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RP Data and Rismark have reported their March quarter house price index results today, and the findings were encouraging. They certainly dispel any predictions of precipitous price falls. 
Across Australia’s eight capital cities, dwelling values actually increased by a modest 0.2% in the month of March with Sydney (+0.4%), Brisbane (+0.8%), Perth (+1.4%), Hobart (+1.4%), and Darwin (+1.1%) also registering decent capital gains. In contrast, home values fell in Melbourne (-0.2%), Adelaide (-1.4%), and Canberra (-0.3%). 
Over the first three months of the year, Australian dwelling values are unchanged (0%) across the eight capital cities. In fact, RP Data-Rismark’s hedonic index data suggest that Australian dwelling values have not budged at all since the end of October 2011, which makes sense given the RBA’s shift to a much more accommodative policy stance.
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As regular readers will recall, I previously forecast that we would see a cessation to the house price declines that were characteristic of 2011, and an improvement in activity during the first quarter of 2012. This appears to have panned out. 
While housing conditions naturally vary across the individual cities, RP Data-Rismark report a consistent pattern of stabilisation across the three major conurbations (see chart below). Since the end of November 2011, Sydney and Melbourne dwelling values are basically unchanged (-0.1% and +0.1%, respectively), while Brisbane values have actually edged up a touch (+0.5%).
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The standout performer in the year to date has been Sydney real estate, with dwelling values realising robust capital growth of 1.1% over the first quarter. Needless to say, it is rare that Sydneysiders read much that is positive about house prices, given the proclivities of local journos keen to grab headlines by peddling doom and gloom. 
The subsiding of material price falls since the RBA’s first rate cut in November is also clear across the smaller cities. With the exception of Adelaide (-4.1%), home values in Perth (+2.2%), Darwin (+5.2%), Canberra (-0.6%) and Hobart (+0.5%) are all around their November 2011 levels, or higher (see chart below).
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The stability in conditions is also evident in other indicators. Auction clearance rates have gradually improved, with the national rate now regularly printing above 50% (see chart below). Housing credit, which is a key demand-side proxy, is also expanding – not contracting – at a pace that would be expected given the growth in disposable household earnings.
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In the final chart below I have illustrated the RBA’s analysis of Australia’s housing debt-to-disposable income ratio.  For the best part of the last six years, the growth in Australian housing credit has tracked household incomes almost exactly 1:1. This is why the line in the chart has moved sideways. It is also what we’ve predicted for years now: that is, a deceleration in the double-digit household credit growth rates to a new normal of single-digit rates in line with incomes.
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Reflecting on today’s results, Rismark’s Ben Skilbeck added, “While the housing market remains soft, the fact that values did not change over the first quarter of 2012 suggests that it is consolidating its position following a weak 2011. In addition, the ratio of national house prices to incomes is currently below its decade average, which implies that affordability is better than it has been. Finally, we note that the share of first time buyers as a proportion of all loans approved is back to levels not seen for two years. First time buyers are typically a good weathercock for changes in affordability.”
Christopher Joye is a leading financial economist and a director of <a href="https://www.ybr.com.au/savings/index.cfm">Yellow Brick Road Funds Management</a> and Rismark. The above article is not investment advice.
 
 
 
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Sydney the standout performer in 2012 for dwelling values: Christopher Joye

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Christopher Joye's video take on the possibility of a rate cut next week

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In contrast to the sometimes hysterical media coverage yesterday of a minor Fitch report claiming that Australian home loan delinquencies had risen over the second half of 2011, the RBA’s Financial Stability Review released today corrects this error and finds quite the opposite. 
The difference between the two reports is explained by what they cover. The RBA’s analysis includes all home loans on bank balance-sheets plus “securitised” loans: more than $1.2 trillion worth in total. In contrast, Fitch’s research only covers securitised loans, which amount to less than $100 billion. To be clear, these loans are included in the RBA’s sample, but represent less than 10% of the total. 
The RBA concludes that total home loan arrears in Australia declined – not increased (as Fitch argued) – in the second-half of 2011. Specifically, the RBA comments: 
“The arrears rate for housing loans (on banks’ domestic books plus securitised housing loans) declined to 0.6% in December, from 0.7% in mid-2011. The non-performing rate for credit cards has also improved, falling from 1.4% in June 2011 to 1.2% in December, while the rate for other personal loans has been broadly unchanged since mid-2011 at around 2%.”
 
The RBA’s chart below shows that while home loan arrears have risen steadily since their nadir in 2003, they remain no higher than they were in the mid-1990s. The drop-off in delinquencies in the latter half of 2011 is clearly visible at the end of the time-series.
<img src="/images/stories/rbamarch281.gif">
The improved debt-servicing performance of Australian borrowers was also reflected in a trend decline in applications for repossessions of homes across most Australian states. The RBA has been building up its analysis of foreclosures, and the latest Financial Stability Review presents the best parsing yet. The second chart below illustrates trend changes in foreclosures for New South Wales, Victoria, Western Australia, and south-east Queensland through to early 2012. In this context, the RBA observes: 
“Possession rates have generally either stabilised or improved in most other states. Bankruptcy rates have [also] broadly fallen across states since 2009, although less so in Queensland and Western Australia. Overall, though, the number of households whose financial difficulties have deteriorated to the extremes of bankruptcy or lender property possession is very low in absolute terms.”
<img src="/images/stories/rbamarch282.gif">
Another unique RBA data-set released today is the share Australian borrowers who are repaying their home loans more quickly than what is actually required by their lenders (under their “amortisation schedules”). The RBA’s research reveals that these so-called “excess repayments” increased significantly over the course of 2011, which in turn implies that household stress was on the decline (refer to the third chart below): 
“Many borrowers are repaying substantially more than required: data from lenders suggest that the rate at which borrowers were making excess repayments on their mortgages increased over 2011. Total excess repayments were roughly the same as required repayments in the December quarter 2011, up from about 80%in the March quarter.”
<img src="/images/stories/rbamarch283.gif">
Finally, the RBA confirms my recent arguments about advances in home owner affordability, noting, “At the national level, the ratio of dwelling prices to income has fallen over the past year, and is below the average of the past decade, while rental yields have begun to pick up, assisted by stronger rental growth as well as lower prices.” 
It will be fascinating to see how much media prominence is given to the RBA’s findings vis-à-vis the coverage yesterday of Fitch’s report.
Christopher Joye is a leading financial economist and a director of Rismark International and Yellow Brick Road Funds Management. The above article is not investment advice.
 
 
 
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Australian home loan arrears are falling (not increasing): Christopher Joye

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The new daily house price index launched by RP Data and Rismark in concert with the ASX affords some timely insights into the latest market dynamics. Based on the daily index values through to the March 27 (inclusive), we can arrive at several insights. 
First, Australian home values stopped falling in 2012 and look to be treading water. During the first three months of the year, dwelling values across the eight biggest Australian cities are, on average, unchanged. Drilling down into more detail, home values declined during the seasonally tepid month of January, but have recovered these losses in February and March. 
You can see from my first chart below that once the end-2011 “high watermark” was reclaimed in the third week of March, Aussie home values have tended to track sideways. (Note that the resolution of the y-axis in the next two charts has been boosted to make it easier on your eye: while the changes look large, they are, in truth, small.)
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The good news is that Australian house prices are not falling, which makes a change from the deflationary conditions that prevailed during much of 2011. In fact, we’ve had no substantive cumulative decline in Australian home values since late 2011. To prove this point, my next chart stretches this same data back over the last four months (note again the high-resolution y-axis, which optically exaggerates the index movements).
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What is perhaps more interesting is that if we go back a little further in time to, say, the beginning of 2010, we find that the capital gains and losses over 2010 and 2011, respectively, have cancelled each other out. As my final chart illustrates, the cost of Australian housing has not increased at all over the last two and a bit years (values are up slightly, and certainly not down in actual, or “nominal” terms). This image, of course, looks nothing like the hysterical pictures painted by doomsayers such as Steve Keen, who has variously prophesised 20% to 40% falls in Aussie house prices. 
If we account for the rise in the cost of living (i.e., inflation) and the growth in disposable household incomes over this same period, we find that there has been an inflation- or income-adjusted “real” decline in housing costs. Put differently, Australian housing has become cheaper when we deflate its price by our earnings. This is why Rismark’s dwelling price-to-household income ratio has fallen to its lowest level since mid-2003. This is a positive development for those who aspire to one day be owner-occupiers.
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Peering ahead, there are reasons to be optimistic. While the mix of the total returns real estate investors realise has probably changed (with more income and less capital growth), and the total returns themselves will be lower than those that manifest during the 1990s and early 2000s, it is unlikely that we will see another significant slump in prices unless the RBA changes its policy stance. 
Recent auction data has been encouraging, with clearance rates in the two most popular auction centres, Sydney and Melbourne, oscillating around the 60% threshold.  And contrary to some reporting, leading-indicator data on new home loan approvals over both February and March suggest that housing demand has bounced back, as we expected following the RBA’s (net) 40 basis-point reduction in mortgage rates. 
One of the more significant signals apropos the health of the market is the fact that the share of first-time buyers as a proportion of all loans approved printed at a historically high 20% in January. This was well above the 17.5% average recorded during 2011, and also better than the long-run average since the ABS began collecting this data. It tells me that would-be buyers are starting to act on the improvement in their purchasing power.
Christopher Joye is a leading financial economist and a director of Rismark International and Yellow Brick Road Funds Management. The above article is not investment advice.
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Flat-lining 2012 Australian housing prices no longer falling: Christopher Joye

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Anyone predicting a much lower 3.5% RBA cash rate by June this year is being frustrated by the notoriously fickle financial markets (and a purportedly error-prone RBA), which, as I anticipated here, have concluded that their late-2011 assumption of up to six further rate cuts was absurd.
The markets have scaled this back strikingly to merely one cut by June. And all the economists who thought we’d get more cuts in the first quarter (following the RBA’s sudden turn-around) have been compelled to shift back the next RBA move to May at the earliest, with some abandoning their calls for cuts altogether.
As I've said for a while now, it is not inconceivable that the next move in rates is actually up, not down, although the probabilities associated with a cut in May remain very meaningful, given the weak economic growth and labour market data combined with middling signals out of China (see more below).
Glenn Stevens recently offered up some unsolicited advice to economists: “There are two rules of forecasting. The first rule is: don't! Second rule is: if you do forecast, never forecast exchange rates because that is easily, without question, the most poorly forecast variable in economics.”
Economists feel compelled to supply us with long-term forecasts, and almost never explain the true uncertainty around these numbers (an issue I’ve complained about for years). History would suggest that any forecast longer than six months is likely to be worthless (see Steve Keen’s track-record <a href="https://christopherjoye.blogspot.com.au/2011/12/debunking-steve-keens-predictions">here</a>). This low conviction is evident in the ever-changing prognostications of local analysts over the last year or two, who have oscillated from hikes galore to no hikes to lots of cuts and now possibly no more cuts.
The vacillation is understandable: it has been awfully hard to "hold the line" with your view of the Aussie and global economies amidst the highly turbulent and frequently conflicting daily information flows coming out of Asia, Europe and North America.
Right now I would personally put a low probability on a cut in April (because of the dramatic drop in bank funding costs over recent weeks and an upward surge in global sentiment), and I think it is probably a coin toss in May.
The RBA's May decision will be heavily influenced by: (1) the first-quarter inflation results, which we get in late April; (2) what banks independently do with their lending rates in the meantime; and (3) the currency movements, and whether our trade-weighted exchange rate looks to have shifted materially downwards (at the time of writing the Aussie dollar is at 103.97 US¢).
A big move down in the currency will afford its own unique form of economic accommodation, while jangling the nerves of the inflation hawks inside the RBA.
On the banks, it is getting increasingly hard to justify further margin expansion given funding costs are falling quite sharply: CBA's excellent AAA-rated covered bond (disclosure: I was an investor) was issued in January at an enormously high margin of 1.75% over the bank bill swap rate, and is now trading at around 1.15% over (i.e., a 60-basis-point decline, or a rise in the actual price of this bond). This has given the buyers of covered bonds terrific capital gains, which show little sign of faltering. ANZ’s latest covered bond issue priced at a margin of just 0.95% over the bank bill swap rate.
One way or another, the local rate debate should furnish us with entertainment, especially in the context of my bet with ALP economist Stephen Koukoulas about what will happen by June. Late last year I was confident (as one can be) that the cash rate would remain above 3.5% while the gloomy Koukie was certain it would crash down to this level or lower. While I proposed that the loser do a "nudie run" around Martin Place, Koukoulas wisely rejected this condition.
One of my long-held expectations – that US bond yields would eventually rise in response to better-than-expected growth and inflation pressures stoked by money-manufacturing central banks – does seem to be slowly coming to fruition. In this respect, UBS argues:
"The jump in US Treasury yields this week marks a secular turning point for bond markets. We believe a long-term bear market has commenced. The source of the sell-off is clear – an improved and more durable global economic recovery, particularly in the US… There are three main reasons for a bear market: (1) a sustainable recovery in the US has taken root, (2) Chinese and overall emerging economy growth will be just fine, and (3) the eurozone recession poses fewer risks to the rest of the world economy. "
Traditional fixed-income managers who invest in fixed-rate bonds (and are "long duration") will likely suffer in this environment (rising yields mean falling prices). Last year, they knocked the ball out of the park. An investor in long-term Aussie government bonds captured a total return of around 30% (including capital gains), while UBS’s Australian Composite Bond Index was up over 11%. In contrast, Aussie shares slumped another 15%.
This year more conservative fund managers that are long interest rates, or short “duration” via investments in floating-rate bonds, may outperform. It should also be a reasonable year for Aussie shares. I turned bullish on domestic equities for the first time since 2007 when the RBA commenced cutting rates. I would be even more bullish on equities (and house prices) if the flock of doves on the RBA’s board prevail in “rolling” the staff – as Graham Kraehe <a target="_blank" href="https://www.propertyobserver.com.au/economy/cash-rate-is-priced-to-perfection-christopher-joye/2012030553687">sensationally revealed they’ve done in the past</a> – and forcing rates lower again.
Christopher Joye is a leading financial economist and a director of Rismark International and Yellow Brick Road Funds Management. The above article is not investment advice.
 
 
 
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Oscillating rates debate with hip pockets and reputations at stake: Christopher Joye

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Today I can reveal an update to some important housing “valuation” analysis that we published here late last year. The revisions leverage off the ABS’s latest National Accounts, which form the basis of the quarterly economic growth (or “GDP”) data.
This analysis asks a simple question: if one took the median Australian house price way back in 1985, and indexed it to (1) the change in disposable incomes per household over time, and (2) any changes in borrowing capacity resulting from variations in mortgage rates, how would this “new” 1985 price compare to actual median prices in 2011?
Put another way, we want to know what percentage of the increase in Aussie house prices since 1985 can be explained by changes in disposable incomes and mortgage rates.
As a crucial part of this analysis, we hold constant the amount households spend on meeting their mortgage repayments as a share of their total disposable income at the original 1985-86 levels.
In particular, Rismark worked out the average mortgage repayments-to-disposable income ratio between 1985 and 1986, and then assume that this is the ratio future households apply to their repayments. The exact ratio used in the analysis is 25%; i.e., one-quarter of disposable income is available to service principal and interest repayments on a home loan.
One can then work out the maximum amount the household can borrow given a level of income and a specific mortgage rate.
The chart below shows the results of this analysis, which replicates a framework first developed by an ANZ economist, Paul Braddick.
Rismark finds that growth in disposable incomes on a per household basis explains about 60% of the increase in Australian house costs since 1985. Changes in borrowing capacity account for another 33% of the rise in Aussie house prices. Taken together, Rismark can explain nearly 93% of the total change in house prices over the last 26 years by simply using incomes and interest rates.
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Regular readers will recall that I have belaboured here the quite radical adjustments in actual mortgage rates that took place over the past three decades. Specifically, the average variable mortgage rate in Australia between 1980 and 1995 was about 12.6%. Since 1995 the average home loan rate has fallen by more than 40% to about 7.3%. This is around where lending rates sit today.
The enormous reduction in the cost of housing debt has enabled households to increase their total amount of debt without necessarily boosting the amount of money they spend servicing that debt (although the evidence implies that there has also been a substitution towards additional housing consumption).
In this context, it is instructive to observe that Australia’s housing debt-to-income ratio rose from circa 40% in the early 1990s to a little over 130% by 2006. Since that time the debt-to-income ratio has flat-lined (see the second chart below). This tells us that housing credit is tracking incomes, which is what we should expect, all else being equal.
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Some analysts like to thump the table about credit growth being at “35-year lows”. This is misleading and assumes that historical rates of credit growth were somehow normal. They were not. The surge in household debt during the 1990s was a function of the equally striking reduction in the long-term cost of that debt.
Going forward, we should expect to see housing credit shadow household purchasing power. That is exactly what is happening today. I would, therefore, characterise current credit growth rates as the “new normal” as opposed to a harbinger of economic Armageddon.
One word of warning. There is an important downside to the far higher housing debt-to-income ratio. The sensitivity of household spending and saving decisions to changes in mortgage rates is now greater than it used to be. That is to say, a sudden and large increase in mortgage rates is likely to have more of an impact on household decision-making than it might have had back in the early 1990s. The converse is also true.
Christopher Joye is a leading financial economist and a director of Rismark International and Yellow Brick Road Funds Management. The above article is not investment advice.
 
 
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The new normal for housing not economic Armageddon: Christopher Joye

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For years I’ve encouraged analysts and commentators to avoid using the performance of property in the unique areas in which they live – e.g., Mosman, Toorak, Whale Beach, or the Mornington Peninsula – as a proxy for Australia’s diverse, $4 trillion housing asset class.
The behavioural tendency to extrapolate out from our immediate environs to the 8.5 million homes not located in our street leads to what psychologists might call an “anchoring bias”. It is no different to taking a micro-cap listed on the ASX and assuming that its returns are a good guide for the ASX All Ordinaries Index. If anything, individual homes, and specific suburbs, are even more heterogeneous.
This anchoring bias is arguably exacerbated by the fact that media organisations tend to focus the bulk of their efforts on covering $1 million-plus properties. But as my first chart below shows, these homes are irrelevant to 95% of all Australian property buyers. In particular, this diagram depicts the distribution of all sales over the last 12 months sorted by price. You can see that homes worth more than $1 million accounted for just 5.7% of total sales. For what it is worth, 90% of all Australian homes sales were for dwellings worth less than $800,000.
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Anyone familiar with Australia’s housing market will intuit that this makes sense. The median dwelling price across all regions and property types was only $400,000 in December 2011. As I reported earlier in the week, Australia’s dwelling price-to-disposable household income ratio has now fallen 12% from a peak of 5.2 times to its current level of around 4.5 times.
Notwithstanding these facts, the property lift-outs in most newspapers and magazines dedicate an inordinate amount of space to the tiny minority of homes that trade for more than magical million-dollar mark.
We also know that by dint of their incomes, many of the analysts, economists, retail bankers, fund managers, investment bankers, accountants and financial planners who are called on to proffer comment on Australian house prices live in its more salubrious suburbs. In this respect, they are especially ill-placed to make inferences about the broader market.
This is likely why during downturns, such as in 2008 or 2011, one frequently finds investment bankers amongst the most “bearish” on conditions, with shrill claims they are down 10% to 30%. Ironically, the bankers are probably right if they are talking about Bellevue Hill, Bondi or Point Piper. But these statements are meaningless when it comes to the 450,000 homes that sell each year that are not located in these areas.
Of course, if the bankers’ communities were representative of the national market there would be no bias. But they are not. In fact, they have systematically underperformed during these corrections. My next chart shows the change in the value of homes situated in Australia’s “cheap”, “expensive”, and “mid-priced” suburbs since the housing market started flat-lining in April 2010. The chart beneath it presents the same data in a slightly different way by comparing Australia’s most expensive suburbs with all others.
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If you happen to live in the most affordable 20% of suburbs, the value of your dwelling drifted by only a trivial 1.5% over the last 1.5 years. If you inhabited the price cohort above, which we classify as the “middle 60%” of suburbs ranked by price, your home’s value declined, on average, by a still fairly modest 3.7%.
It is, by way of contrast, the affluent who have suffered the worst. The most expensive 20% of suburbs across Australia have registered much more substantial price falls of about 6.5% over this period. And you can bet that if you broke this group down further, into, say, the dearest 10% of suburbs, you would find steeper losses again.
So what explains the inferior performance of Australia’s most expensive localities over the last year or two? I would argue one candidate is post-GFC structural adjustment.
The financial services industry, which was one of the principal drivers of demand in the dearest suburbs in Australia’s non-resources states, has now quite radically altered its future growth expectations.
The retail banks, investment banks, and stock broking firms are not shelling out anything like the pay packets that were prevalent in the period preceding 2007. The abysmal performance of the share market more generally has weighed heavily on the portfolios of wealthier individuals, who were often loaded up with equities by their advisors. If only they had more cash and fixed-income!
I would venture that this new “air pocket” in housing demand is most relevant to non-resources states, and to homes valued at between, say, $3 million and $10 million. Australia is still creating extraordinary wealth, with the list of billionaires now numbering in excess of 20. And private sector wages growth –  and total disposable household income growth – have been expanding at normal rates.
In the last one to two years, home buyers have received a tremendous affordability dividend, with the circa 4% decline in house prices accompanied by healthy disposable income growth of around 5% per annum. And now due to the RBA’s benevolence, mortgage rates are 0.4 percentage points lower than they were in October 2011.
So I suspect the housing market will remain healthy for most Australians. RP Data-Rismark’s new daily house price index, which is quoted by the ASX, has reported small capital gains over February and March. There is nevertheless likely to be a fundamental downward adjustment in that specialised $3 million to $10 million segment that was once dominated by financial services professionals.
On the other hand, it is questionable whether demand at the extreme heights of the market, where estates trade for more than $20 million, and buyers typically have little debt, will be much affected.
Australia will keep on producing individuals worth hundreds of millions, if not billions, of dollars. For the time being, however, fewer will do so in financial services.
Christopher Joye is a leading financial economist and a director of Rismark International and Yellow Brick Road Funds Management. The above article is not investment advice.
 
 
 
 
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It's a millionaires' malaise, but housing market healthy for most Australians: Christopher Joye

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Today I am going to dive into the latest affordability and daily house price data.
According to Rismark International analysis, <country-region><place>Australia</place></country-region>’s “all regions” dwelling price-to-disposable household income ratio stabilised at four times in the final quarter of 2011. This represents a 12% fall from the ratio’s post-GFC peak of 4.6 times in June 2010.
The December dwelling price-to-income ratio of four times is the lowest the benchmark has been since June 2003, and is yet another indication of the substantial improvement in housing affordability that materialised over 2011 (see chart).
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Beyond the favourable conjunction of rising incomes and declining house prices, affordability has been boosted by the RBA’s bold decision to cut its cash rate twice in November and December 2011.
While banks subsequently clawed back circa 10 basis points of this interest rate relief in February, housing conditions nevertheless appear to be stabilising. This has been evidenced in better home loan approval volumes, with <place><country-region>Australia</country-region></place>’s largest mortgage broker, AFG, reporting its biggest February month on record.
There have also been some tentative signs of solidity in the new daily house price index data published by RP Data-Rismark in concert with the ASX. Following a fall in prices during the seasonally soft month of January, home values have staged a rebound in February and March (see chart).
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In 2011 the median Australian dwelling price fell by 4.8% from $420,000 to $400,000, based on Rismark’s analysis of <country-region><place>Australia</place></country-region>’s largest database of home sales. In contrast, disposable incomes on a per household basis advanced by 5.3%.
In order to calculate total disposable income on a per household basis (i.e., accounting for multiple income earners per household as opposed to simply average earnings per individual), Rismark takes the ABS National Accounts’ aggregated estimate of disposable household income and divides by the number of households each quarter.
To compare like with like, Rismark produces a “trimmed mean”, or “average” dwelling price in addition to its standard median dwelling price (the household income estimates are quarterly averages rather than medians).
There are some non-cash line items in the National Accounts computations of disposable household incomes that may not be relevant to purchasing power. One of the principal non-cash variables is “imputed owner-occupied rents”. Stripping these out as best it can, Rismark’s research implies that the dwelling price-to-income ratio has fallen from a peak of 5.2 times to 4.5 times today (see final chart below).
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Christopher Joye is a leading financial economist and a director of Rismark International and Yellow Brick Road Funds Management. The above article is not investment advice.
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House prices continue rising in March: Christopher Joye

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At the start of this week I said that the RBA’s board meeting would be a non-event, with it likely to hold rates steady in spite of suggestions that “many” board members believe policy should be more accommodative.
I argued that the most valuable information on the future direction of rates would be drawn from the GDP and unemployment data. And so it has transpired.
Had GDP printed strong – at or above consensus expectations – and Thursday’s labour market report followed on from January with a second healthy increase in total employment (together with a flat or lower unemployment rate), we’d be sitting here today thinking that rates were on hold for the foreseeable future.
Only two events could then drive cuts: a surprisingly low first-quarter inflation number that would give the RBA room to reduce rates without jeopardising its inflation target; and/or the major banks independently jacking up  lending rates again to the point where the RBA felt compelled to negate this with another downward shift in its own cash rate.
The major banks have some interesting game theory facing them. It is absolutely indisputable that bank funding costs have plummeted since their extreme December/January spike on the back of the (at the time) burgeoning European crisis. Combine this with the circa 10-basis-point “top-up” the banks unilaterally added to lending rates after the RBA’s February meeting, and one is left to conclude that the banks’ net interest margins should be looking much healthier today.
Yet in the current low credit growth environment the banks can only drive their shareholder returns on equity and profitability through margin expansion and/or cost cutting (i.e., assuming that top-line revenue growth tracks national incomes). And there is little doubt that the banks have done a wonderful job convincing many commentators that they should be able to continue punching out 18% to 19% returns on equity. All power to them for doing so.
I suspect that references made by major bank CEOs to lots of little lending rate changes in the future is really code for incremental steps to further expand margins, which the big four can do given they have both lower funding costs and much better access to funding supply than their competitors.
The claim that it is a “free lunch” for the RBA to offset these changes by simply cutting the cash rate is spurious. The cash rate is currently at 4.25%, and it can only be reduced to 0% under normal circumstances. Accordingly, every time the RBA cuts the cash rate but the banks do not pass this cut fully on to their borrowers, the RBA (and borrowers) are effectively foregoing latent interest rate ammunition, or economic insurance, in order to preserve bank profitability. That is, there is a direct trade-off here between monetary policy flexibility and bank margins.
Now, the banks quite rightly argue that if they cannot profitably lend, then there will be no credit creation period, and we are all screwed. The challenge, then, is to find the right balance between bank returns, the ability of the RBA to manage monetary policy, and, ultimately, borrowing rates.
This brings me back to this week’s GDP and unemployment data. There is no question that the anaemic fourth quarter GDP print, which was well below the RBA and the market’s expectations, and the soggy employment numbers, with the jobless rate edging up, have created more uncertainty about rates and increased the probability of a future cut. The financial markets currently believe that there is a good chance the RBA will reduce rates once by the time its May meeting is concluded.
I would nevertheless venture that the RBA has a pretty sceptical view of the GDP data given the quite extraordinary historical revisions to it. For example, the March quarter was originally reported to be down 1.2%, but has now revised way up to just -0.3%. If the fourth quarter revises as much as the first, any insights based on it are likely to be rendered useless.
If you fuse that scepticism with the fact that: (1) the jobless rate is bobbing around 5.2%, which is close to its “full employment” level; (2) the RBA has already injected a couple of rate cuts (or thereabouts) into the system, which have yet to have their full effect; (3) the worst-case scenarios for the global economy are, unsurprisingly, not going to come close to being realised; and, finally, (4) the presence of more positive “leading-indicator” data on the state of the labour market, such as job vacancies, job advertisements and various business surveys, one exercises the option to wait until the March quarter inflation results are published. This means leaving rates unchanged until the May meeting.
Again, two curve balls here are: (1) what the banks do with their own lending rates, and whether they simply decide to throw caution to the wind and engage in further margin expansion; and (2) what happens to the Aussie dollar. At the time of writing, it is currently sitting at 106.46 US cents, which is up over one cent from yesterday’s lows near 105 US cents flat. The recent appreciation has been fuelled by market hopes that the Greek debt-swap deal will proceed more smoothly than had been anticipated by the bears.
It is not inconceivable that the Aussie surges back towards 110 US cents, and, if it does, the RBA sounds increasingly like it may wish to throw some sand in the wheels of the exchange rate either via direct intervention (i.e., selling), which it has not done since 2008, or by cutting rates, and thus reducing the differential in rates of return between Australian and US yields. The truth is that many sovereign states are manipulating their currencies, and these beggar-thy-neighbour policies could well force the RBA’s hand.
In summary, we are living in a highly uncertain and complex world where the probabilities of different paths can change materially every day. Years ago I argued this would be the case as the Australian economy became more closely tied to its Chinese, Indian and other Asian trading partners. I will repeat now what I said then: your best bet is to try to position yourself to capitalise on this volatility.
Christopher Joye is a leading financial economist and a director of Rismark International and Yellow Brick Road Funds Management. The above article is not investment advice.
 
 
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A rate cut is back on the table: Christopher Joye

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A poor-quality jobs number combined with the<a target="_blank" href="https://www.propertyobserver.com.au/economy/christopher-joyes-video-take-on-today-s-gdp-figures/2012030753726"> poor GDP print</a> increases the chance of a rate cut in April or May. The RBA may wait to see the inflation data, and it will also be influenced by what the banks do with lending rates.
Funding costs in recent months have declined appreciably, so it will be interesting to see if banks try to undertake any further margin expansion.


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Christopher Joye’s video take on today's unemployment figures

Roseville is poised for a wave of new apartment development following the NSW Government's rezoning of land around Roseville Station under its Transport Oriented Development program.

The new planning controls have unlocked significant development potential within walking distance of the station, with a number of sites expected to be amalgamated and redeveloped in the coming years as developers seek to take advantage of the increased density allowances.

One of the more restrained developments in the precinct, and set among the first to be delivered having commenced well before the recent changes, is Hyecorp's Juliet. The boutique apartment project is already well under construction and remains on track to welcome residents by the end of the year, offering a markedly different proposition to many of the larger-scale developments now likely to emerge across the suburb.

[smartcode_project:default project_id=7395 project_image_fid=278194]

<a href="https://www.apartments.com.au/new-apartments/juliet-roseville-64-pacific-highway-roseville-nsw-2069">Juliet</a> will comprise just&nbsp;34 one-, two-, and three-bedroom apartments opposite Roseville Station. For Hyecorp, which has delivered projects across Sydney's Lower North Shore for more than three decades, Roseville presented a rare opportunity to address a growing gap in the market.

"<a href="https://www.apartments.com.au/developments/roseville-nsw-2069">Roseville</a> has long been one of the North Shore's most tightly held and desirable suburbs, offering a unique combination of village charm, established greenery, excellent transport connections, and proximity to some of Sydney's best schools and lifestyle amenities," Hyecorp said.

"We recognised a growing demand from local homeowners seeking to downsize without leaving the community they have built their lives around. The location presented a rare opportunity to create homes that cater specifically to that buyer profile."

[smartcode_project:default project_id=7395 project_image_fid=278196]

The six-level development has been designed by <a href="https://www.apartments.com.au/architects/pbd-architects">PBD Architects</a> as a collection of residences that feel more like homes than apartments. The brief centred generous floorplans, abundant natural light, quality finishes, and strong connections to outdoor space.

PBD Architects drew inspiration from Roseville's established garden suburb character, creating a building that sits comfortably within its surroundings rather than dominating them. The architecture incorporates natural materials, soft forms, layered landscaping, expansive balconies, and generous setbacks to strengthen the connection between residents and the suburb's leafy environment.

"The focus was on designing spacious, house-like residences for discerning owner-occupiers and downsizers who wanted to remain on the North Shore without compromising on comfort, privacy, or design," PBD said.&nbsp;

"Every apartment was to feel considered, timeless, and highly functional."

[smartcode_project:default project_id=7395 project_image_fid=278195]

Inside, residences feature engineered timber flooring, stone kitchen benchtops and splashbacks, integrated Fisher &amp; Paykel appliances, ducted air conditioning, and large outdoor entertaining areas designed to take advantage of district and treetop views.

Residents will also have access to a rooftop barbecue and lounge area, alongside practical amenities including parcel lockers, EV charging capability, bicycle storage, a dog wash bay, and a basement car wash facility.

The majority of purchasers so far have been local owner-occupiers from Roseville, Lindfield, Chatswood, Killara, and the broader Upper North Shore, many of whom are transitioning from larger family homes.

"Buyers are looking for spacious, house-like apartments that allow them to downsize without feeling like they are sacrificing comfort or functionality," Hyecorp noted.

"They value large kitchens, generous living areas, ample storage, quality finishes, secure parking, lift access, and low-maintenance living."

[smartcode_project:default project_id=7395 project_image_fid=278204]

Juliet sits directly opposite Roseville Train Station and within walking distance of Roseville Village, while Chatswood's retail and dining precinct is only minutes away. The development is also surrounded by some of Sydney's most established schools, including Roseville College, Ravenswood, Pymble Ladies' College, and Knox Grammar, as well as nearby parklands and golf courses.

Juliet is currently more than 75 per cent sold ahead of its anticipated completion in late 2026.

[smartcode_project_cta:default project_id=7395]

Joel Robinson

Juliet to sit quietly amid Roseville apartment boom

Sherpa Property Group has unveiled the third instalment of its Flourish series, securing full approval for the two-tower, $500 million Flourish Soleira development in Palm Beach.

<a href="https://www.apartments.com.au/new-apartments/flourish-soleira-1150-1154-gold-coast-highway-palm-beach-qld-4221">Flourish Soleira</a> will rise from a prominent site in the commercial heart of Palm Beach, the long-time home of Cash Converters and a range of local retailers.

The project will introduce a new retail and dining precinct at ground level, beneath 286 apartments.

[smartcode_project:default project_id=150017 project_image_fid=370959]

“We’re very committed to not only providing affordable residential offerings that are much needed in Palm Beach, but also delivering a vibrant new commercial heart that complements the extraordinary growth of the southern Gold Coast,” Sherpa Property Group founder Christie Leet said.

The development will sit under Sherpa's Flourish brand, which is aimed at providing a pathway into the beachside suburb for locals, first-home buyers and downsizers. In a move designed to assist first-home buyers entering the market, Sherpa has reserved all one and two-bedroom, one-bathroom apartments exclusively for eligible first-home buyers.

[smartcode_project:default project_id=150017 project_image_fid=370964]

“Our vision through Flourish is to create a vibrant retail and lifestyle focal point within the Palm Beach centre zone, delivering thriving communities underpinned by lifestyle-rich locations,” Leet said.

“So far, Flourish has been an incredible success, and we hope to carry this momentum as we progress the next two Flourish projects in Palm Beach.”

[smartcode_project:default project_id=150017 project_image_fid=371430]

Located across 1150-1164 Gold Coast Highway and 3 Sixth Avenue, the development will comprise two towers. The northern tower will deliver 154 apartments, while the southern tower will add a further 132 residences, helping address ongoing demand for new apartments in the tightly held coastal suburb.

Flourish Soleira will also feature the most extensive rooftop amenity offering ever delivered in Palm Beach.

The two towers will be connected by a skybridge, with residents gaining access to a rooftop recreation deck featuring a full-width swimming pool, hot and cold plunge pools, wellness spaces, a gymnasium, private dining facilities, massage treatment rooms, barbecue areas, a basketball court, golf simulator, indoor and outdoor dining spaces, sun lounges and extensive landscaping.

LPS Group is expected to start construction later this year.

Sherpa is already well advanced on construction of its debut Flourish project, Flourish Amargo, located just around the corner from Soleira. Meanwhile, Flourish Oasis, positioned opposite Amargo, recently commenced construction and has nearly sold out its collection of 47 apartments.

[smartcode_project_cta:default project_id=150017]

Sherpa unveils $500m mixed-use Palm Beach precinct, Flourish Soleira

Are mortgage holders set to get a reprieve from the RBA in 2026?

Big Four bank NAB believes so. They are now expecting the next move from the RBA to be a cut, rather than a hike, which they had pencilled in for August. They are unsure of the timing of the cut however, they note in their latest&nbsp;NAB Economics RBA Watch.

NAB Chief Economist, Dr Sally Auld, said recent data suggests the economy has lost momentum and the outlook for rates has shifted, noting that the broader economic backdrop has changed since earlier in the year.

“The next move in the cash rate is likely to be down, but the timing is uncertain," Dr Auld said.

"In February, growth was above trend, the economy was operating above capacity and there was uncertainty over the restrictiveness of rates. None of these conditions exist today,” she outlined.

Dr Auld said recent data pointed to softer momentum across the economy while acknowledging that at the same time, uncertainty remains a key feature of the outlook.

“Both Q1 GDP data and the NAB business survey suggest momentum in the economy has slowed, meaning that growth has likely peaked for the cycle. That said, we are cognisant there is still considerable uncertainty around the outlook, both with respect to activity and inflation.”

Dr Auld said inflation risks and labour market outcomes would be important to watch.

“On the prices side, we are still forecasting above target core inflation through to mid-2027. Margins will compress and weaker labour market outcomes are a risk.”

She said tighter financial conditions are expected to weigh on housing and activity.

“Tighter financial conditions will be reflected in a slowing in house price growth and housing credit growth. In summary, we have greater conviction that the next move in rates is down, but less conviction on the timing.”

Mortgage relief? NAB forecasts RBA rate cut, not hike, after softer economic conditions

A local downsizer has splashed $6.5 million on a penthouse in Perifa's Alex &amp; Willow development in Crows Nest. 
&nbsp; 
The purchaser sold their long-held family home in the area before embarking on a six-month search for the right apartment. After inspecting a range of options across the Lower North Shore, the buyer returned to <a href="https://www.apartments.com.au/new-apartments/alex-willow-crows-nest-82-90-alexander-street-crows-nest-nsw-2065">Alex &amp; Willow</a>. 
&nbsp; 
The buyer profile reflects the project’s broader purchaser mix. <a>Alex &amp; Willow</a> has attracted predominantly local downsizers looking to transition from larger homes without compromising on space or quality, alongside a smaller cohort of upsizers and investors drawn to the project’s location and design credentials. 
&nbsp; 
The milestone sale comes as the project, developed by&nbsp;<a href="https://www.apartments.com.au/developers/perifa">Perifa</a>&nbsp;and delivered by <a href="https://www.apartments.com.au/builders/versatile-made-construction">Versatile Construction</a>, both part of Versatile Group, reaches 60 per cent sold.

[smartcode_project:default project_id=6680 project_image_fid=371325] 
&nbsp; 
Eddie Mansour, Managing Partner of <a href="https://www.apartments.com.au/project-marketer/ray-white-projects">Ray White Projects</a>, said the result demonstrates not only a headline price but also depth of demand. 
&nbsp; 
“This is an exceptional outcome and a clear reflection of sustained buyer demand for premium, well-located downsizer product,” Mansour said.

“We’re seeing a consistent pattern of local homeowners selling family residences and reinvesting into high-quality apartments that allow them to remain within their community. Alex &amp; Willow has resonated strongly with this group because it offers genuine scale, thoughtful design and immediate proximity to the village.” 
&nbsp; 
The sale reflects a broader and consistent trend of local downsizers actively seeking high-quality, low-maintenance residences close to established village centres. Agents report that demand for this product type has remained resilient, particularly where developments offer a rare combination of scale, design quality and walkable amenity. 
&nbsp;&nbsp; 
Fabrizio Perilli, Managing Director of Perifa and Versatile Group, said the sale marks a defining moment for the project. 
&nbsp; 
“The penthouse sale is a strong endorsement of the quality we have delivered, alongside our partners, and the clear demand from local downsizers for premium, boutique residences in this location,” Perilli said.&nbsp; 
&nbsp; 
“Most importantly, we’re proud to see the Alex &amp; Willow community beginning to take shape. As we move closer to completion, we’re looking forward to welcoming residents and seeing the project come to life.”&nbsp;

[smartcode_project:default project_id=6680 project_image_fid=338516] 
&nbsp; 
Designed by <a href="https://www.apartments.com.au/architects/nettletontribe">Nettleton Tribe</a> with interiors by <a href="https://www.apartments.com.au/interior-designers/richards-stanisich">Richards Stanisich</a>, Alex &amp; Willow is a boutique collection of generously sized two- and three-bedroom residences in the heart of Crows Nest village.&nbsp;

Completion is slated for early 2027.

[smartcode_project_cta:default project_id=6680]

Alex & Willow, Crows Nest penthouse sells off the plan for $6.5 million

Fresh from launching the first stage of its Wollongong precinct, <a href="https://www.apartments.com.au/new-apartments/keira-place-wollongong-120-122-smith-street-wollongong-nsw-2500">Keira Place</a>, builder-developer Urban Property Group has unveiled plans for the next phase of the masterplanned community.

Now on public exhibition through the NSW Government's Housing Delivery Authority pathway is a State Significant Development Application for a further 657 homes on the prominent gateway site opposite Beaton Park.

The proposal comprises three buildings, including two build-to-sell towers rising 25 and 30 storeys, delivering 391 apartments, alongside a 12-storey co-living building with 266 residences, making it one of the largest co-living proposals currently planned in regional New South Wales.

Of the apartments proposed in the build-to-sell towers, the majority, 310, are two-bedroom dwellings. The balance comprises 44 one-bedroom apartments and 37 three-bedroom residences. Apartment sizes range from around 50 sqm for one-bedroom homes to approximately 90 sqm for three-bedroom apartments.

<img alt="Smith St" data-entity-type="file" data-entity-uuid="19347059-1612-41a0-9c74-b86a657237f8" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-06-10%20at%2010.02.18%E2%80%AFAM.png?VersionId=sWXnaCcA.cIC6N8YT1dg5pJ2e1V3Z6z7" />

The submission says the proposal has evolved significantly from its original Housing Delivery Authority application following extensive consultation with the State Design Review Panel and Wollongong City Council.

The final scheme has been designed to align with the emerging vision for the Flinders Street Precinct, an area identified by Council as a future high-density mixed-use neighbourhood capable of accommodating substantial housing growth close to transport, employment and community infrastructure.

According to the design report prepared by COX Architecture, the development aims to "deliver a built outcome consistent with the future character of the Wollongong CBD while responding to the site's unique constraints and opportunities."

"Our vision for the next phase of the site evolution in Wollongong is grounded in three design pillars that guide the design response: place, natural environment and celebration," COX said.

"Inspired by its surroundings and grounded in the stories of place on Wodi Wodi Country, the design proposal acknowledges the established character of its setting while creating a unique and timeless identity that sits harmoniously within it.

"The design proposal responds to its specific site conditions, acknowledging the vegetation, climate, wind conditions and solar access of the site."

The architecture responds directly to the site's position between Wollongong's urban core and its natural landscape setting.

COX identified views towards Mount Keira and the Illawarra Escarpment as defining features of the site, while the upper levels of the towers will also capture expansive views across the city and out to the Pacific Ocean.

The design team has positioned the tallest buildings closer to the rail corridor, where overshadowing impacts can be better managed while establishing a landmark built form on the northern approach into the city.

<img alt="Smith St" data-entity-type="file" data-entity-uuid="79580d5b-500c-4ebf-9629-797146a4a694" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-06-10%20at%209.51.59%E2%80%AFAM.png?VersionId=WbTB1EKSG.KDfsfz0F3wp1QVa2oCMGR5" />

Urban Property Group secured the 11,000 sqm Smith Street site in 2022 and has since progressed plans for the broader Keira Place precinct.

Construction recently commenced on the first stage of Keira Place, which will deliver 150 apartments across two residential buildings, including 27 affordable housing apartments and 18 specialist disability accommodation dwellings, alongside activated ground-floor retail and commercial space.

Urban Co-CEO Patrick Elias said the commencement of construction marked a significant milestone for Wollongong and reflected the developer's long-term commitment to regional cities.

"Today's groundbreaking is about turning approvals into homes and moving quickly to deliver much-needed housing in Wollongong's city centre," Elias said.

"Keira Place will provide a diverse mix of homes close to jobs, transport and services, while setting a high benchmark for quality, durability and consumer protection."

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/groundbreaking-marks-start-of-construction-at-keira-place-in-wollongong-cbd">Groundbreaking marks start of construction at Keira Place in Wollongong CBD</a>

&nbsp;

&nbsp;

&nbsp;

Christopher Joye

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