<html><body>
EXPERT OBSERVER
The minutes of the Reserve Bank Board’s September meeting contain similar themes to the August minutes but indicate that the Board acknowledges that it is getting closer to its next move on policy.
In August the Board minutes concluded that: “Having eased monetary policy at the previous two meetings, the Board judged it appropriate to assess developments in the global and domestic economies before considering further change to the setting of monetary policy. Members would consider a further easing of monetary policy if the accumulation of additional evidence suggested this was needed to support sustainable growth in the economy and the achievement of the inflation target over time”.
In these minutes there is no reference to previous actions. Arguably reference to previous actions is a clear sign that the Board is content to observe developments whereas not referring to previous actions there is less emphasis on the need to wait.
It is also interesting that the theme that drove the June and July decisions to cut rates: “the Australian economy could sustain lower rates of unemployment and underemployment” was repeated in these minutes whereas that particular theme was absent in the August minutes.
The minutes refer to three “developments that had a bearing on the monetary policy decision”.
<ul>
<li>The labour market – strong employment growth was recognised but the unemployment rate had remained steady at 5.2% (recall that the Governor has noted on other occasions that he would like to see the unemployment rate at 4.5%) and that wages growth “had remained low”. Indeed the minutes point out that “the upward trend in wages growth appeared to have stalled”. We are aware that the Governor sees rising wages growth as the key to a sustained lift in spending growth and higher inflation. In addition the minutes noted that “forward – looking indicators had continued to suggest that employment growth would moderate over the following six months.”</li>
</ul>
<ul>
<li>The housing market – it was noted that there was “a turnaround in established housing markets” but from the perspective of economic activity there was “further weakness in dwelling investment in the near term” and low turnover in the housing market meant that “spending on home furnishings and other housing related items was not expected to contribute to consumption growth in the near term”.</li>
</ul>
<ul>
<li>GDP growth – the Board meeting was held the day before the release of the June quarter national accounts. When the RBA released its forecasts on August 9 it was expecting GDP growth in the June quarter to be 0.8%; in the minutes it referred to an expectation of 0.5% due to the weakness of the partials in the lead up to the release. That forecast proved to be correct but the minutes did note that “private final demand was expected to be weak”. (In fact it was flat in the June quarter and down 0.4% for the year! – “weak” is probably an overstatement of the state of final demand).</li>
</ul>
On the international front the overriding theme was that “the escalation of the US–China trade and technology disputes, …had intensified the downside risks to the global outlook”. The outlook for China deteriorated somewhat and the trade disputes were weighing on East Asia generally.
On monetary policy the minutes note that markets priced in 100 basis points of easing from the Federal Reserve while generally “further monetary policy easing was widely expected “from a number of central banks.
Finally, the minutes point out that, for Australia, “ financial market pricing continued to imply that the cash rate was expected to be lowered by another 25 basis points by November, with a further cut expected in the early part of 2020”.
Conclusion
The minutes make a fairly clear case for another rate cut in 2019.
With two meetings now having passed since the last move and , from my perspective, most importantly, the key rate cut theme that “ the Australian economy could sustain lower rates of unemployment and underemployment” returning to the narrative, our central view that there is no reason to wait until November for the next move still seems reasonable.
November is typically favoured by the RBA since it is a time when it can refresh its forecasts although we are not expecting any significant changes along the lines of August when the forecast unemployment rate was lifted; the forecast pace of wages growth was lowered; and the timing of the return of inflation to the 2–3% band was pushed out by a year. The growth forecast in 2019 is likely to be lowered but the 2020 forecast should remain intact.
However, as the minutes warn, “developments in the international and domestic economies, including the labour market” will be assessed to see whether a further easing of policy is “needed”.
Westpac continues to predict cuts in the cash rate of 25 basis points in both October and February next year.
BILL EVANS is the Chief Economist at Westpac.
This was first published on <a href="https://westpaciq.westpac.com.au/Article/40295/52930/" target="_blank">Westpac IQ</a>.
<div>
<div id="cpgAdsenseContainerId"><ins id="aswift_0_expand" data-ad-slot="3195360564"></ins></div>
</div>
</body></html>

bevans-rYk9SxEa4r

Case for RBA October rate cut intact: Westpac's Bill Evans

<html><body>
EXPERT OBSERVER
A recession is formally defined as two consecutive quarters of negative GDP growth or negative growth in annual terms.
Australia has not had such an event since the early 1990’s. However there is ample evidence that the economy is weak:
1. GDP per capita has contracted over the year. 2. Consumer spending per capita has contracted over the year. 3. Private domestic demand has contracted over the year.
In terms of how the economy might “feel” to households, in particular, these measures certainly point to a downbeat economic climate.
But this is not a recession with the associated extreme pain for households, businesses, and institutions.
So why has Australia not experienced a technical recession since the early 1990’s?
Strong population growth: potential growth is measured as growth in the work force adjusted for productivity growth. Using the global benchmark of 1% for productivity growth, Australia’s potential growth rate is around 2.75% compared to the US of 1.75% and Europe of 1.2%. A high potential growth rate is some protection against a technical recession but, as discussed above, when measured on a per capita basis, Australia has experienced periods of negative growth.
At the times of major external shocks – GFC is the best example – Australia’s fiscal position has been in solid shape to accommodate a strong (“go hard; go households”) policy response which is further complemented by the automatic stabilisers (via lower tax and higher welfare payments). Australia’s budget position went from a surplus of 1.7% of GDP in 2007/08 to a deficit of 4.2% of GDP in 2009/10. Australia’s surplus is currently estimated at around 0.5% of GDP in 2019/20 – lower than in 2007/08 but a surplus no less.
A flexible exchange rate – in the GFC and in the Asian Financial Crisis (1997/98) the AUD adjusted into the USD 0.50’s to offset the impact of the shock.
A flexible labour market also helped during the more recent shocks – employers tended to adjust hours worked rather than staffing levels, cushioning some of the ‘second round’ impacts on household incomes. The more rigid industrial relations systems that prevailed in the 1970s, 1980s and early 1990s made it more difficult to absorb cyclical shocks.
Compensating cycles: most recently, when the mining boom turned down the Australian economy was boosted by the state government infrastructure boom and the residential (mainly high rise) construction boom.
When it appeared that Australia was headed for two consecutive quarters of GDP contraction in 2008 Q4 and 2009 Q1, domestic demand did contract in those quarters (low point of the GFC) but GDP expanded in 2009 Q1 due to the impact on net exports of China’s massive post GFC stimulus package. With the media speculating on a technical recession, the announcement that Australia had avoided a technical recession saw a spectacular (8%) boost in Consumer Sentiment.
Government policy, apart from the fiscal stimulus, also helped Australia avoid a recession in the GFC as banks, whose access to offshore liquidity was under huge pressure, were able to purchase a Commonwealth government guarantee that allowed the rollover of existing short term debt (recall that in that period banks’ wholesale funding was around 60% of total liabilities)
Read the Westpac's full report '<a href="https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/file/Australia/2019/September/er20190913BullARecession.pdf" target="_blank">Australia's record recession free run'</a>.
BILL EVANS is Chief Economist for Westpac
</body></html>

Australia's record recession free run looks set to continue: Bill Evans

<html><body>
EXPERT OBSERVATION
The consumer mood has lapsed back into slight negative territory again with continued pressure on family finances and concerns about the near term outlook weighing on sentiment.
The September survey included additional questions on the tax offset payments the Federal government began making with tax refunds from July 1. Just over 16% of consumers reported receiving a payment.
We estimate that around 30% of households are likely to receive a meaningful rebate so this survey indicates that about half of eligible consumers have already received a payment.
Amongst those that had received a payment, 29% planned to spend it all, and a further 16% planned to spend over half. The remainder (53%) planned to spend less than half including around 25% who planned to save the full payment.
Responses to additional questions on news recall show rising concerns about the economy and the global backdrop. The highest recall for the month was news on ‘economic conditions’ (33%) and ‘international conditions’ (19.8%) – the latter hitting a four year high.
<a href="https://www.propertyobserver.com.au/images/2019/9/11/consumer%20sentiment%201.jpg" target="_blank">Click here</a> to enlarge: 
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/9/11/consumer%20sentiment%201.jpg" alt="">
 
These proportions are up significantly from a year ago (20.5% and 8.3% respectively). News on both was widely assessed as more unfavourable, with the proportion reporting ‘unfavourable’ doubling over the year. There was a comparable lift in the proportion reporting employment news as ‘unfavourable’ as well.
These concerns about the state of the economy; the international backdrop; and employment are seeing consumers become more cautious about their finances. The sub-index tracking expectations for ‘finances, next 12 months’ declined 2.2% to be down 9.4% since June and at a four year low.
The sub-group detail suggests a range of factors may be contributing including concerns around jobs, persistent weak wages growth and low returns on financial assets weighing on sentiment amongst those at or nearing retirement age.
Consumer assessments of current finances also deteriorated slightly. The ‘finances vs a year ago’ sub-index declined 2.5% to 84.3. While that is above the low of 80.2 registered back in April, it is still a weak read, below long run averages.
It is particularly disappointing given the support that should be coming from the combined effect of policy – interest rate cuts and tax relief – and from stabilising housing markets.
A weaker near term outlook for the economy has also weighed on sentiment. The ‘economy, next 12 months’ sub-index is down 3.1% The disappointing June quarter national accounts update – released in the middle of the survey week – undoubtedly had an effect.
The report showed annual growth slowing to just 1.4%yr, the weakest pace since the GFC. Despite this, expectations for the economy are still comfortably above their July low, when the RBA’s back to back rate cuts appear to have badly rattled consumers.
Interestingly, consumers’ longer term expectations for the economy have been both steadier and more positive.
The ‘economy, next 5 years’ sub-index was the only component to post a rise this month, up 2.1% and up 6.7% since July to a level still comfortably above its long run average. That may be an indication that some of the difficulties currently facing the economy are expected to dissipate over time.
Consumer attitudes towards spending dipped in September. The ‘time to buy a major household item’ sub-index declined 2.8%, unwinding all of last month’s modest gain and taking the sub-index well below its long run average again. Spending on discretionary and big ticket durable items has been particularly weak over the last year.
Consumers’ job loss fears remained slightly elevated. The Westpac-Melbourne Institute Unemployment Expectations Index was essentially unchanged, holding at 133.5 in September, a touch above the long run average of 130 (recall that higher readings indicate that more consumers expect unemployment to rise in the year ahead).
The Index remains about 10% above the levels prevailing late last year, a clear sign of cooling conditions in the labour market.
Housing-related sentiment recorded a more mixed month after the clear positive response to interest rate cuts seen in June-July-August.
The ‘time to buy a dwelling’ index declined 2.9%, reversing most of last month’s gain. At 123.3, the index is still above its long run average of 120 and near a five year high. That said, the sizeable 7-8% declines in Sydney and Melbourne suggest the nascent recovery in prices in these markets may already be starting to dampen buyer enthusiasm.
In contrast, consumers’ house price expectations have continued to firm. The Westpac-Melbourne Institute Index of House Price Expectations Index posted a further 3.9% in September to be up a spectacular 45.8% since May. All major states recorded a lift in price expectations this month. Expectations posted a particularly strong 6.7% gain in NSW.
Responses to additional questions on the ‘wisest place for savings’ show a slight easing in risk aversion although it remains very high by historical standards. Consumers still heavily favour ‘safe options’, 61% nominating deposits, superannuation or paying down debt as the best place for savings, compared to 64% in June.
The proportion favouring real estate nudged up, but only slightly from 10% to 12% and the proportion favouring shares dipped slightly from 10% to 9%. Perhaps most tellingly, some 9% of consumers simply nominated ‘don’t know’ – the highest reading on records going back to 1974.
The Reserve Bank Board next meets on October 1. Westpac expects the Board will decide to cut the cash rate by a further 0.25% from 1% to 0.75%.
In August the Reserve Bank released a revised set of forecasts which showed a downgraded outlook for the unemployment rate; a further extension to the time when the inflation rate is expected to move into the 2-3% band; and a downward revision to the outlook for wages growth.
All of these forecasts were based on ‘market pricing’ for the interest rate path at the time which included one more rate cut in 2019 and a second move in early 2020.
Month to month timing of RBA moves is imprecise but with the case for lower rates quite clear and both US Federal Reserve and European Central Bank likely to be easing policy in the next week or so the next meeting in October seems a sensible time for the Reserve Bank to deliver the next rate cut.
Westpac expects a second cut in February 2020, which we believe will follow further cuts from the Federal Reserve by year’s end.
<a href="https://www.propertyobserver.com.au/images/2019/9/11/consumer%20sentiment%202.jpg" target="_blank">Click here </a>to enlarge: 
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/9/11/consumer%20sentiment%202.jpg" alt="">
Read full report '<a href="https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/file/Australia/2019/September/er20190911BullConsumerSentiment.pdf" target="_blank">Westpac-MI Consumer Sentiment September' (PDF 128klb)</a>
BILL EVANS is Chief Economist for Westpac
</body></html>

Sydney and Melbourne's nascent recovery may already be starting to dampen buyer enthusiasm: Bill Evans 

<html><body>
EXPERT OBSERVER
As expected, the Reserve Bank Board decided to leave the cash rate unchanged at 1.0% at today’s meeting.
The all-important final paragraph is slightly changed from the previous August decision statement and the minutes of the August meeting (“The board will continue to monitor developments, including in the labour market, and ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time”).
Given that Westpac is expecting the Board to cut rates by a further 25bps at the next meeting in October, we would have liked to have seen the term “if needed” excluded from the decision statement. As discussed in our preview to today’s decision, the term “if needed” could be interpreted as requiring more time than one month to decide on the next cut. However (realistically) the Board should not lock itself into a specific strategy one month out from the next meeting. By maintaining the “if needed” qualification, it provides itself with flexibility.
General commentary in the decision statement is very similar to the August decision statement. The most important changes are to be somewhat guarded on housing markets, “further signs of a turnaround in established housing markets”, but to also point out that construction activity has weakened.
There is also less apparent confidence in the growth and unemployment forecasts. The 2½ per cent forecast for GDP growth in 2019, which was explicitly noted in August, was not mentioned, although the expected return to trend growth “over the next couple of years” is noted. In August, the Governor’s decision statement specifically referred to the unemployment rate edging back to 5% “over the following couple of years”. That forecast was also not repeated in today’s decision statement.
Other themes that are consistent with the August statement are: risks are tilted to the downside for the global economy; “further monetary easing is widely expected” for a number of central banks; “Australian dollar is at its lowest level of recent times” (USD 0.6770 in August, down to USD 0.6700 in September); main source of domestic uncertainty remains the outlook for consumption; a further gradual lift in wages growth would be a welcome development; and “inflation pressures likely to remain subdued for some time yet” (new description).
Conclusion
With less confidence around the economic forecasts and recognition about the weakening activity in the residential construction sector, this decision statement is marginally more downbeat than the statement in August.
With the emphasis consistently on the labour market in both statements, the monthly employment reports remain important. However, other factors are also key to the October decision.
Firstly, it is likely that tomorrow’s GDP report for the June quarter will show the economy had less momentum than had been expected by the RBA at the time of the August meeting (detailed forecasts imply a GDP growth rate of 0.8% was expected for the June quarter). And while the Governor backs away from the 2½ per cent growth forecast for 2019, there still appears to be a heavy dose of optimism around the general growth outlook. If Westpac’s forecast for GDP growth in the June quarter of 0.5% proves to be correct, then the RBA is likely to need to revise down its growth forecast of 2½ per cent for 2019 and reasonably review the 2¾ per cent forecast for 2020
Secondly, it is clear that the RBA values the weakening of the AUD. We expect that by the time of the October meeting, the US Federal Reserve will have further cut the federal funds rate, and, in turn, lessening the impact on the AUD of recent rate cuts by the RBA, clearly signalling the need for further action.
Thirdly, a cut in October leaves options open for a further cut in December should conditions, particularly in global markets, point to the need for even lower rates. Leaving the next move to November reduces the RBA’s flexibility, given that a cut in December would represent back-to-back moves. As measured by the Westpac-MI Consumer Sentiment index, the back-to-back moves in June and July unnecessarily unnerved households.
All these arguments, on balance, point to another cut in October being the best way for the RBA to stay ahead of the curve and provide further downward pressure on the AUD.
BILL EVANS is the Chief Economist for Westpac 
</body></html>

RBA slightly more downbeat, October likely the next cut: Bill Evans

<html><body>
EXPERT OBSERVER
The Reserve Bank Board meets next week on September 3.
We expect that the Board will decide to keep rates on hold at the meeting but continue to expect the next rate cut to occur in October.
A key signal around the Governor’s Statement following the decision next week will be whether the Governor continues with the wording “ease monetary policy further if needed”.
“If needed” was used in both July and August and seemed to imply a degree of patience with rates remaining on hold at the August and, we believe, the September meetings.
However, those words were not used in June and we saw a follow up move in July.
If the “if needed” is still used in the Statement then it will not necessarily preclude a move in October – it might be considered prudent to break with that signalling approach but an absence of “if needed” will certainly be very encouraging for our October view.
October has some advantages – we saw the response in the Westpac Consumer Sentiment Index to consecutive cuts in June and July, with Sentiment actually falling by 4% following the July cut only to recover by 3.6% after rates were on hold in August. This result is likely to have impressed upon the RBA the need to avoid a policy response, such as consecutive months or a 50 basis point move, that might unnecessarily unnerve households.
We are aware that the Governor is concerned about global developments and probably would like to retain some flexibility to respond to an unexpected global shock – better to cut rates in October and allow flexibility to move again in December rather than delay until November and have to do consecutive November/ December moves.
There also seems little reason to delay beyond October – we know that the August inflation, wages, and unemployment forecasts were revised down despite assuming two more rate cuts – one in 2019 and one in early 2020.
We do not expect any further downward revisions in November that might require an immediate policy response.
The forecasts also embed a lift in growth momentum in 2019 from 2% (annualised in 2019 H1) to 2.75% in 2019 H2.
The June quarter GDP report will print the day after the September Board meeting. In our preview we expect that Q2 will print 0.5% growth, including consumption growth of 0.4% up from 0.3% in the March quarter.
We think this report is unlikely to impact any decision for an October cut since the real question around GDP will be the extent to which spending responds to the rate cuts in June/July; a lower AUD; the tax offset payments, which are now rolling out ($7.7 billion); the election result and the lift in auction clearance rates in Sydney and Melbourne.
This information is unlikely to be sufficiently clear by November to justify waiting until then.
In this note I also wanted to comment on some of our other financial market forecasts.
We are not anticipating further sharp falls in fixed interest rates.
The Australian 3 year swap rate has now fallen to 0.70% - 30 basis points below cash but only around 30 basis points above the expected terminal cash rate. That compares with around 50 basis points that the swap rate averaged over the 1.5% cash rate that held between August 2016 and June 2019. That period was marked by expectations of rate increases, although those expectations faded badly by the second half of 2018. Nevertheless we are now dealing with the expectation of an incredibly flat curve even when markets resume some form of equilibrium.
For those reasons our current swap rate forecasts envisage the swap rate holding around current levels despite further rate cuts from the RBA.
The current shape of the curve is likely also influenced by the market’s expectation that some form of QE may impact the term premium. Such policy could be implemented by the RBA (a direct asset purchase program) or via the banks (through direct funding from the RBA which flows on to other rates).
Of course the other way that current swap rates could fall further would be through an even lower terminal cash rate than the 0.5% which we currently envisage. To be sure, a package of QE and a cut to 0.25% would significantly lower swap rates further.
There are similar considerations for the 10 year bond rate. The bond rate has fallen to 0.90% - around 50 basis points above the market’s terminal cash rate, of around 0.4%. That compares with a margin of around 100 basis points between the 10 year bond rate and the steady 1.5% cash rate in the 2016-2019 period. Without an even lower terminal cash rate or some QE program by the RBA (directly or through the banks) it seems a stretch to expect any further sustained falls in that bond rate despite two more rate cuts coming from the RBA.
The comparison with the US is interesting. The market’s terminal federal funds rate is now around 0.9% by early 2021. A current US 10 year bond rate of around 1.5% is largely in line with our expected equilibrium margin in Australia of 50 basis points.
Westpac’s forecasts for the terminal cash rate in Australia are now broadly in line with the market. While our current federal funds rate forecast currently entails three more cuts in 2019 followed by some stability at a federal funds rate of 1.375%, the speed that we envision this easing is more aggressive than market pricing of 2½ cuts by end 2019 and therefore consistent with the US bond rate staying down at these levels for the rest of this year.
In 2020, we are certainly not expecting a recession in the US despite the inverted 2-10 year bond curve signal. US 10 year rates are distorted by the negative bond rates in Europe and Japan, and indeed, that also partly explains the unprecedented flat curve relative to the market’s expected terminal federal funds rate which we highlighted earlier. Instead, we look to a more cautious White House in 2020 as the Presidential election nears. However we do acknowledge that the FOMC might eventually move even closer to the cash rates in other markets as US economic growth drops below potential in 2020 and 2021.
BILL EVANS is the Chief Economist at Westpac
</body></html>

RBA to hold next week, but expect October rate cut: Bill Evans

<html><body>
EXPERT OBSERVER
The minutes of the Reserve Bank Board meeting for August have provided one significant surprise.
In both the Governor's decision statement following the meeting and the Statement on Monetary Policy( similar version), the conclusion included "the Board would continue to monitor developments in the labour market closely and adjust monetary policy if needed to support sustainable growth in the economy and the achievement of the inflation target over time".
In these minutes, the emphasis has changed to the following "the Board judged it appropriate to assess developments in the global and domestic economies before considering further change in the setting of monetary policy. Members would consider a further easing of monetary policy if the accumulation of additional evidence suggests this was needed to support sustainable growth in the economy and the achievement of the inflation target over time".
So the message here is that policy could be eased in response to an unexpected deterioration in the global economy without the labour market providing an adequate justification for a rate cut.
Clearly, the Board has become more concerned about the global outlook: "trade and technology disputes had increased the downside risks to the global outlook", "uncertainty around trade policy had already had a negative effect on investment in many economies", and "a number of central banks had reduced interest rates this year and further monetary easing was widely expected".
This is not to say that concerns around the labour market have eased. As we observed with the increase in the RBA's unemployment forecasts and the downward revision to wage growth forecasts, the Board has noted: "there appeared to have been more spare capacity in the labour market than previously appreciated", and there is "a more subdued outlook for wages than three months earlier".
There appears to be a somewhat positive spin on the outlook for the real economy: "Although, the outlook for consumption remained uncertain, the risks around the outlook were more balanced than they had been for some time", "evidence that conditions in housing markets were showing signs of a turnaround had strengthened in July", and "signs of a turnaround in housing markets suggested there were some upside risks to dwelling investment later in the forecast period".
This commentary is consistent with the growth forecasts which anticipate GDP growth lifting from 2½ per cent in 2019 to 2¾ per cent in 2020. Westpac's forecasts are for 2.25% in 2019 and 2.5% in 2020. However, Westpac sees the clear downside risks to these forecasts coming from global developments, and it appears that the RBA Board is harbouring similar concerns.
As we saw in the Governor's testimony to the parliamentary economic committee, the Board has been briefed on unconventional monetary policy measures. The minutes cover the various measures that have been adopted overseas, but correctly qualify the assessment since "full evaluation could not been undertaken as many of these measures were yet to be unwound". It also noted that "effectiveness depended upon the specific circumstances and the nature of the financial system".
As we saw in the Governor's testimony, at this stage the Board seems to favour purchasing government bonds which were expected to flow through to lower interest rates for private borrowers. It also noted that "a package of measures tended to be more effective than measures implemented in isolation".
Conclusion
We do not think that after emphasising the labour market as the key factor for policy in the May, June and July minutes, the importance of the labour is in any way diluted. However, as a small open economy, a responsible central bank could not be seen to dissociate policy from global developments given the alarming signals around the world economy.
It is also important to be clear that the forecasts in the Statement on Monetary Policy, on which these minutes are based, assume market pricing for the cash rate path. At the time of the forecasts, the market pricing discounted two further rate cuts — one by the "end of this year", and a second in the "first half of 2020".
Despite this rate path, the forecasts indicate a lower profile for wages growth (reaching only 2.4% in 2021), an increase in the unemployment rate forecast (from 5% to 5.2% in December 2020), and the trimmed inflation rate forecast now below 2% by end 2020 (at 1.9%). These forecasts indicate that despite two more rate cuts, the RBA still does not expect the unemployment rate to go remotely close to its stated desired 4.5% over the forecast horizon, or reach the 2-3% target band for inflation before 2021.
Consequently, we remain comfortable with our forecast that the RBA will next cut the cash rate in October by 25bps and wait until early 2020 (February) for the second cut of 25bps.
BILL EVANS is Westpac's Chief Economist
</body></html>

Reserve Bank Board highlights global risks for policy: Bill Evans

<html><body>
EXPERT OBSERVATION
The most recent consumer sentiment result comes as somewhat of a surprise given that the survey was conducted against a turbulent backdrop with global financial markets roiled by escalating trade tensions between the US and China, the ASX down 3.4% and the AUD off 3c US since the July survey.
However, the result does come in the aftermath of an unexpected 4.7% fall in the Index in June/July that came despite consecutive rate cuts from the RBA and the restoration of political certainty following the May Federal election.
At the time, particularly following the July fall of 4%, we speculated that households may have been unnerved by the unusual sequence of consecutive rate reductions, implying that there might be some alarming drop in confidence in official circles around the economic outlook.
Realising that lower rates are in the offing but that there is no need for further consecutive changes might be a more encouraging signal for households than a rapid sequence of rate cuts.
Indeed part of the gain is consistent with firming expectations for additional interest rate cuts. The RBA left rates on hold at its August meeting, pausing after the two cuts in June and July but retained a clear easing bias.
The media and economic forecasters now expect a further lowering in the official cash rate in coming months.
This is influencing consumer views. Responses to an additional question on expectations for mortgage interest rates, run every six months, show just 31% expect rates to be higher in a year’s time compared to 43% when the question was last run in February and 50% this time a year ago.
This is the most dovish mix of responses seen since mid-2012 when the RBA was moving through a significant policy easing cycle.
This less alarmist but nevertheless confident view on interest rates appears to have calmed expectations for the economic outlook.
The sub-index tracking expectations for the ‘economy, next 12 months’ rallied 9.6% in August, reversing most of last month’s 12.3% slump but still down 8.3% since May.
Longer term expectations for the economy also recovered, the ‘economy, next 5 years’ sub-index rising 4.5% after recording a 6.7% fall last month.
<a href="https://www.propertyobserver.com.au/images/2019/8/14/consumer%20sentiment%20.jpg" target="_blank">Click here</a> to enlarge: 
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/8/14/consumer%20sentiment%20.jpg" alt="">
Views around family finances have shown a more muted improvement. The sub-index tracking consumers’ expectations for ‘finances, next 12 months’ rose 0.7% but remained in slightly pessimistic territory.
The ‘finances vs a year ago’ sub-index lifted 0.9% to a five month high, although at 86.5, the sub-index remains at weak levels overall.
The muted gains are despite further signs of improvement in Australia’s housing market and the “Federal government’s tax relief which may be starting to see cash flow to some households.
Spending attitudes showed a firmer gain, the ‘time to buy a major household item’ sub-index is up 2.8% in August to the highest level in over a year.
A major influence on the near term economic outlook is going to be the mix between spending and saving as households receive their increased tax rebates. With sentiment flat and households remaining risk averse we expect consumers to favour saving over spending so this lift in ‘time to buy’ is an encouraging sign for retailers.
Consumers’ job loss fears eased slightly in August. The Westpac-Melbourne Institute Unemployment Expectations Index improved slightly recording a 0.8% decline to 133.3 (recall that lower readings indicate that more consumers expect unemployment to fall in the year ahead).
While the Index is around its long run average level, it has risen 10.3% since May, a significant deterioration from what were consistently better than average readings seen over the six months to February.
Housing-related sentiment continues to show a clear positive response to lower interest rates with assessments of both ‘time to buy’ and house price expectations recording further gains in August.
The ‘time to buy a dwelling’ index rose 3.0% to 126.9, comfortably above the long run average of 120 and the highest level since early 2014.
Sydney and Melbourne continue to lead the turnaround although buyer sentiment posted particularly strong gains in WA and SA this month.
Buyer sentiment has been notably softer in Queensland, the state index down 6.4% this month and down 11.6% on a year ago.
The Westpac-Melbourne Institute Index of House Price Expectations Index posted a solid 5.1% increase. At 125.4, the Index is up 40% since May and back on a par with levels in mid-2018, although still 18% below its previous peak in March 2017. All major states recorded a lift in price expectations this month.
The Reserve Bank Board next meets on September 3. Westpac expects that the Board will decide to keep rates on hold in September before cutting rates by another 25bps at the October meeting with a final 25bp move taking the cash rate to 0.5% in February.
Signals from the RBA are quite clear. In its recent Statement on Monetary Policy the RBA lowered its forecasts for inflation, wages and growth, while lifting its forecasts for the unemployment rate. Those forecasts were despite basing them on the technical assumption of adopting market pricing, which anticipates two more rate cuts.
Accordingly we feel reasonably comfortable that the RBA Board will be cutting rates at least twice more in this cycle.
<a href="https://www.propertyobserver.com.au/images/2019/8/14/consumer%20sentiment%20aug%20.jpg" target="_blank">Click here</a> to enlarge: 
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/8/14/consumer%20sentiment%20aug%20.jpg" alt="">
BILL EVANS is Chief Economist for Westpac.
</body></html>

August house price and consumer sentiment bounce back: Bill Evans 

<html><body>
As expected, the Reserve Bank Board decided to leave the cash rate unchanged at 1.00% at today’s Board meeting.
In terms of the signalling of future policy, we were most interested as to whether the final sentence in the Governor’s decision statement would retain the wording “ease monetary policy further if needed”,  we saw in the July decision statement. That wording implied that some time would be required to assess the next move.
It contrasted with the June decision statement where “if needed” was not used, indicating a preparedness to cut at the next meeting.
In August, “if needed” was again used, and accordingly, we remain comfortable with our forecast that the next rate cut will come at the October meeting rather than the September meeting.
The decision statement which precedes the release of the RBA’s revised forecasts on the following Friday can also provide an early indication of those revisions. In this statement, we are given the revisions for growth, underlying inflation and the unemployment rate out to the new forecast horizon of end 2021 (previous horizon ended in June 2021).
For growth, the RBA has revised down its forecast for 2019 from 2 ¾ per cent to 2 ½ per cent – in line with our preview which printed on August 2. That is not surprising given that growth in the first half of 2019 is likely to print around 1 per cent, making the previous forecast of 2 ¾ per cent highly unlikely.
However it has retained its forecast for 2020 of 2 ¾ – around trend growth. Westpac still sees those forecasts as too high – favouring 2 ¼ per cent in 2019 and 2 ½ per cent respectively.
For underlying inflation, the previous forecasts were 1 ¾ per cent in 2019, 2 per cent in 2020 and 2 per cent in the year to June 2021.
When the June quarter trimmed mean printed 0.4%, following a 0.3% in the March quarter, we revised up our estimate of the where the RBA would forecast 2019 from 1 ½ per cent to 1 ¾ per cent.
We argued at the time that such a forecast would be an unrealistic stretch but assumed that the RBA would want to maintain a forecast of 2 per cent in 2020.
Accordingly, we welcome the cautious approach to the new 2020 forecast for underlying inflation, which is now described as “a little under 2 per cent for 2020”. That is likely to imply a forecast of 1 ¾ per cent, indicating recognition that the RBA will miss the 2-3 per cent target band for another year.
Somewhat offsetting that discouraging forecast is the forecast for the whole of 2021 of “a little above 2 per cent”. So we have gone from a forecast of 2 per cent in 2020 and 2 per cent in the year to June 2021, to 1 ¾ per cent in 2020 and 2 ¼ per cent in 2021.
While the 1 ¾ per cent looks realistic, the jump of ½ of a percentage point to 2 ¼ per cent looks like a stretch.
Previously the unemployment rate was forecast to hold at 5 per cent to December 2020 before falling to 4 ¾ per cent by June 2021.
Recall that the starting point for these forecasts is 5.24% for June 2019, posing a challenge to reach 5 per cent when the forecast growth rate is below trend in 2019 and only at-trend in 2020.
The new forecasts have the unemployment rate drifting down to 5 per cent “over the next couple of years”. That therefore represents an increase in the unemployment outlook, given that the previous forecasts factored in 4 ¾ per cent by June 2021.
Such a forecast is well above the Governor’s informal “target” of 4.5%.
Consequently, the decision statement signals that the RBA will be forecasting less progress on the inflation and unemployment targets than had been expected in the May Statement on Monetary Policy (SMP)( which assumed two rate cuts by year’s end). And of course, we must bear in mind that these new forecasts are based around market pricing which now includes two 25bp rate cuts having been delivered and the prospect of nearly two further cuts to come.
In addition, the May forecasts assumed an AUD of USD 0.70 , compared to current pricing of USD 0.68.
So the RBA finds itself in a position where even if market pricing for further cuts proves to be accurate, it still expects that it will have to wait another year until underlying inflation returns to the 2-3 per cent target band and the unemployment rate drops back to its level of a few months ago.
Little wonder that the Governor notes “it is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress on reducing unemployment and achieve more assured progress towards the inflation target”. This guidance for low rates for an extended period comes as a new  policy tool.
The commentary around the housing market is somewhat more positive with the Sydney and Melbourne markets being described as “some signs of a turnaround” compared to the July description of “tentative signs that prices are now stabilising”.
Some themes around the labour market are consistent with July with employment growth being described as strong, but little inroads being made into reducing spare capacity.
One significant change is a less confident note around wages. In July, the commentary was “a further gradual lift in wages growth is still expected”, whereas in today’s statement, “a further gradual lift in wages growth would be a welcome development”.
Given the developments in the global economy, particularly over the last few days, we are surprised that the RBA is still only talking about the risks being only “tilted to the downside”. We will expect that a more detailed analysis of these risks will be available in the August SMP, which will print on August 9.
Conclusion
We are very comfortable with our view that the RBA has more work to do. Its revised forecasts paint an increasing challenge around both inflation and unemployment. There is also  recognition that growth will be below trend in 2019 and is unlikely to exceed trend in the forecast period.
It still remains possible, that the RBA will choose September as the next date for a rate cut, but given that they must  see limited future flexibility, we expect that they will be a little patient by moving  next in October, and laying  the foundation for another move in February next year, when additional unconventional policies might be used to sharpen the effectiveness of the rate cut.
<a href="https://www.rba.gov.au/media-releases/2019/mr-19-20" target="_blank">Read full RBA Statement</a>
BILL EVANS is Chief Economist for Westpac
</body></html>

RBA points to further cuts: Bill Evans 

<html><body><div class="page" title="Page 1">
<div class="layoutArea">
<div class="column">
EXPERT OBSERVATION
We are bringing forward the timing of our forecast for the next cut in the overnight cash rate by the RBA from November to October.
By October, we expect that the path of the unemployment rate will be sufficiently contrary to the RBA’s plans that they will have appropriate justification to ease policy a little earlier than we had previously expected.
We recognise that September is also likely to be a “live” meeting but expect the Board will wait for more data, such as the June quarter national accounts, before moving again.
We are also revising down our terminal rate forecast from the 0.75% we forecast on May 24 to 0.50%. We expect the move from 0.75% to 0.50% to occur in February next year.
Developments since our last forecast change on May 24
Since we announced the 0.75% target terminal rate on May 24 a number of factors have strengthened the case for an even lower terminal rate.
The AUD is providing less support than expected. At the time of our May 24 forecast, markets had not priced in the prospect of a 0.75% terminal rate by year’s end. 
We expected that as markets moved in that direction the AUD would adjust accordingly. Markets have indeed moved to price in that move but the AUD has actually appreciated from USD0.692 to USD 0.702, partly due to the higher terms of trade and the prospect of a lower US federal funds rate.
We expect that the near term boost to demand from the higher terms of trade will be limited by a cautious response from both the private and public sectors.
Since May 24 we have also moved to forecast an easing cycle from the Federal Reserve. Lower rates globally are largely the result of the concern from the Federal Reserve and other central banks around world growth and deteriorating global trade.
Some data releases since May 24 have also highlighted downside risks for demand, wages and the labour market. In particular we have been surprised by the response of consumer sentiment to the rate cuts in June/July, having fallen by nearly 5%. Furthermore, our measure of unemployment expectations has also deteriorated markedly.
Our forecasts of inflation and unemployment emphasise the extent of the challenge faced by the RBA in boosting demand and wages and reaching their own targets. We expect that the RBA will eventually see only one more rate cut, in October, as being an insufficient response.
</div>
<div class="column">
RBA’s challenge around its forecasts
In its Statement on Monetary Policy (SMP), which will be released on August 9, the RBA is expected to lower its growth forecast for 2019 from 2.75% to 2.50% but retain its current forecast for growth in 2020 to be at trend 2.75%.
On inflation we expect that following the print of the June quarter Consumer Price Index on July 31 the Bank will have to lower its forecast for underlying inflation (trimmed mean) from 1.75% in 2019 to 1.50% and from 2.00% to 1.75% in 2020.
In the August SMP, forecasts for December 2021 will be released and the RBA’s trimmed mean forecast is expected to lift to 2%. The RBA will be signalling an eventual return to the 2–3% target band although the journey will take a year longer.
The real difficulty will come with the unemployment rate where the actual for June has just printed 5.24% compared to the RBA’s forecast of 5.0% in May. In May the RBA was only able to forecast that the unemployment rate would hold steady at 5.0% in both the remainder of 2019 and 2020. That was essentially because it was only prepared to forecast trend growth in 2019 and 2020. A fair rule of thumb is that the unemployment rate can only be credibly forecast to fall if growth is expected to be above trend.
Note that the forecasts in May assumed market pricing which at the time had discounted two 25 bp rate cuts by year’s end. Accordingly the August forecasts cannot be significantly lifted as a result of the rate cuts that have already occurred.
 However, the cuts have come earlier than expected by the market at the time of the May forecasts and it is now discounting a further cut by year’s end. Those factors provide some further market support for the RBA’s August forecasts.
The unemployment forecast is going to challenge the RBA Governor given his stated desire to drive the unemployment rate down to 4.5%.
Westpac’s own forecast for the unemployment rate by end 2019 is 5.4%. A range of our leading indicators – the Westpac Jobs Index and the Westpac Index of Unemployment Expectations – signal a continuation of the current slowdown in employment growth over the remainder of 2019 and into 2020.
With the unemployment rate holding or drifting higher there seems little justification to delay the cut to 0.75% to November. We expect an October move while recognising that September will be a “live” meeting.
This is a relatively minor adjustment to Westpac’s forecast released on May 24, when we were the first in the market to forecast a cash rate below 1.0%.
<div class="page" title="Page 2">
<div class="layoutArea">
<div class="column">
At the time we signalled downside risks to that terminal rate but chose to stick with 0.75% partly due to uncertainty about the effectiveness of any cuts below 0.75%.
The response by the banks to the move in the cash rate to 0.75% will be an indicator to the RBA of the likely effectiveness of any further cuts.
An alternative approach to maximise the impact of a rate cut
However, there may be a way in which the RBA could ensure an effective response of a cut to 0.50%.
When the Bank of England cut the Bank Rate from 0.50% to 0.25% following the Brexit vote in June 2016, it supported the economy through a four pronged strategy. This was highlighted by the Bank Rate cut being accompanied by the Term Funding Scheme, a form of policy designed to “encourage banks to pass on cuts in Bank Rate to customers” (boost household demand). The Term Funding Scheme allowed banks (and building societies) to borrow from the Bank of England on a secured basis (subject to appropriate haircuts) at the new Bank Rate.
In supporting the package, The Bank of England noted that:
“Evidence from a number of economies suggests that, as the level of interest rates set by the central bank becomes lower, the extent to which further cuts are passed on by commercial banks and building societies to other interest rates in the economy decreases, making monetary policy less effective... The potential difficulty, from a monetary policy transmission perspective, arises when interest rates are close to zero because it is likely to be difficult for banks and building societies to reduce deposit rates much further. This constraint means that lenders may then face a choice between reducing the pass through of lower official rates to those they charge on loans — in particular rates on new loans — or a period of lower profitability, which, were it to persist, could reduce the supply of lending.”
(Bank of England Quarterly Bulletin, 2018 Q4)
Adopting a package of instruments, alongside a cut in the Bank Rate, ensured the effectiveness of the rate cut (in time, 24 bps of cuts in the variable mortgage rate followed the 25 bp cut in the Bank Rate) and avoided the confidence drag from adopting an “emergency measure” later on, such as a term lending program or asset purchase facility in isolation.
Banks found that the alternative costs of funding – wholesale and term retail funding – were considerably more expensive (around 70bps) than the drawdown costs of the program.
Important to choose a package best suited to the Australian Financial System
The point is that the combination of a rate cut and a financial package appears to have been quite effective in maximising the impact of the cut. The details of any domestic package, of course, would need to be best suited to the Australian financial system.
Alternatively, the market’s response to the move to 0.75% might be sufficiently encouraging for the RBA to make the cut to 0.50% without any supporting package.
</div>
<div class="column">
At a public forum on July 23rd, I asked the RBA Assistant Governor (Financial Markets) Kent about prospects for other RBA policies to support demand in addition to rate cuts. He indicated that the RBA was unlikely to adopt unconventional policy measures, although he was clear that the RBA had considered a number of policies that had been implemented elsewhere in the world from the perspective of what would be most effective in the Australian financial system.
Consequently in the near term there seems little prospect of the RBA adopting a package of policies which would support the effectiveness of its interest rate policies.
Our forecast is that the RBA will cut the cash rate to 0.50% in February. It may be prepared to link the move with a package of other policies, most appropriate for the Australian financial system, that would result in an effective reduction in the mortgage and business interest rates to ensure effective pass through of the rate cut.
However, we emphasise that the rate cut we envisage in February is not conditional on an associated package of other policies.
BILL EVANS is Chief Economist for Westpac
</div>
</div>
</div>
 
</div>
</div>
</div></body></html>

RBA to cut cash rate to 0.75% in October & to 0.50% in February: Bill Evans

<html><body>
EXPERT OBSERVER
The minutes of the July monetary policy meeting of the Reserve Bank Board confirm that the Board is still open to further monetary easing, although as we had expected, prospects for a third consecutive easing in August have been dampened.
The best way to assess the likelihood of a move in August is to compare the wording in the June minutes with the wording in the July minutes.
In the June minutes, the key “considerations” section noted “members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead”. This very strong sentence was not repeated in the July minutes.
Furthermore the minutes do state that “the Board will continue to monitor developments in the labour market closely, and adjust monetary policy if needed”.
In the June minutes, the “if needed” qualification was not used, merely saying instead “members agreed that in assessing whether further monetary easing was appropriate, developments in the labour market would be particularly important”.
Finally, my experience is that when a central bank decides to pause, it often refers back to previous policy decisions.
In the final paragraph of the July minutes, the Board notes “this decision, together with the reduction in the cash rate decided at the previous meeting, would assist in reducing spare capacity in the economy”.
Other points which are worthy of noting are:
&gt; The Board confirms that it expects that GDP growth will return to trend over coming years. That comment provides a fairly clear indication that the GDP forecasts that will be provided in the August Statement on Monetary Policy will maintain the view that GDP growth in 2020 will reach 2 ¾ per cent.
Westpac expects that following further evidence around the economy’s momentum through 2019, this growth forecast will need to be revised down in the November Statement on Monetary Policy, paving the way for a further rate cut at the November meeting.
In that regard, it is interesting that  in previous communications, the dominant emphasis has been on reducing spare capacity in the labour market, the decision to cut rates was also impacted by the recent disappointing data on output growth, which is described as well below trend over the year to the March quarter.
Despite the prospect of some lift in income growth from the legislated tax cuts, the outlook for consumption growth remains uncertain.
 &gt; The description of the housing market continues to be cautious. Conditions in Sydney and Melbourne are noted to have stabilised, although rising auction clearance rates were on low volumes, and more generally, turnover in the housing market had remained low.
 &gt;The Board explicitly dismisses any prospect of a further decline in interest rates “encouraging an unwelcome material pick-up in borrowing by households that would add to medium-term risks in the economy”.
This is important, since lower rates are expected to support the economy through a more competitive currency and the freeing up of cash for borrowers, but any spill-over into excessive borrowing would always be seen as a constraint for policy.
 &gt; The focus on the labour market remains clear with the unemployment rate, the underemployment rate, and wages growth being the key indicators of spare capacity.
The Board notes that developments in these variables continue to indicate that spare capacity was likely to remain in the labour market for some time. That observation indicates that the Board expects that a further easing in monetary policy will be “needed”.
 &gt; Finally, it is worth noting that the Board specifically addresses the recent uplift in the Australian dollar.
It points out that it is important to assess the currency effect on the basis that without the rate cut, the exchange rate would have been higher as other central banks continue to ease policy.
Conclusion
On May 24th, Westpac complemented its February call for two rate cuts in the second half of 2019 with the likelihood of a third cut.
However, we expected that there would be some months break between the second and third cuts.
With the first two cuts now having been delivered, and some clear signals from these minutes that the Board is likely to pause before further adjustments, we remain comfortable with our call that the next move will be in November.
The minutes confirm that the Board is prepared to move and probably expects to move again but prefers to wait a while to assess the impact of the first two cuts.
Our forecasts for growth, inflation and the unemployment rate clearly point to the need for further stimulus, and we expect that the November meeting will provide that timing.
However we do recognise that while growth and inflation remain key policy objectives, the labour market has the most immediate priority.
With updates to conditions in the labour market being provided on a monthly basis, prospects for the next move being as early as September or October cannot be dismissed.
BILL EVANS is Chief Economist for Westpac
</body></html>

July RBA Board minutes signal a pause in the easing cycle: Westpac's Bill Evans

Perth’s new apartment market recorded its strongest quarter of sales since Q4 2021, with 412 apartments sold in Q1 2026 and a record quarterly sold value of $537 million, according to Urbis’ latest Apartment Essentials results.

Urbis said the March quarter result reflects strong, highly product‑specific demand across both ends of the market, from more attainable projects delivering at scale, through to premium stock being absorbed by equity‑rich downsizers.&nbsp;

David Cresp, Partner at Urbis, said the key story in Perth is not demand, it is the market’s ability to convert demand into delivered housing.&nbsp;

“This is the strongest sales quarter since Q4 2021, and it reinforces that demand in Perth is real and it’s local,” David Cresp said. “But the task now is delivery, turning that demand into projects that can actually be built and completed.”&nbsp;

[smartcode_project:default project_id=110291 project_image_fid=302785]

<h2>Affordable product leads, premium demand remains resilient</h2>

Sales in Q1 were led by more affordable projects, with The Boulevard (SKS Group) recording 115 sales in the quarter, the presentation noting this is only the second time a single project has surpassed 100 quarterly sales. The project was able to offer more affordable housing product right next to a train station.&nbsp;

Palmyra West (Finbar) also delivered strong results with 28 sales in Q1, following 84 sales in Q4, with an average price of under $800,000, underscoring depth of demand for well‑located, attainable new stock.&nbsp;

At the premium end, Urbis said downsizer demand is continuing, with the results highlighting Romeo (Applecross, Finbar) recording 75 sales and reaching almost 50% sold in one quarter.

Jual (Shenton Park, Celsius Property) also posted a strong quarter with 28 sales, reaching 39% sold in one quarter.

Urbis noted that Perth apartment demand is not speculative, not investor‑led, and not uniform, describing it as localised, often equity‑driven and highly product‑specific, a pattern reflected in the polarisation between strong “attainable” performers and premium downsizer product.&nbsp;

[smartcode_project:default project_id=148957 project_image_fid=364102]

<h2>Prices underpinned by costs, and the delivery risk is growing</h2>

Urbis said pricing pressure is cost not demand‑driven: construction costs and delivery risk are now a central constraint, with the results noting build costs remain elevated and volatile, and that energy, fuel and labour uncertainty weigh on feasibility.

David Cresp said a growing challenge for private Build‑to‑Sell developers is simply securing a builder in the current environment.

“Developers are really feeling the pressure from a building market that was operating at capacity and securing a builder is challenging,” David Cresp said, adding that even where a builder can be secured, “trying to get to the price that makes the development financially viable is incredibly challenging in the current market.”&nbsp;

Urbis’ broader WA commentary also notes that industry remains at or above capacity with lot and housing creation, and that many builders are limiting new sales to manage stretched workforces and fixed‑price contract pressures, conditions that flow directly into apartment feasibility and delivery timing.

[smartcode_project:default project_id=108869 project_image_fid=317905]

<h2>Supply: improving later, but still constrained, and Perth lags eastern benchmarks</h2>

While near‑term supply remains constrained, Urbis’ forecast shows completions lifting “Supply is forecast to be back above 1,500 apartments per annum for the first time since 2019”, with 1,775 completions forecast for 2026, and volumes remaining above that level over the following years.&nbsp;

Looking further ahead, completions are forecast to reach 2,500 in 2028, with the report noting 32% of that total is social/affordable, reflecting the role of government‑supported delivery in rebuilding the pipeline.&nbsp;

However, Urbis said Perth remains behind comparable markets on pipeline scale. In a national comparison of projects under construction, the report shows under construction Perth Build‑to‑Sell (BTS) at 3,446 apartments versus the Gold Coast at 7,922. Mr Cresp said “The challenge for Perth is how to we grow the delivery pipeline”.

Urbis’ conclusion is that Perth’s market is increasingly defined by product discipline and delivery certainty, with the research identifying “delivery certainty is key” and calling out builder risk and procurement models as core success factors, alongside “timing and staging”.&nbsp;

Joel Robinson

Perth apartment sales hit strongest pace since late 2021 as builder capacity tightens

<a href="https://www.apartments.com.au/developers/sammut-developments">Sammut Group</a> has secured development approval for its latest Brisbane apartment project, marking the Sydney developer’s next step in expanding its Queensland pipeline following the success of its debut Gold Coast development, Coast.

The approved project at <a href="https://www.apartments.com.au/new-apartments/44-glen-road-toowong-qld-4066">44 Glen Road, </a><a href="https://www.apartments.com.au/developments/toowong-qld-4066">Toowong</a> will deliver a 15-storey riverfront apartment building with 42 residences, significantly increasing the scale of the site’s previous approval for a smaller luxury scheme. Designed by Bureau^proberts, the development will comprise a mix of predominantly four-bedroom and two-bedroom apartments positioned to maximise Brisbane River and city views.

Sammut Director Julian Sammut said the group had been actively searching Brisbane for several years before identifying Toowong as the right fit.

“Brisbane was the right step for Sammut,” Sammut said.

“With the success of Coast we thought we should definitely look to do more in Queensland alone. We then pushed up to look at Brisbane. We've been looking for I'd say two to three years actually and it was hard to find the right location.”

<img alt="Sammut makes Brisbane apartment play" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/f_auto,c_limit,w_1440,q_75/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/field/image/Screenshot%202025-12-23%20at%203.27.14%E2%80%AFPM.png?VersionId=dYAVIL7qdcGA8ojvkslSrLjczXFejSSx" />

Sammut said suburbs including New Farm and Teneriffe were considered before the group ultimately focused on Toowong due to its strong downsizer demographic and limited supply of developable riverfront land.

The site was acquired off-market after what Sammut described as a lengthy negotiation and planning process, with the developer pursuing an uplift to the original approval.

“We are DA approved now which is very exciting,” Sammut said.

“We've had our change approval come through and we've obviously doubled the height, 15 storeys plus rooftop. We've got 42 amazing apartments that are going to be coming to market soon.”

<img alt="Sammut makes Brisbane apartment play" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,dpr_2.0,q_auto:good/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202025-12-23%20at%203.27.26%E2%80%AFPM.png?VersionId=ohkRkY0dIZlqdfME2EZePsCQavRiBadE" />

Bureau^proberts said the design responds to Toowong’s evolving urban character, balancing contemporary apartment living with the area’s established residential identity.

“A place where traditional Queensland living has taken place for centuries; Toowong is seeing a shift of contemporary influence, commercial and retail hubs mixed with well-considered residential offerings – all the while maintaining its character and charm,” the architect noted in planning documents submitted to Brisbane City Council.

The architecture practice said the project’s form was shaped by its riverfront setting, flood considerations, neighbouring building scales, and view corridors.

“They said the mix of four and two-bedroom apartments capture the ‘fundamental qualities of Queenslander living,’ translated into the context of a contemporary subtropical building.”

The development sits just off Coronation Drive within walking distance of Toowong’s retail precinct and the upgraded Regatta ferry terminal, while also benefiting from proximity to the incoming green bridge connection to West End. Sammut said the accessibility and amenity offering were central to the site’s appeal.

The approval adds to growing residential activity along the Toowong riverfront, joining nearby projects including Consolidated Properties’ Monarch Residences and Spyre Group’s ARC Residences.

Sammut secures approval for debut Brisbane apartment development in Toowong

Developer Lanevick is heading back into Sydney’s apartment market after focusing more heavily on the luxury townhouse and terrace sector in recent years.

Lanevick, founded and directed by Steve Maroun, is expecting to receive approval in the coming months for a new apartment development in Gladesville, with the aim to launch it to the market later this year.

The 51-apartment project, designed by Studio Johnston, will comprise a mix of one-, two-, and three-bedroom apartments positioned toward the Hunters Hill downsizer market.

“Traditionally it’s been difficult for people in that market to downsize because there just hasn’t been the right product available,” Maroun said.

“We’re targeting buyers who might have 30 to 40 per cent of their house value sitting in the bank after downsizing.

“They still want good spacious entertaining areas, they still want quality design, but they also want flexibility and the ability to enjoy life a bit more after working hard for a long time.”

The project sits near Boronia Park and within close proximity to the Parramatta River foreshore, an area Maroun says offers more of a Hunters Hill lifestyle than a traditional apartment precinct.

“From a lifestyle perspective, it’s really more Hunters Hill than Gladesville,” Maroun said. “You’re close to the foreshore, close to parklands, and still connected back into the village precinct.”

From level four and above, apartments will capture water views&nbsp;toward Sydney Harbour. Communal amenity will include rooftop entertaining areas, wellness spaces, and a gym tailored toward owner-occupier buyers.

“We’ve really designed these apartments around that buyer coming from the Hunters Hill LGA and what they’re actually looking for in their next chapter.”

The proposed development has also been designed to respond to the changing character of the broader Gladesville town centre, where a growing number of mixed-use and residential proposals are expected to emerge over the coming years.

“Gladesville presented a rare opportunity to deliver a genuinely design-led residential project within an evolving lifestyle precinct, just moments from the growing Gladesville town centre, and we’ve approached the project with a strong focus on architecture, liveability and long-term community value,” Maroun said.

Maroun said Lanevick saw a first-mover advantage within the precinct as planning controls continue to evolve to accommodate greater housing density.

“We think there’s a real opportunity there that hasn’t really been serviced properly yet,” he said.

“There’s going to be a broader evolution of the whole Gladesville village precinct over time, particularly with more activation and mixed-use outcomes.”

The Venus Street proposal will include a commercial and retail component at ground level designed to contribute to that evolving streetscape activation.

“A big part of the thinking was how do you activate that area properly and create more vibrancy and amenity, which is what Hunters Hill has been looking for,” Maroun said.

Lanevick’s focus since 2020 has largely been on smaller-scale luxury townhouse and terrace developments. The developer recently completed Royale Randwick, also designed by Studio Johnston, where prices reached $3.65 million. The project was featured in the UDIA NSW 2026 Professional Development Prospectus and was also named a finalist for Development of the Year.

&nbsp;

Lanevick to cater for Hunters Hill downsizers with new Gladesville apartment development

Property developer One Living, backed by former Macquarie banker turned investment manager Chris Green’s investment firm, has unveiled plans to bring more institutional capital into housing to help address the national supply crisis.

The New York-based investor has focused his firm, GreenPoint Partners, on addressing the supply shortage hitting middle market housing in Australia.

It is backing the new One Living business to develop more than 1000 units along the eastern seaboard. The new firm is starting with a development on Mona Vale Road, on the border of Mona Vale and Pymble, in Sydney’s Northern Beaches, with around 140 apartments planned. They are eyeing off more sites across the city.

With cost pressures rising in the industry, One Living’s model is to be a vertically integrated developer-builder, so it can respond directly to the housing gap by removing the cost inefficiencies embedded in traditional residential delivery.

“We are building a platform designed to operate at scale and starting in a market where there’s a clear need for quality, attainable housing,” One Living joint managing director Joseph Scuderi said.

“It’s that missing middle – it’s that attainable end of housing… that’s what most Australians invest into and what Australians can actually afford.”

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="798dfa93-4941-4db6-a696-31e9dc18e81c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.31.50%E2%80%AFPM.png?VersionId=mKBqi5C_DmeiXS.AtJkcR8LQIxqCqmFi" />

GreenPoint Partners brings years of experience assembling and scaling real estate operating businesses across major markets. And Green sees a big opportunity in Australia.

“For its size, sophistication and importance to the community, Australia’s living sector has remained largely under-institutionalised, which represents significant opportunity,” Green said. “GreenPoint identified that gap, assembled the right team, and is backing One Living to build a platform that is aligned to market needs.”

Green said being a builder-developer would give the company the capacity and flexibility it required to deliver reasonably-priced homes.

“We want it to be at that attainable level; not super high end luxury but at that attainable level,” he said.

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="74a5344a-4b26-4d4a-ada3-056b1220be77" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.32.15%E2%80%AFPM.png?VersionId=vY8hXHO4reBMdO8ZXMWCNtGZJofUPQ3j" />

&nbsp;

One Living will undertake a component of affordable housing in its schemes, which it will own and operate, and it could also run build-to-rent on some sites.

Green praised local policy settings.

“The NSW government is being very supportive, strategic and pragmatic in terms of how do we generate more supply of housing,” he said. “We think it’s actually positive for development and the bit that’s been lacking at that attainable level is that it’s lots of relatively small private developers, whereas we want to create an institutional platform.”

One Living is also&nbsp;looking at high-density projects and could take on more institutional funding in the future.

“The way we will be able to achieve economies of scale is through size,” Green added.

One Living enters Sydney's new apartment market with Northern Beaches site acquisition

It's been several years since there's been an opportunity to buy a brand new townhome in Melbourne's coastal suburb of Mordialloc. Even apartment developments in recent times have been few and far between in the area.

Local developer LDS Property identified the gap in new housing, securing a site on White Street, directly opposite&nbsp;Woodlands Golf Club Mordialloc. They've recently launched&nbsp;<a href="https://www.apartments.com.au/new-townhouses/wm-residences-mordialloc-102-white-street-mordialloc-vic-3195">WM Residences</a>, just 13 townhouses which they have already started building.

Projects by Buxton Director Heath Thompson, who is selling WM Residences, says the townhouses x that perfect middle ground be

"Mordialloc residents have had limited options to downsize within the suburb, often forcing them to look elsewhere despite long-standing ties to the area," Thompson says.

"With very little comparable new supply coming to market, projects like WM Residences are well placed, particularly as buyers look to capitalise on current conditions amid constrained supply."

[smartcode_project:default project_id=134646 project_image_fid=6109]

The development, designed by regarded architecture firm&nbsp;<a href="https://www.apartments.com.au/architects/ewert-leaf">Ewert Leaf</a>,&nbsp;adopts a deliberately restrained architectural approach, focusing on simplicity, durability and liveability rather than overt design gestures.

The boutique scale is central to the offering. With only 13 three-bedroom residences, each home is configured to prioritise functional layouts and everyday use, supported by private terraces and secure two-car garages.

Ewert Leaf’s design response leans into a calm, neutral material palette. Interiors are defined by oak flooring, white walls and soft finishes, creating a consistent and understated backdrop. The approach avoids trend-driven detailing in favour of longevity, with an emphasis on natural light and spatial clarity.

[smartcode_project:default project_id=134646 project_image_fid=6110]

Beyond aesthetics, the homes are designed to meet contemporary performance expectations. Each residence targets a minimum 6-star energy rating, incorporating double glazing, comprehensive insulation and all-electric Bosch appliances.

The project’s location supports a walkable coastal lifestyle, sitting within close proximity to Mordialloc’s foreshore, Main Street retail strip and the train station. Local cafés and dining venues, including Suburbia Deli and Hendriks Café, are within a short walk, reinforcing the area’s established neighbourhood character.

[smartcode_project:default project_id=134646 project_image_fid=6116]

While <a href="https://www.apartments.com.au/developments/mordialloc-vic-3195">Mordialloc</a> is often defined by its beach and pier, the project taps into other areas of day to day living, offering easy access to local food, casual dining and transport, rather than positioning itself purely as a lifestyle retreat.

WM Residences reflects a continued trend across Melbourne’s coastal suburbs towards smaller-scale, design-led townhouse developments, particularly on infill sites where proximity to amenity is already established.

With construction commenced prior to its market entry, the project aligns with a growing preference among buyers for developments with visible progress and defined delivery timeframes.

[smartcode_project_cta:default project_id=134646]

Bill Evans

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News