Australia’s economy continues to decelerate due to higher interest rates, persistent inflation, slower-than-expected wages growth, and ongoing global economic uncertainty.
Economic growth decelerated in the March quarter, with GDP increasing by 0.1%, down from an upwardly revised 0.3% in the previous quarter. The economic outlook remains uncertain, and recent data suggest that bringing inflation back to target is likely to be a challenging process. Following interest rate hikes 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 of 3.86%.
With inflation staying above the Reserve Bank of Australia’s (RBA) 2 to 3% target since late 2021 and the unemployment rate easing to 4%, a rate cut seems improbable until at least early 2025.
Affordability and serviceability constraints continue to challenge many buyers. More affordable markets like Adelaide and Southeast Queensland are witnessing increasing purchaser demand. This demand is not only fuelled by local residents but also by high levels of overseas migration.
Variations in stock levels help explain the diverse capital growth performance across Australia’s capital cities and regions.
Areas with higher-than-average stock, such as Victoria and Tasmania, tend to have an oversupply of housing relative to demand, exerting downward pressure on prices. Conversely, lower supply levels in Brisbane, Adelaide, and Perth continue to drive robust growth.
In the longer term, affordability might once again become an attractive factor in cities where price growth has been more subdued in recent years, particularly as the value gap between cities narrows. This could help stabilise capital growth trends in cities like Melbourne, Hobart, and Canberra, while potentially slowing the capital growth rate in Brisbane, Adelaide and Perth.