we're thinking about where things might go over the course
of the year ahead for property prices or the property
market in general. Now, we've been expecting population growth to slow,
and it's eased back from the peaks, but it's remaining
surprisingly resilient. It hasn't fallen back as far as we
(15:25):
might have or thoughts and as far and as fast
as the government has projected, and that's adding extra demand
into the market. But when it comes to interest rate cuts,
I think that's probably the population growth is useful in
terms of boosting the demand, but I think the interest
(15:45):
rate cuts are going to be probably the more important
factor going forward driver and that's the main driver, that's right,
And that's because of what rate cuts do. And what
they do is, you know, when interest rates are lower
for any given level of income, you can borrow more,
and so that borrowing capacity increase. When we calculate it,
we estimate that for every twenty five basis points interest
(16:09):
rate reduction from the RBA, it adds four percent to
the amount that the average household.
Speaker 3 (16:17):
Could borrow or that an individual could borrow.
Speaker 1 (16:19):
And so if we think about the three RBA rate
cuts so far since February this year, we're looking at
a twelve percent increase in borrowing capacity. We think there's
one hundred basis points more over the coming twelve months,
so that's going to be an extra sixteen percent. So
we you know, when we add this all together, we're
looking at a twenty five to thirty percent increase in
(16:39):
ability to pay or in borrowing capacity for the average
borrow or household from the beginning of this year to
the end of next year. And that's you know, people
are competing for these relatively scarce assets, given that the
supply is constrained, and so we think that the natural
(17:01):
thing is that, yep, that boring capacity is going to
find its way or seep its way into prices and
pushing prices higher. So, you know, the gains that we've
seen so far and the pick up in house prices,
that's likely to perhaps not at that same pace as
we move into the second half of the year, but
as we get some momentum coming through in markets and
(17:22):
this extra support from that first Home Guarantee scheme from
the federal government, it's likely that between by the end
of the year and early twenty twenty six we could
see a little bit further jump up in these house
price house prices like or have experienced over the course
of September.
Speaker 4 (17:43):
So, just to be clear, the one hundred basis points,
you are expecting four more rate cuts of twenty five
basis points each over the next year.
Speaker 1 (17:53):
That's right, so yeah, we're expecting that the RBA is
going to be cutting down to two point six percent. Now,
I know, as you know, what everyone's reaction to, especially
that you know that volatile CPI, the monthly one that
the RBA has told us not to look at. Nonetheless,
the sentiment right now following that CPI and following the
(18:17):
RBA's decision is that, oh, well, you know, it's not
going to be that simple, and the RBA might be done.
And we totally agree. I think it's not going to
be that simple. It's going to be gradual, drawn out
affair for the RBA, but as it does draw out,
a slow, steady, continued using cycle. The you know, we
had the other week under freedom of information, the RBA
(18:38):
releasing a lot of internal documents highlighting how they've dowardly
made major downward revisions to their estimates of the neutral
cash rate. That's the cash rate that's you know, not
restraining the economy or all boosting the economy, just keeping
things in a steady state, and they've pulled that down
below three percent. Now we think that there's some easy
(19:00):
in the economy that's still to come, and the unemployment
rate will be grinding higher. We think the RBA is
not only going to need to get to neutral, which
is below three, but go a little bit further to
provide some support to the economy. And we think as
over the course of the next twelve months, that's going
to be increasingly apparent and should drag the RBA into
(19:21):
additional easing, even though it doesn't sound like it today.
And that might be music to the years to those
that are about to jump into the housing market just now,
because there's further rate cuts on the way that could,
as we point out, with those boost to borrowing capacity,
could help spurt prices along over the over the next
(19:42):
year ahead.
Speaker 4 (19:43):
And would you like to put a number on that?
Do you have a forecast of where you expect house
prices to go or what kind of gains you're expecting.
Speaker 1 (19:55):
Well, look, no, thank you, famously, I've done that before. Whoever,
I wouldn't be surprised if we saw house price gains
in around the six to ten percent range over the
course of the of the of the year ahead. I mean,
we're not far off that now, at around just under
five percent annual growth at the national level. And as
(20:19):
I said, you know those zero point nine month on
month increases. If we think of those over a twelve
month you know that's we're already running it at near
a double digit pace. I don't think it's going to
continue that rapidly, but you know, expecting house prices to
grow more than double the pace of inflation and almost
(20:40):
up to ten percent per adum over the course of
the next next twelve months. I don't think that's entirely
unreasonable if we do see the RBA deliver that quantum
of rate cuts that we're projecting.
Speaker 4 (20:51):
So at the very start, I asked the question, is
Australia's properly boomed back in full swing?
Speaker 3 (20:57):
What do you reckon?
Speaker 1 (21:00):
I think that there's some growing momentum and no two
booms or no two booms are alike, but it's a
period of fairly robust house price gains ahead you'd expect
as the using cycle progresses.
Speaker 4 (21:15):
Very measured answer. Thank you, James.
Speaker 3 (21:17):
McIntyre, Thank you Chris.
Speaker 4 (21:20):
If you found today's conversation insightful, be sure to follow
the Blueberg Australia podcast wherever you listen. This episode was
recorded on the traditional lands of the Warungerie and the
Gadagor peoples. It was produced by Paul Allen and edited
by Rebecca Jones. I'm Chris Burke.
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