200,000 migrants will stretch our property markets next year

If you’re watching the news or reading the financial media online, it wouldn’t surprise me if you believed the higher inflation in Australia will lead to higher interest rates that could lead to mortgage stress and crash our property markets.

Many point to the United States, where inflation is at a 30-year high, wages rose 5.8 per cent and the Federal Reserve may begin hiking interest rates sooner than previously forecast.

• Also read: Will mortgage stress signal the end of the great COVID-19 property boom?

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But, currently, the dynamics in Australia are very different, and while we had a much smaller rise in inflation, before interest rates rise we need to see a material pick-up in wages.

While the latest figures showed some good news, with wages growth back to pre-pandemic levels, the 2.2 per cent growth is still a long way from the sustained 3-4 per cent wages growth the Reserve Bank of Australia (RBA) is looking for.

Far from being a sign of a coming wages boom, wages continue to struggle to keep up with inflation.

In fact, if you take inflation into account, real wages have barely budged.

So what are the implications of this for inflation, interest rates and our property markets.

These are some of the questions I ask Dr Andrew Wilson, Australia’s leading housing market economist and chief economist of My Housing Market in this week’s Property Insiders chat for Yahoo Finance.

We also discuss the eased border restrictions, which will allow more than 200,000 visa holders (skilled migrants and international students) to come to Australia.

Real wages remain near zero, interest rates on hold

The Australian economy continues to adjust from the COVID flattening of 2020, with wages predictably bouncing back from the record-low growth levels of last year.

The latest ABS Wage Index reports that wages, seasonally adjusted, increased by 0.6 per cent over the September quarter for an annual increase of 2.2 per cent.

The September quarter increase follows a rise of 0.4 per cent over the June quarter and is significantly higher than the record-low 0.1 per cent reported over the September quarter last year.

Although wages growth has now returned to the pre-COVID levels of 2019, the RBA stated in its recent November meeting that “the labour market will need to be tight enough to generate materially higher wages growth than at the time of the meeting [2.1 per cent]” before it raises interest rates.

The last time the RBA raised rates (November 2010), wages increased by nearly 4 per cent annually.

With the recent spike in inflation – also an adjustment from 2020 COVID disruptions – the clearly sobering news for consumers is that real wages growth (the difference between wages and prices) remains near zero – and at the lowest levels in six years.

It’s certainly a poor environment for higher interest rates.

ANZ updates property forecast

In its latest update, ANZ stated house price growth would slow over the next year, to 6 per cent, after median house prices boomed 21.9 per cent over the year to September.

The bank suggested rising house prices would deter some home buyers, while APRA’s decision to ensure new borrowers must be able to service a mortgage if interest rates jumped 3 per cent would put a brake on lending.

While we generally concur with ANZ’s forecast for 2022, we can’t see a good reason for house prices to fall in 2023 unless APRA intervenes and tightens the availability of credit.

Sure, housing market growth will slow - the current levels of growth are unsustainable in the long term - but our improving economy and the opening of our international borders next year will underpin demand for housing.

Australia opens international borders to 200,000 visa holders

Australia will reopen its international borders to more than 200,000 visa holders as it moves towards the final phase of the national reopening plan.

The Federal Government will immediately focus on priority skilled migration but also on international students and refugees.

This move will accelerate our economic recovery and help address shortages in our labour market.

And while all the extra migrants will create demand for goods and services, in the short term this boost in the number of workers may dampen further wages growth.

However this will be a positive for our property markets.

Most immigrants initially rent for the first few years in the country, and this surge in demand will place an extra burden on our already-limited housing supply.

And obviously, the return of international students will be welcomed by owners of inner-city apartments and units close to universities.

Another weekend of strong auction results

The surge of late Spring listings of properties for sale by auction caused Melbourne and Sydney clearance rates to ease, but they were still exceptionally strong – at boom-time levels – in the other capital cities.

Watch this week’s Property Insider video as we discuss how most cities continue to record generally strong results for sellers.

Listing surge eases Sydney auction clearance rates

Clearance rates eased in Sydney at the weekend as a wave of end-of-year auctions continued to test the depth of the local market.

Sydney recorded a clearance rate of 76.3 per cent, which was lower than the previous weekend (77.8 per cent), but similar to the 76.4 per cent recorded over the same weekend last year.

There were 1,075 homes listed for auction on Saturday, which was well ahead of the previous weekend's 988 and significantly higher than the 728 auctions over the same weekend last year.

The clearance rate for houses was 78.8 per cent, with units sharply lower at 68.2 per cent.

Melbourne auction market eases

Melbourne's auction market eased on Saturday, with lower auction clearance rates from higher listings, however, results clearly remained in favour of most sellers.

Melbourne reported a clearance rate of 72.5 per cent on Saturday, which was lower than the previous week's 77.7 per cent and also lower than the 76.7 per cent recorded over the same weekend last year.

The lower clearance rate reflected another surge in listings, with 1,275 homes listed for auction at the weekend, which was well above the 1,206 reported over the previous weekend and more than double the 530 auctioned over the same weekend last year.

The house clearance rate was 73.2 per cent, with units lower at 69.1 per cent.

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