People in Australia have been wondering whether Australia is going through a recession. Several factors contribute to this concern, including the ratio between housing prices and household debt, Australians’ lack of ability to contribute to their savings, the ever-increasing housing bubble within Australia, record-low interest rates, and overall global debt.
However, there is still time to fix the market before it implodes into a recession. Below, you will find information that will help you better understand the Australian economic climate.
Australian housing values increased by 2.4% in the first quarter of 2022, adding $17,000 to the total value of housing. The market conditions have severely impacted the Australian economy decreasing the rate of growth of average house prices and increasing median dwelling prices, which currently sit at $738,975. This majorly drives rising property prices due to strong demand from the investors and buyers, contrary to the low housing supply. Notably, the median price in some of Australia’s capital cities has risen to $643,387. Here are more details on increase across these cities.
The median house price in Melbourne has surged by more than $1.1 million since the first quarter. This exponential increase in the median price has resulted in a wide gap between owning a unit and a house. Moreover, unit prices also bounced by 3.9%. Past data explains the high clearance rates of about 80% turning Melbourne from a seller’s market into a buyer’s market.
Sydney made itself the most expensive capital city in 2021, with a median rate of about $1.6 million. This pushed the buyers to the outer suburbs in the quest for economical house prices.
This year, the housing market in Sydney has been relatively steady, leaving space for newly listed properties to increase. It seems like buyers are making efficient decisions, contemplating them, instead of making them hastily. But the overall values can be expected to increase by 6-7%, and unit values are likely to increase by 5% by the end of 2022.
In 2021, Brisbane experienced the most robust property market, with spiking house prices by 30% and remarkable growth. Unlike Sydney, this city continues to perform strongly in the housing market with a 2% increase in the housing values in March, adding nearly $15,000 to Brisbane’s median value. It is safe to say that Brisbane will attract a double-figure capital growth by the end of 2022.
The median house price in this city went up to $793,000 in 2021, almost 26% on an annual account.
One of the largest cities in Western Australia, Perth’s reopening of state borders may witness an accelerating rise in housing value due to internal migration and more job opportunities. This implies that Perth will continue to experience an increasing curve until 2022. The only issue is Western Australian economy is mainly dependent on the mining industry and China. This induces a direct impact on house prices.
In 2021, the property prices saw strong demand and weak market supply in the second-best performing capital city. Back in 2017-18, Hobart was one of the favored cities of speculative property investors. The median city house price in this city is valued at $791,587.
The Australian economy faces a risk of financial and macroeconomic instability due to relatively high household indebtedness over the past 30 years. This has further worsened due to the Covid-19 pandemic, as households experience a steep diminishing income.
According to the latest reports, the debt has reached USD 1939 billion in September 2021. This can be seen in the debt-to-income ratio. a comparison between Australia and other countries shows that the DTI ratio is increasing faster in the Australian household than in other economies. Given this, the result of such high ratios is reduced volatility of economic activity.
Moreover, due to the logarithmic growth of the property industry, it is becoming difficult for Australians to save for deposits. On average, an Australian saves close to $22,020, which is far less than the deposit costs for a home purchase price between $60,000-$160,000, with 20% as deposits. Cities like Sydney and Melbourne have the highest property prices, making it difficult for first-time homebuyers, but it offers the highest wages in the country.
Currently, the RBA interest rate is steady at 0.10%, denoting pressure to create jobs as the expected rates fall in March 2022. The currency has also been performing weakly compared to the previous year but is still better than other major currencies across the world. This is due to increasing commodity prices as the RBA signaled plans to raise interest rates within months if inflation rose in the economy.
It can be predicted that the cash rate might be higher than 3% by 2023. A fall in the Australian dollar will impact the mortgage players in the economy mainly due to the increasing cost of goods and services. The cost of living increases as an economy faces inflation; here, the Aussies will have to pay higher on imported goods or everyday items.
So, is Australia’s inflation expected to rise? The Australian Bureau of Statistics released its Consumer Price Index, which shows that the inflation rate has been growing at its highest since 2015. But this does not imply that commodities prices will increase simultaneously at the same rate. Besides, economists predict it might turn the other way around. Then, perhaps, Australians can expect a decent hike in the inflation rate by the end of 2022.
Internationally, there has been a trend to increase interest rates that directly affect mortgages. Australia has not followed this trend, which shows a tendency to lower the risk that financial institutions are allowed to take within Australia when they decide to issue mortgages to borrowers. The precautionary measures of the Australian government have many economists worried about the economic climate to come in the next few years.
Since the global price of oil has been quite volatile in recent years, it has had a direct impact globally on developed countries in terms of inflation. The price of global oil increased 51% and the trade war regarding commodities has economists speculating the implication this count potentially have on the rapid growth of inflation. In 2017, both the US and the UK missed their target inflation goals by at least 1%. Other countries that were impacted by inflation were Canada and Japan whereas countries such as Venezuela have been impacted with astounding inflation rates of 4,000% resulting from the global oil unpredictability and mismanagement of government funds.
There is no doubt that Australia is currently exhibiting the signs of heading into a recession. Whether the Australian economy does actually head into a recession is directly tied to domestic fiscal decisions, but also international ones as well. Domestically, the high-priced housing market coupled with low average household incomes is troublesome for families to successfully be able to save their earnings. Instead, there is a higher tendency for the overall household debt to increase. Lower interest rates in Australia show the government’s steps to exercise caution towards lending institutions, yet the global spike in inflation is troubling due to the unpredictable price of oil.
Currently, Australia is not in a recession; however, there is a strong case to be made that a recession could occur if the status quo becomes more severe. Economists both within Australia and internationally are monitoring trends to see what will be in store for Australia’s economy in the next few years.