The Australian economy continues to decelerate due to higher interest rates, persistent inflation, slower-than-expected wage growth and continued global economic uncertainty.
Economic growth slowed in the March quarter, with GDP rising 0.1%down from the upwardly revised 0.3% in the previous quarter. The economic outlook remains uncertain and recent data suggests that bringing inflation back to the target level is likely to be a challenging process. After interest rate increases throughout 2022 and 2023, there have been no further increases this year. The official cash rate remains at 4.35%slightly above the 34 year average 3.86%.
With inflation remaining above the Reserve Bank of Australia’s (RBA) 2-3% target from late 2021 and the unemployment rate falling 4%a rate cut seems unlikely until at least early 2025.
Accessibility and functionality constraints continue to pose a challenge for many buyers. More affordable markets such as Adelaide and south-east Queensland are seeing growing demand from buyers. This demand is not only fueled by local residents but also by high levels of overseas migration.
Variations in stock levels help explain the varying capital growth performance across Australia’s capital cities and regions.
Areas with above-average housing stock, such as Victoria and Tasmania, tend to have an excess supply of housing over demand, putting downward pressure on prices. In contrast, lower supply levels in Brisbane, Adelaide and Perth continue to drive robust growth.
In the long term, affordability could once again become an attractive factor in cities where price growth has been more subdued in recent years, especially as the value gap between cities is narrowing. This could help stabilize capital growth trends in cities such as Melbourne, Hobart and Canberra, potentially slowing the rate of capital growth in Brisbane, Adelaide and Perth.
