24 Apr Negative talk has impact on the market – Dr Andrew Wilson
Dr Andrew Wilson says he has never seen so much focus on speculation about interest rates, conversations about negative gearing and concern about a property bubble. The result is a reduction in consumer confidence which is impacting the market.
Kevin: Joining us with an update on the Australian property market, the chief economist at The Domain Group, Dr. Andrew Wilson.
Andrew: Morning, Kevin. How are you today?
Kevin: Mate, I’m fantastic, thank you. A lot happening in the market we should talk about, Andrew. I guess any conversation about property would have to center around interest rates, but gee, there’s a lot of talk about negative gearing, and there’s just a lot happening, a lot of conversation about the property rate right now. Is it unprecedented?
Andrew: It’s certainly been getting a lot of attention, hasn’t it, Kevin? I can’t really remember a period where we have had so much focus particularly on property markets and interest rates. Of course, the banks have raised interest rates over the past few weeks and are likely to continue to increase them – only marginally – but certainly I think it’s playing into the mindset, perhaps, of buyers and sellers.
We had some quite sobering retail data come out February from the ABS. I do think that given that unemployment is at a year high at the moment and a number of capitals have unemployment levels significantly higher than the way they were a year ago, I still think that there is a likelihood that we’ll get an official cut in interest rates sooner rather than later. I think even if the banks continue to increase rates, I think that will facilitate a cut from the Reserve Bank even more significantly.
I think that even though we had rates on hold, unless the economy improves, we’re likely to get a cut sooner rather than later. We do have the Budget coming up next month, of course, Kevin, and sometimes the Reserve Bank does act in May just before the budget to preempt any issues that might occur there, so we might even get a surprise cut next month.
Kevin: All this talk about a bubble too, it just goes on and on and on. It’s obviously doing a lot to impact consumer confidence, and it just makes me wonder why they’re doing this. Then we’re going to have to turn around and the possibility you just raised there of lowering interest rates again. It just seems like they’re all over the place.
Andrew: And they paint themselves in a corner, Kevin, of course. If they are talking of housing bubbles and the need to cool housing markets and at the same time, the economy is going back, that’s what the Reserve Bank is there for – to use monetary policy to maintain economic balance and particularly where we have a slow-growing economy to actually encourage growth.
We still have interest rates higher than basically anywhere else anyway, and I do think that as you said, they’re painting themselves into a corner. It becomes a conundrum for them. And it’s a very mixed economic basket, really, around the country.
Kevin: It’s probably going to get more challenging for them too, because I would have thought that a lot of people are going to start exiting that over-priced Sydney and Melbourne market and start to move into South East Queensland. South East Queensland, to me, seems to be one of the only markets in Australia that’s not in this high inflated price range.
Andrew: You’re spot on, Kevin. We’re seeing early signs of that now. The latest migration data has shown a turnaround into South East Queensland. Of course, migration fell away quite sharply with the end of the resources boom and the end of the fly-in, fly-outs, but that’s now starting to turn around. I think you’re spot on the money.
A lot of that is affordability perception, and of course, the Brisbane median house price is half that of Sydney. It’s not just the prices that are so much lower; it’s also the bang for your buck in terms of what you do get when you pay, because Brisbane is still quite a livable low-rise environment. The economy in Brisbane is actually doing as well in terms of unemployment as Melbourne is. I think we will see a turnaround in that and, as you said, driven by affordability as well as the usual lifestyle attractions that South East Queensland offers.
Kevin: Thanks, Andrew. See you, mate.
Andrew: Okay, thank you, Kevin.