<p>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.</p>

<p>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;</p>

<p>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;</p>

<p>“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;</p>

<p>[smartcode_project:default project_id=110291 project_image_fid=302785]</p>

<h2>Affordable product leads, premium demand remains resilient</h2>

<p>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;</p>

<p>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;</p>

<p>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.</p>

<p>Jual (Shenton Park, Celsius Property) also posted a strong quarter with 28 sales, reaching 39% sold in one quarter.</p>

<p>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;</p>

<p>[smartcode_project:default project_id=148957 project_image_fid=364102]</p>

<h2>Prices underpinned by costs, and the delivery risk is growing</h2>

<p>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.</p>

<p>David Cresp said a growing challenge for private Build‑to‑Sell developers is simply securing a builder in the current environment.</p>

<p>“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;</p>

<p>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.</p>

<p>[smartcode_project:default project_id=108869 project_image_fid=317905]</p>

<h2>Supply: improving later, but still constrained, and Perth lags eastern benchmarks</h2>

<p>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;</p>

<p>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;</p>

<p>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”.</p>

<p>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;</p>


Joel Robinson

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

<p><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.</p>

<p>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.</p>

<p>Sammut Director Julian Sammut said the group had been actively searching Brisbane for several years before identifying Toowong as the right fit.</p>

<p>“Brisbane was the right step for Sammut,” Sammut said.</p>

<p>“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.”</p>

<p><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" /></p>

<p>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.</p>

<p>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.</p>

<p>“We are DA approved now which is very exciting,” Sammut said.</p>

<p>“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.”</p>

<p><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" /></p>

<p>Bureau^proberts said the design responds to Toowong’s evolving urban character, balancing contemporary apartment living with the area’s established residential identity.</p>

<p>“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.</p>

<p>The architecture practice said the project’s form was shaped by its riverfront setting, flood considerations, neighbouring building scales, and view corridors.</p>

<p>“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.”</p>

<p>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.</p>

<p>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.</p>


Sammut secures approval for debut Brisbane apartment development in Toowong

<p>Developer Lanevick is heading back into Sydney’s apartment market after focusing more heavily on the luxury townhouse and terrace sector in recent years.</p>

<p>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.</p>

<p>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.</p>

<p>“Traditionally it’s been difficult for people in that market to downsize because there just hasn’t been the right product available,” Maroun said.</p>

<p>“We’re targeting buyers who might have 30 to 40 per cent of their house value sitting in the bank after downsizing.</p>

<p>“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.”</p>

<p>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.</p>

<p>“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.”</p>

<p>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.</p>

<p>“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.”</p>

<p>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.</p>

<p>“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.</p>

<p>Maroun said Lanevick saw a first-mover advantage within the precinct as planning controls continue to evolve to accommodate greater housing density.</p>

<p>“We think there’s a real opportunity there that hasn’t really been serviced properly yet,” he said.</p>

<p>“There’s going to be a broader evolution of the whole Gladesville village precinct over time, particularly with more activation and mixed-use outcomes.”</p>

<p>The Venus Street proposal will include a commercial and retail component at ground level designed to contribute to that evolving streetscape activation.</p>

<p>“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.</p>

<p>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.</p>

<p>&nbsp;</p>


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

<p>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.</p>

<p>The New York-based investor has focused his firm, GreenPoint Partners, on addressing the supply shortage hitting middle market housing in Australia.</p>

<p>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.</p>

<p>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.</p>

<p>“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.</p>

<p>“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.”</p>

<p><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" /></p>

<p>GreenPoint Partners brings years of experience assembling and scaling real estate operating businesses across major markets. And Green sees a big opportunity in Australia.</p>

<p>“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.”</p>

<p>Green said being a builder-developer would give the company the capacity and flexibility it required to deliver reasonably-priced homes.</p>

<p>“We want it to be at that attainable level; not super high end luxury but at that attainable level,” he said.</p>

<p><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" /></p>

<p>&nbsp;</p>

<p>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.</p>

<p>Green praised local policy settings.</p>

<p>“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.”</p>

<p>One Living is also&nbsp;looking at high-density projects and could take on more institutional funding in the future.</p>

<p>“The way we will be able to achieve economies of scale is through size,” Green added.</p>


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

<p>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.</p>

<p>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.</p>

<p>Projects by Buxton Director Heath Thompson, who is selling WM Residences, says the townhouses x that perfect middle ground be</p>

<p data-end="683" data-start="511">"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.</p>

<p data-end="882" data-start="690">"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."</p>

<p data-end="882" data-start="690">[smartcode_project:default project_id=134646 project_image_fid=6109]</p>

<p>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.</p>

<p>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.</p>

<p>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.</p>

<p>[smartcode_project:default project_id=134646 project_image_fid=6110]</p>

<p>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.</p>

<p>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.</p>

<p>[smartcode_project:default project_id=134646 project_image_fid=6116]</p>

<p data-end="247" data-is-last-node="" data-is-only-node="" data-start="0">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.</p>

<p>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.</p>

<p>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.</p>

<p>[smartcode_project_cta:default project_id=134646]</p>


WM Residences fills gap in Mordialloc townhouse market

Interest Rates

<html><body><p><span>Recent out-of-cycle rate hikes may be cushioned by subdued property prices with experts and economists predicting the downturn in Sydney and Melbourne to last 20 months on average, according to finder.com.au, the site that compares virtually everything. <br><br>In this month’s survey, experts and economists were asked to estimate how long the property downturn in Sydney and Melbourne will last, with the average prediction coming in at 20 months, or nearly two years.<br><br>However, the downturn may last longer in Sydney with a slightly higher proportion of panellists believing the downturn will last 24 months or more in Sydney (9, 56%) compared to Melbourne (8, 50%).<br><br>This pairs with greater positive sentiment for housing affordability with 43% of economists feeling positive about this metric, up from just 5% in March 2018 according to finder’s Economic Sentiment Tracker.</span><br><br><strong id="x_docs-internal-guid-54cbbc94-7fff-9b8b-640c-d6141f3a5c90"><img src="https://lh6.googleusercontent.com/GGNPBSrOscmFBiMdZ0hkTADJdxrkDA8qdhUmnGl-jb2Q59PF0O3aWN7t6t2W3ATgkusIzAEj_jRjyffBE6ZoKNrO57Q01dia01Acx5ubBD1MDWaoFVMpqGVlQP2UOVV9a9mQUQQ" width="552" height="359" data-imagetype="External"></strong><br><br><span>Graham Cooke, Insights Manager at finder.com.au, says falling property prices in some of the capital cities means the outlook for housing affordability has improved.<br><br>“Only 4% of experts feel </span><span>negatively</span><span> about this metric, which represents a huge improvement since March this year.</span><br><br><strong id="x_docs-internal-guid-690d9fca-7fff-ebd8-bf1a-22ac8098bdd7"><img src="https://lh4.googleusercontent.com/FL-u8Gtfb1J1w5DfKhbrabHbpi-BaWFrWvsWBYkrv4gHsSuGxzXEhkZ54xJWN2LAQaDRXpxXmuFcXlTbWOwRzSttgq548UE2flgmk0IoVklVNXtcdYGTJUtpnTbhL-eFDJ8G_2s" width="553" height="385" data-imagetype="External"></strong><br><br><span>“While the out-of-cycle rate movements aren’t promising for first home buyers, this may be offset by a cooling market as now could be the time for them to get in while prices are low.<br><br>“For many would-be home buyers, a lower sales price represents a saving that could outweigh the costs of a higher interest rate, so first time buyers may experience some cushioning against rising rates,” he said.<br><br>Ahead of the board meeting tomorrow (04/09/2018), all 30 members from the finder.com.au RBA survey share the view that the cash rate will be held for the 25th consecutive month. <br><br>Cooke said while it’s likely the Reserve Bank will hold the cash rate, this hasn’t stopped lenders from lifting rates independently. <br><br>“The belief that the cash rate won’t budge combined with increased funding pressure from overseas has spurred Westpac, </span><span>Suncorp </span><span>and</span><span> other major banks to hike mortgage rates out-of-cycle. <br><br>“We expect </span><span>this </span><span>trend to continue, with the remaining of the big four and other lenders likely to follow suit in the coming days.<br><br>“Mortgage holders should brace themselves for higher interest rates – it’s not a matter of if, but when.  <br><br>“Switching to a new provider with a lower rate could pocket you thousands of dollars over the life of your loan, so don’t be afraid to refinance if you’re unsatisfied with your existing or updated interest rate,” he said. <br><br>To view out-of-cycle rate rises in August 2018, visit this page.</span><br><br><span><strong id="x_docs-internal-guid-89454e11-7fff-4bb4-2699-484a1bd6c13c">Here’s what our experts had to say:</strong></span><br><span><strong>Jordan Eliseo, ABC Bullion:</strong> "The RBA will hold interest rates at 1.50% at their next meeting, continuing a run of stability that now dates back over 2 years. Consumer confidence has been hit by the recent political chaos in Canberra, and job growth in the economy will likely slow down in the lead up to the next election, but the RBA is still reticent to cut, despite numerous headwinds the economy is facing."<br><br><strong>Tim Nelson, AGL Energy:</strong> "RBA has stated that it continues to expect inflation to be around 2.25% </span><span>over the next couple of years as above-trend GDP growth reduces spare capacity in the </span><span>labour</span><span> market and there is an associated pick-up in wages growth."<br><br><strong>Shane Oliver, AMP Capital:</strong> "While economic growth picked up a notch in the first half of the year its premature to start raising rates as uncertainty remains around the outlook for consumer spending, the housing cycle both in terms of construction and home prices has now turned down, and wages growth and inflation remain low. So remaining on hold makes sense and this is likely to remain the case for some time to come."<br><br><strong>Alison Booth, ANU:</strong> "Fundamentals have not changed sufficiently to warrant changing the cash rate."<br><br><strong>Richard Robinson, BIS Oxford Economics:</strong> "inflation and wages growth is low."<br><br><strong>Paul Dales, Capital Economics:</strong> "The RBA is patiently waiting to see if the unemployment rate falls as it is hoping and inflation rises back to the 2-3% target rate. I suspect it will be waiting for a long time yet."<br><br><strong>Saul Eslake, Corinna Economic Advisory:</strong> "The RBA has made it clear that although it thinks the next move in interest rates will most likely be up, it is in no hurry to act on that inclination. And nothing has happened since the last meeting to have prompted them to change that view."<br><br><strong>Peter Gilmore, Gateway Bank:</strong> "The economic fundamentals remain largely unchanged."<br><br><strong>Mark Brimble, Griffith Uni:</strong> "No reason to move with inherent weakness in the economy exacerbated by political and regulatory uncertainty both domestically and internationally."<br><br><strong>Peter Haller, Heritage Bank:</strong> "There is no reason for the RBA to change rates at the present time."<br><br><strong>Paul Bloxham, HSBC Bank Australia Limited:</strong> "Inflation is still below the target band."<br><br><strong>Alex Joiner, IFM Investors:</strong> "The RBA finds itself between a rock and a hard place, the economy does not as yet justify higher policy rates, but equally it can not foster any better conditions that might see inflation accelerate more quickly because of the financial stability constraints it has, rightly in my view, it has also chosen to focus on."<br><br><strong>Michael Witts, ING Bank:</strong> "Despite the increase in mortgage rates from one of the majors, this is unlikely to alter the RBA stance."<br><br><strong>Leanne Pilkington, Laing+Simmons:</strong> "There’s no compelling reason for the RBA to adjust the official cash rate at this time. Of greater interest is the approach the banks are taking with their lending terms. Some are cutting fixed rates in an attempt to build market share. Honeymoon interest rate deals are in vogue to attract first home buyer attention, but it’s necessary to crunch repayment numbers based on the actual rate you’ll be paying once the honeymoon is over. There’s significant rate movement irrespective of the RBA at the moment."<br><br><strong>Nicholas Gruen, Lateral Economics:</strong> "That's what they keep saying they'll do."<br><br><strong>Mathew Tiller, LJ Hooker:</strong> "No major changes to economic conditions over the past months will see RBA hold the cash rate steady. In addition banks and lenders continue to change their interest rates independently of the RBA."<br><br><strong>Michael Yardney, Metropole Property Strategists:</strong> "There is no reason to alter interest rates. Our weakening housing markets, low inflation rate </span><span>and</span><span> soft wages growth suggest no rise in rates is imminent in the medium term. If anything this would dampen already sluggish consumer confidence which has already taken a hit over the last month."<br><br><strong>Mark Crosby, Monash University:</strong> "The RBA has </span><span>signalled</span><span> its intent to hold rates for some months yet, though it is good to see some discussion about whether the current inflation target remains appropriate."</span><br><br><strong><span>Dr</span></strong><span><strong> Andrew Wilson, My Housing Market:</strong> "Macro environment relatively unchanged although out of cycle rate rises will be closely monitored by RBA if the level of increases impacts already constrained consumption."<br><br><strong>Alan Oster, NAB:</strong> "The RBA has stated that for the time being, they wish to be a source of stability and confidence in the economy. Rates are low and supporting economic growth which should see employment continue to grow and the unemployment rate decline further. At </span><span>present</span><span> there appears to be some degree of spare capacity in the </span><span>labour</span><span> market with relatively weak wages growth and inflation only just around the bottom of the RBA’s target band. The RBA is likely to continue this on this track until it is convinced spare capacity has fallen, wages growth is lifting and inflation rising more generally. This is only expected to occur gradually."<br><br><strong>Jonathan Chancellor, Property Observer: </strong>"The central bank doesn't need to make any move."<br><br><strong>Matthew Peter, QIC: </strong>"While the RBA is clearly on hold for the time being, the market is not pricing a rate hike until 2020. But with growth picking up, the </span><span>labour</span><span> market tightening and the AUD heading to US70c, the RBA will surprise markets with a rate hike, probably as soon as the June quarter of 2019."<br><br><strong>Noel Whittaker, QUT: </strong>"No reason to move either way."<br><br><strong>Nerida Conisbee, REA Group:</strong> "The next move is still likely to be an increase but for now, the economy is not strong enough to start increasing."<br><br><strong>Christine Williams, Smarter Property Investing Pty Ltd:</strong> "We have had a positive effect re unemployment, now under 6% together with a strong outlook in the job sector, both with full time and part-time positions. I feel this needs to stay on an upward trend [for] least 1 more quarter before the Reserve Bank increases rates."<br><br><strong>Janu Chan, St.George Bank:</strong> "Ongoing low inflation and expectations it will stay low for some time allows the RBA room to leave rates on hold."<br><br><strong>Brian Parker, Sunsuper:</strong> "Still plenty of </span><span>labour</span><span> market slack, and wage and price inflation not picking up anywhere near fast enough to prompt higher rates."<br><br><strong>Richard Holden, UNSW:</strong> "They should cut but can't. </span><span>Labor</span><span> market is weak. Inflation low."<br><br><strong>Clement Tisdell, UQ-School of Economics</strong>: "The Australian economy is not overheated. </span><span>Demand pull</span><span>inflation is not at work. </span><span>Cost push</span><span> could become a problem. Private interest rates are liable to increase."<br></span></p></body></html>

j.ballantyne1990-6AQqhLzZaK

Sydney price downturn to last two years: Finder survey

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<div>Variable rate customers<span style="color: black;"> who have their mortgage with </span>Westpac and some of their subsidiaries<span style="color: black;"> will be forking out</span> an average of<span style="color: black;"> $35 </span>extra <span style="color: black;">per month and $420 per year.</span>
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<div><span style="color: black;"> </span></div>
<div><span style="color: black;">This is thanks to Westpac hiking rates by 14 basis points.</span></div>
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<div><span style="color: black;"><span>The new Treasurer Josh Frydenberg has demanded Westpac justify its out-of-cycle interest rate increase.</span></span></div>
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<div><span style="color: black;"><img src="https://www.urban.com.au/images/2018/8/30/Westpac%20rates.JPG" alt=""></span></div>
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<span style="color: black;">RateCity research director Sally Tindall said </span>Westpac had held out longer than the market expected before caving into the pressure to hike rates.</div>
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<div>"Westpac <span style="color: black;">has today </span>decided to use variable rate home loan customers to help ease their cost of funding pressures. Most<span style="color: black;"> households will be able to absorb the rate hike, </span>however anyone<span style="color: black;"> who overstretched </span>to get in the market<span style="color: black;"> will feel burdened by this extra cost," she said</span>
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<span style="color: black;">Now that </span>Westpac<span style="color: black;"> has hiked, taking the brunt of the bad PR, it is expected the other three banks will match them.</span>
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<div>“Ironically the banks are desperately seeking out customers to boost their lagging profit margins. They’re doing this by offering rock bottom rates, but only to new customers so if you’ve got a bit of equity in your home, now is a great time to consider refinancing,” she concluded.</div>
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Westpac is the first of the big four banks to hike out-of-cycle

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<p>EXPERT OBSERVER</p>
<p>The significant increase in short-term wholesale interest rates and associated volatility has been a key topic of debate in markets throughout 2018.</p>
<p>Initially linked to higher borrowing costs in the US, a further spike in only Australian rates as the June quarter drew to a close saw participants' focus shift to domestic drivers of this pricing activity.</p>
<p>There are many market factors that have played a part in the surge in short-term interest rates. All are worthy of discussion, but in this instance we focus on the real economy's effect. Specifically, the broad-based deceleration in deposit growth.</p>
<p>While we believe that there is insufficient evidence to label the decline in deposit growth as the prime catalyst for higher short-term interest rates, deposit growth's persistent underperformance is critical to our view that the abnormally large market spreads present will, by and large, be sustained.</p>
<p>Put simply, if (in dollar terms) retail deposits increase at a lesser rate than credit, then Australian lenders’ reliance on wholesale funding must increase. This looks likely over the remainder of 2018 and 2019 if, as we anticipate, national and household income growth remain soft, led by weak wages growth; a downturn in employment growth; and the terms of trade.</p>
<p>Consumer saving and investing decisions are unlikely to provide a meaningful boost to deposit growth absent a shock because consumers already favour deposits (and super) over other asset types.</p>
<p>For superannuation deposits, weak income growth is not the only headwind. Over the past year, households' capacity to make voluntary contributions to super has been further reduced, limiting the flow of new fund inflows.</p>
<p>A falling allocation to domestic cash (in favour of offshore investment opportunities) amongst the industry has further restricted the flow of new deposits to Australian banks and other depository institutions. </p>
<p>With the Australian economy expected to register growth at or below trend in 2018/ 2019 as global growth remains near its post-GFC peak, Australian investors' appetite for offshore assets is likely to persist.</p>
<p>The final point of note is the significant tightening of lending standards underway. This policy shift, yet again, is a negative for households' ability to accrue deposits. Specifically, those switching from interest only to principal and interest face a much higher total monthly payment.</p>
<p>Meanwhile, those who remain on interest–only terms will pay a higher interest rate now, and the majority will still inevitably have to move to principal and interest later to pay down the loan.</p>
<p>The longer that interest only terms are relied upon, the more rapid the required paydown becomes over the remainder of the 30-year term, unless a borrower is successful in refinancing the loan with another counterparty.</p>
<p><em><strong>Elliot Clarke</strong> is a Senior Economist at Westpac</em></p>
<p><em><strong>Andrew Hanlan</strong> is a Senior Economist at Westpac</em></p>
<p><em><strong>Simon Murray</strong> is an Economist at Westpac</em></p>
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Lending standards are dramatically tightening: Westpac

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<p>Macquarie Bank has raised their variable mortgage rates.</p>
<p>Its higher variable rates will come into effect on July 13 for new customers and 10 days later for existing customers.</p>
<p>The bank joins a host of other smaller lenders including AMP, Pepper Group, Bank of Queensland, IMB, ME Bank and Suncorp in making rate changes.</p>
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<p>It will raise owner occupied variable rates for those paying principal and interest by six basis points.</p>
<p>Those paying only interest will have their rate upped by 10 basis points as will variable rate loans for investment and self managed super funds.</p>
<div id="article-inline-ad" class="adWrapper">However for three-year fixed rate mortgages, Macquarie is cutting its pricing by 10 basis points.</div>
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<p>Macquarie accounts for about two per cent of the nation's mortgage market, according to the Australian Financial Review.</p>
<p>Macquarie recently said the RBA will <a href="/expert-insights/finance/rba-holding-interest-rates-till-at-least-2020-macquarie-securities">hold its rates until 2020 at the least.</a></p>
<p>Recently Pepper Group have <a href="/expert-insights/finance/pepper-group-raises-rates-for-construction-loans">raised rates for its construction loans</a>, while Bank of Queensland has <a href="/expert-insights/finance/bank-of-queensland-raise-io-investor-rates">raised its rates for both investors and owner-occupiers.</a></p>
<p>Rate City have suggested there are <a href="/expert-insights/finance/bank-of-queensland-raise-io-investor-rates">more out-of-cycle loan hikes to come. </a></p>
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Macquarie Bank raises its mortgage rates

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<p>The Bank of Queensland is among five lenders to have increased their mortgage rates.</p>
<p>BoQ, one of the nation's major regional banks, is increasing variable home loan rates for interest-only owner occupiers and investors by up to 15 basis points.</p>
<p>"Funding costs have significantly risen since February and have primarily been drive by an increase in 30 and 90 day BBSW rates, along with competition for term deposits," said Anthony Rose, Bank of Queensland's acting group executive.</p>
<p>"While the bank has absorbed these costs for some time, the changes announced will help to offset the impact of increased funding costs," Rose said.</p>
<p>The interest rate changes are effective July 2.</p>
<p>BOQ today announced variable home loan rate for owner occupiers (principal and interest repayments) will increase by 0.09 per cent, per annum;</p>
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<p>Variable home loan rate for owner occupiers (interest only repayments) will increase by 0.15 per cent, per annum;</p>
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<p>Variable home loan rate for investors (principal and interest and interest only repayments) will increase by 0.15 per cent, per annum; and</p>
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<p>Owner occupier and investor Lines of Credit will increase by 0.10 per cent, per annum.</p>
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<p>Anthony Rose said the decisions "are always difficult" and BOQ balances the needs of our borrowers and depositors when making changes.</p>
<p>Elsewhere rates in some cases are up by 40 basis points.</p>
<p>It comes as the lenders suggest they can no longer absorb the impact of rising funding costs on net interest margins.</p>
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<p>IMB, the nation's third largest building society, has raised standard variable interest rates by 8 basis points for new and existing home loans.</p>
<p data-gtm-vis-recent-on-screen-7770372_137="479025" data-gtm-vis-first-on-screen-7770372_137="479025" data-gtm-vis-total-visible-time-7770372_137="4000" data-gtm-vis-has-fired-7770372_137="1">AMP Bank has hiked rates on some investment products by up to 40 basis points. </p>
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<p>Greater Bank and Homestar Finance are also raising some rates by 10 basis points.</p>
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Bank of Queensland raise IO investor rates

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<p><span>EXPERT OBSERVER</span></p>
<p>While RBA Governor Lowe reiterated the mantra that the next move in interest rates is likely to be up, he also said any increase “still looks to be some time away” and indicated that to raise rates the RBA is looking for reduced labour market slack, faster wages growth and increased confidence inflation is picking up. At present there is no sign of reduced labour market slack and this is likely to continue to weigh on wages growth.<span class="Apple-converted-space"> </span></p>
<p>We remain of the view that with trend growth likely to be remain subdued, bank lending standards tightening, Sydney and Melbourne house price falls having further go that the RBA won’t start raising rates to 2020 at the earliest and in the meantime the next move being a cut can’t be ruled out.</p>
<p>Australian data was back to being a bit on the softish side. Business confidence slipped a bit in May but remains solid, consumer confidence remains stuck around long term average levels, housing finance continued to slow in April with tighter bank lending standards pointing to more weakness to come and jobs data was a bit soft in May.</p>
<p>Employment growth was weaker than expected with full time jobs falling and while unemployment fell slightly this was because of a decline in participation. Meanwhile underemployment rose slightly over the last three months to 8.5% so total labour market underutilisation remains very high at 13.9%.</p>
<p>In Australia, ABS March quarter data is expected to confirm a 1% or so decline in home prices (Tuesday) consistent with already released private sector surveys and population growth data (Thursday) for 2017 is expected to show continued strength of around 1.6% year on year with Victoria the strongest on the back of high immigration levels and interstate migration. The minutes from the RBA’s last board meeting (Tuesday) are likely to confirm that the RBA remains comfortably on hold.</p>
<p><span><span class="s1"><a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author"><em>SHANE OLIVER</em></a></span><span class="s2"><em> is head of investment strategy and economics and chief economist at </em><a href="https://www.ampcapital.com.au/home"><span class="s1"><em>AMP Capital</em></span></a><em> and is responsible for AMP Capital's diversified investment funds.</em></span></span></p>
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RBA won't start rising rates until 2020 and a cut can't be ruled out: Shane Oliver

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<p>This week Reserve Bank of Australia governor Philip Lowe gave <a href="https://www.rba.gov.au/speeches/2018/sp-gov-2018-06-13" target="_blank">one of the more revealing speeches</a> one is likely to hear from a central banker.</p>
<p>It touched on many of the recurring themes in this column – sluggish wage growth, crazy levels of household debt, persistently low inflation, a long period of low interest rates, and a chunk of the country feeling they are not sharing in national prosperity.</p>
<p>But, most strikingly, Lowe hinted that the RBA’s official interest rate – the cash rate – might not rise until wage growth returns to the long-term trend.</p>
<p>Lowe began with the following familiar fact:</p>
<p>Over recent times, wages growth around the 2% mark has become the norm in Australia. Some time back, the norm was more like 3 to 4%.</p>
<p>He then turned to a range of possible explanations for this sluggish wages growth. A leading factor is that there is still slack in the labour market, with unemployment stubbornly stuck around a relatively high 5.5%. Relative to what? That, of course, is the key question.</p>
<p>Lowe suggested that 5% is the traditional estimate used to gauge full employment in Australia. But it could be lower, noting that:</p>
<p>...in a number of other countries, estimates of the unemployment rate associated with full employment are being revised lower as wage increases remain subdued at low rates of unemployment.</p>
<p>Then there’s underemployment. Lowe observed:</p>
<p>… around one-third of workers work part-time, with most of these people wanting to work part-time for personal reasons [but] around one-quarter would like to work more hours than they do; on average, they are seeking an extra two days a week … This suggests an overall labour underutilisation rate of 8¾%.</p>
<p>Turning to technology, Lowe pointed out that recent technological advances have tended to be in information technology, rather than large new machines. Moreover, a relatively small slice of successful firms in a few sectors of the economy tend to adopt this technology.</p>
<p>Those firms do well – as do their workers. But lagging firms that cannot successfully adopt these technologies get put under pressure. According to Lowe’s thinking, those firms respond by keeping a lid on wages to remain competitive.</p>
<p>All of this has implications for the real value of debt and for consumer spending, As Lowe put it:</p>
<p>Many people who borrowed expected their incomes to grow at something like the old rate rather than the current rate.</p>
<p>Well, indeed.</p>
<p>The really candid part came when Lowe concluded with what this meant for monetary policy. It is worth quoting him in full:</p>
<p>Any increase in interest rates, however, still looks to be some time away. The [RBA] board will want to have reasonable confidence that inflation is picking up to be consistent with the medium-term target and that slack in the labour market is lessening. At this stage, a sustained pick-up in inflation to around the midpoint of the target range is likely to require faster wages growth than we are currently experiencing. There are reasonable grounds to expect that this increase in wages growth will occur. But, for the reasons I have spoken about today, this increase is likely to be only gradual. Given this, there is not a strong case for a near-term adjustment in monetary policy.</p>
<p>This is a striking statement. First, central bankers are usually intentionally vague about how they make policy. Not so Lowe in this speech. He essentially said there would be no rise in interest rates until wages growth is above 3%. Wow!</p>
<p>My first reaction, after the shock at his candidness wore off, was “that could be a while”. But if that’s how the RBA is really thinking about this, then predictions of no rate rise this year are not only solid, but you can lock in a 1.5% cash rate for 2019, too.</p>
<p>The factors that could boost wages growth enough to get back to historical levels are slow-moving – centred around changes in labour-market policy and technology.</p>
<p>This all contrasts rather starkly with the United States. On Wednesday the United States Federal Reserve <a href="https://www.federalreserve.gov/monetarypolicy/files/monetary20180613a1.pdf" target="_blank">raised official interest rates by 25 basis points</a> – the second such bump this year. The Fed also signalled two more hikes this year.</p>
<p>In the US unemployment is <a href="https://ycharts.com/indicators/unemployment_rate" target="_blank">down to 3.8% and inflation is picking up</a>. Fed chair Jay Powell needs to raise rates steadily to avoid inflation being too high, as opposed to too low.</p>
<p><img src="https://counter.theconversation.com/content/98240/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">I bet Governor Lowe wishes he had that problem to navigate.</p>
<p><span><a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a>, Professor of Economics and PLuS Alliance Fellow, <em><a href="http://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a></em></span></p>
<p>This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/vital-signs-poor-wage-growth-means-interest-rates-could-be-low-for-a-long-time-98240" target="_blank">original article</a>.</p>
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Poor wage growth means interest rates could be low for a long time: Richard Holden

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<div class="column">EXPERT OBSERVER</div>
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<div class="column">As widely expected, the Fed increased the target range for the federal funds rate by 0.25 per cent to 1.75-2.00 per cent. This was the seventh increase in interest rates of the current monetary policy tightening cycle. The decision by the Fed voters was a unanimous 8-0.</div>
<div class="column"> </div>
<div class="column">The Fed is now forecasting two further rate increases in 2018 (four in total, up from three previously) and three further hikes in 2019. The 2020 projection is for at least one rate hike.</div>
<div class="column"> </div>
<div class="column">Economic growth (GDP) forecasts were increased to 2.8 per cent in 2018, up from the previous forecast of 2.7 per cent. The 2019 forecast was unchanged at 2.4 per cent. Growth is projected to decelerate to 2.0 per cent by 2020 and to 1.8 per cent over the longer run.</div>
<div class="column"> </div>
<div class="column">The unemployment rate is expected to fall to 3.6 per cent in 2018, down from 3.8 per cent in 2018. The unemployment rate is expected to fall further to 3.5 per cent in 2019-2020.</div>
<div class="column"> </div>
<div class="column">Inflation is expected to reach the Fed's “symmetric” 2.0 per cent target this year (previously 1.9 per cent). The Fed expects the core Personal Consumption Expenditures (PCE) deflator (inflation) to increase to 2.1 per cent in 2019 and stay there through to 2020.</div>
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<div class="column">Changes in US monetary policy settings can affect rates in Australia as well as the sharemarket and currency.</div>
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<div class="column"><strong>What happened?</strong></div>
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<div class="column">The US economy and labour market are firing on all cylinders. The US central bank, the US Federal Reserve, increased the target range for the federal funds rate by 0.25 percentage points to 1.75-2.00 per cent, as expected. Interest rate have increased seven times since December 2015.</div>
<div class="column"> </div>
<div class="column">More interest rate increases are forecast this year and next. Policymakers upgraded their projected number of rate hikes to four this year as unemployment falls further below “full employment” and inflation overshoots its “symmetric” two per cent target.</div>
<div class="column"> </div>
<div class="column">Inflation is gradually increasing after the economy’s seasonal ‘soft patch’ in the March quarter. Annual growth of the consumer price index stands at 2.8 per cent in April, the highest rate since February 2012. A sharp rebound in economic growth to around 3-3.5 per cent is expected during the June quarter on the back of a pick-up in consumer spending.</div>
<div class="column"> </div>
<div class="column">And core consumer prices (excludes food and energy) are already at 2.2 per cent per annum in April. Only the US Federal Reserve’s preferred core personal consumer expenditure deflator (PCE) measure remains below target at 1.8 per cent in April, but that’s expected to breach the two per cent target by year-end.</div>
<div class="column"> </div>
<div class="column">The jobs bonanza in the US continues. A record 92 consecutive months of job gains has pushed the unemployment rate down to 3.8 per cent in May - the lowest level since April 2000.</div>
<div class="column"> </div>
<div class="column">If the current pace of job creation continues, the unemployment rate could potentially fall to 3.5 per cent for the first time since 1969 by year-end. The unemployment rate is well below the US Federal Reserve’s estimate of the non-accelerating inflation rate of unemployment (“NAIRU”) which is currently at 4.5 per cent.</div>
<div class="column"> </div>
<div class="column">And in a further sign that the US is at or close to “full employment”, job openings (JOLTS series) by a record 4.3 per cent in April – job vacancies are now exceeding the number of unemployed workers by a gap of 352,000. In the 12 months through April, the US economy created a whopping net 2.4 million jobs according to Bloomberg.</div>
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<div class="column">US wages growth has been lacklustre due to structural, technological and demographic changes. However, given reduced spare capacity in the labour market, a gradual increase in wages growth is expected. The annual growth rate for average hourly earnings reached 8-year highs of 2.8 per cent in February, but has since fallen to 2.7 per cent in May. That said, another measure of pay and benefits – the employment cost index for private sector wages increased by 2.9 per cent – the largest annual increase in 11 years. And the National Federation of Independent Businesses (NFIB) has recently reported that a net 35 per cent of businesses are increasing worker compensation – the highest since records began 32 years ago.</div>
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<div class="column">While there are multiple risks to the US economic outlook – increasing inflation, rising budget deficit, record-high government debt, global political turbulence and growing ‘trade war’ concerns – the economy appears set to grow by around 3 per cent this year on the back of stimulus from the Trump Administration’s US$1.5 trillion corporate tax cuts. Should the US expand for another year, it will exceed the 10-year economic boom of the 1990s – the last time US interest rates were higher than their Aussie counterparts.</div>
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<div class="column"><strong>US Federal Reserve decision</strong></div>
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<div class="column">Today’s decision by the US Federal Reserve was well telegraphed and uniformly expected by financial markets. The addition of another projected rate hike in the second half of this year has nudged-up the interest rate tightening trajectory.</div>
<div class="column"> </div>
<div class="column">In its press release the Federal Open Market Committee’s (FOMC) reiterated that the pace of economic growth should pick-up, unaffected by a slightly more aggressive pace of rate hikes: “The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the committee’s symmetric 2 percent objective over the medium term”.</div>
<div class="column"> </div>
<div class="column">The statement removed previous language saying that the main rate would remain “for some time” below longer- run levels. Other changes included a reference of “further gradual increases” instead of “adjustments”. Policymakers also said that “indicators of longer-term inflation expectations are little changed”. Previously, the statement made separate references to survey-based and market-based measures of these expectations.</div>
<div class="column"> </div>
<div class="column">The median path for the fed funds rate was changed in 2018 to include an addition fourth rate hike and one less rate hike in 2020. The FOMC’s Summary of Economic Projections shows the median interest rate projections (the “dot plot”) implies two further 0.25 per cent interest rate increases in the second half of 2018 (to 2.4 per cent, up from 2.1 per cent previously); three 0.25 per cent interest rate increases in 2019 (to 3.1 per cent, up from 2.9 per cent previously); and one 0.25 per cent interest rate increase in 2020 (to 3.4 per cent).</div>
<div class="column"> </div>
<div class="column">The policy-relevant core PCE deflator inflation projections were little changed. Core PCE inflation is expected to lift to 2.0 per cent in 2018, up from 1.9 per cent previously forecast. Projections in 2019 and 2020 were unchanged at 2.1 per cent.</div>
<div class="column"> </div>
<div class="column">The FOMC upgraded its GDP forecasts and lowered its unemployment rate projections. The FOMC projects GDP growth of 2.8 per cent in 2018 (previously 2.7 per cent) and 2.4 per cent in 2019 and 2.0 per cent in 2020 (both unchanged). Meanwhile, the FOMC expects the unemployment rate to be 3.6 per cent in 2018 (previously 3.8 per cent) and 3.5 per cent in both 2019 (previously 3.6 per cent) and 2020 (previously 3.6 per cent).</div>
<div class="column"> </div>
<div class="column">The Fed is targeting a range for the Fed Funds rate and uses the interest on excess reserves rate (IOER) as one of its main tools. With the rate creeping towards the high end of its target range recently, the Fed hiked the IOER rate by 0.20 per cent to 1.95 per cent as “it is intended to foster trading in the federal funds market at rates well within the FOMC’s target range”.</div>
<div class="column"> </div>
<div class="column">The Fed continues to unwind its huge balance sheet. Holdings have declined to around US$4.3 trillion, the lowest since May 2014. A total of US$88 billion worth of US Treasuries have now been “rolled-off” at maturity. Eventually, holdings will be reduced by around US$50 billion per month until a “new normal” balance sheet holding is achieved.</div>
<div class="column"> </div>
<div class="column">US sharemarkets finished lower on the slightly “hawkish” tone of the FOMC’s policy statement. The Dow Jones fell by 120 points or 0.5 per cent with the S&amp;P 500 index lower by 0.4 per cent, while the Nasdaq lost just 8.1 points or 0.1 per cent.</div>
<div class="column"> </div>
<div class="column">US 2-year yields rose by 2 basis points to 2.57 per cent and 10-year yields rose by 1 point to 2.976 per cent. The US Treasury yield curve from 5 to 30 years flattened to levels last seen in August 2007. The US dollar retreated after spiking to session highs. The Aussie dollar did a round trip. The Aussie dollar traded between US75.30 cents and US76.05 cents and was near US75.70 cents in late US trade. Other major currencies fluctuated as investors absorbed the first of three big central bank reports this week.</div>
<div class="column"> </div>
<div class="column"><strong>What are the implications for interest rates and investors?</strong></div>
<div class="column"> </div>
<div class="column">We expect US economic growth to re-accelerate in the June quarter to a growth rate of around 3 per cent per annum, before finishing the year at a pace of around 2.7 per cent. Financial conditions remain accommodative despite a tightening in recent months due to the stronger greenback, rising share market volatility and lifting term premium (the excess return that investors demand for holding a longer-dated bond).</div>
<div class="column"> </div>
<div class="column">The Trump Administration’s fiscal expansion will likely lend support to late cycle US economic growth. The ‘leg- up’ from US$1.5 trillion worth of corporate tax cuts and additional government spending of around US$300 billion is expected to add around 0.5 percentage points to growth in 2018. Robust business investment, strong capital spending plans and firm consumer spending should support continued growth.</div>
<div class="column"> </div>
<div class="column">One of the challenges for Fed policymakers is to determine the full impact of the Trump tax-cut plans. And with US output and the labour market at near full capacity, concerns are building about an overheating economy. Normally fiscal stimulus occurs when economic growth is lacklustre or at recessionary levels.</div>
<div class="column"> </div>
<div class="column">Former Fed Chairman Ben Bernanke said recently that he’s concerned that “in 2020 Wile E. Coyote is going to go off the cliff”, implying a possible US economic downturn after the fiscal stimulus fades and the economy overheats. Further, Mr Bernanke said that “the economy is already at full employment”.</div>
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<div class="column">The Fed will also be contending with a sharply deteriorating US budget deficit and government debt situation. According to the US Congressional Budget Office, the federal budget deficit ballooned to US$530 billion in the first eight months of fiscal year 2018 up by US$97 million over the same period last year. The deficit is expected to surpass US$1 trillion by 2020 if the current growth rate in government spending continues. The US gross government debt load has breached US$21 trillion or 106 per cent of GDP.</div>
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<div class="column">The Trump Administration’s fiscal expansion will be funded by an increase in the US budget deficit, resulting in an increase in the issuance of US Treasury bonds. Government debt sales are set to more than double in 2018, lifting net issuance to US$1.3 trillion, the most since 2010, and occurring at a time when the Fed is shrinking its bond holdings (“Quantitative Tightening”). And the Fed’s interest rate hikes will likely expand the budget deficit even further by raising the Trump Administration’s cost of issuance, thereby further increasing the supply of US Treasuries. Rising supply is already weighing on fixed income markets. The 10-year US Treasury yield curve recently rose to a 7-year high near 3.1 per cent.</div>
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<div class="column">If the Fed meets market pricing expectations for potential interest rate hikes, it will probably succeed in flattening the yield curve further – especially with the term premium curve flat already – then more likely we’ll see further episodic market volatility.</div>
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<div class="column">Australian investors and businesses won’t escape the increase in US borrowing costs. Rising US Treasury bond yields are dragging their Aussie counterparts higher despite the Reserve Bank’s neutral policy stance.</div>
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<div class="column">Global interest rates are lifting and so are bank funding costs, pressuring margins. Aussie banks derive around 40 per cent of their funding from overseas. Australian short term interest rates are already near the highest in two years with the 90 day bank bill yield at 2.06 per cent. And there is a risk of home lending standards being tightened, placing additional pressure on banks when it comes to the determination of mortgage rates.</div>
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<div class="column">The Aussie dollar has remained resilient in the face of growing US interest rate differentials. The improving domestic economic backdrop, lifting commodity prices, firm Chinese economic growth, narrowing current account deficit and pick-up in the terms of trade is lending support to the Aussie. The US’ deteriorating credit quality, including rising debt and deficit and concerns over a sovereign downgrade have the potential to weigh on the greenback.</div>
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<div class="column">CBA currency strategists expect the Aussie dollar to lift to US78 cents by the end of 2018 and to US80 cents by June 2019.</div>
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<p>Ryan Felsman is a senior economist at CommSec.</p>
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US rates overtake Australia for first time in 17 years after seventh hike: CommSec

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<div class="column">EXPERT OBSERVATION</div>
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<div class="column">The record economic expansion is well into its 27th year. The Australian economy grew by 1.0 per cent in the March quarter after growing by an upwardly-revised 0.5 per cent (previously 0.4 per cent) in the December quarter – the equal best quarterly growth rate since December 2011. Annual economic growth rose from 2.4 percent to 3.1 per cent – the strongest growth rate in 21 months.</div>
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<div class="column">The biggest contribution to growth came from net exports (+0.4pp), government consumption (+0.3pp), household consumption (+0.2 pp), dwelling investment (+0.1pp), non-dwelling construction (+0.1pp). Private equipment was flat. The only drag on growth came from public investment (- 0.1pp).</div>
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<div class="column">Real gross national income rose by 1.7 per cent in the March quarter to be up 2.4 per cent on the year. In nominal terms GDP increased by 2.2 per cent in the quarter and rose by 3.9 per cent over the year.</div>
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<div class="column">Gross value added per hours worked in the market sector rose by 1.0 per cent in the March quarter, but was down by 0.1 per cent on the year. Hours worked in the market sector fell by 0.2 per cent in the March quarter, but was up by 2.4 per cent on the year.</div>
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<div class="column">Thirteen of the 19 industry sectors expanded in the March quarter. Strongest growth was by Administration and Support Services (+3.0 per cent), Mining (+2.9 per cent) and Manufacturing (+2.4 per cent). Agriculture, forestry and fishing (-1.7 per cent) and Accommodation and Food Services (-1.3 per cent) recorded the biggest falls in output. Two sectors both added 0.2 percentage points to GDP growth and six sectors each added 0.1 percentage point to GDP growth. Only one sector detracted 0.1 percentage points.</div>
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<div class="column"><strong>What does it all mean?</strong></div>
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<div class="column">The Aussie economy is in rude health. Economic growth rebounded during the March quarter, recording the equal best quarterly growth rate since the December quarter of 2011. Annual growth lifted to 3.1 per cent, the best growth rate in almost two years.</div>
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<div class="column">We share the Reserve Bank’s view that growth will be stronger this year than last year. The economy is tipped to grow by “a bit above 3 per cent” in 2018 and 2019.</div>
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<div class="column">Aussie economic activity is being supported by still-firm household consumption, strong government spending on public transport-related and infrastructure projects and a pick-up in LNG exports. Business inventories also lifted during the quarter.</div>
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<div class="column">Today’s national accounts also highlighted that the drag from the end of the mining construction boom is receding. Growth in exports accounted for half of the quarterly uplift in growth. The mining sector and commodity prices are continuing to recover due to firm demand from China.</div>
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<div class="column">The Reserve Bank has reiterated that household consumption remains a “key uncertainty” for the economic outlook. While today’s contribution was mildly positive, developments in the housing market, where home prices in Sydney and Melbourne are falling, will need to be monitored closely. And household debt remains elevated.
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<p><span>Overall, we need to see economic growth stay near 3 per cent levels and the unemployment rate below 5 per cent to see sufficient tightening of the labour market to generate upward pay pressures on employers before interest rates can lift.</span></p>
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<p><span><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/2018/6/6/commfigure2.jpg" alt=""> </span></p>
<p><strong>What do the figures show?</strong></p>
<p>The Aussie economy rose by 1.0 per cent in the March quarter after lifting by an upwardly-revised 0.5 per cent in the December quarter. It was the equal strongest quarterly growth rate since the December quarter of 2011.</p>
<p>The economy grew by 3.1 per cent over the year to March – the strongest annual growth rate in 21 months. Growth has averaged 2.6 per cent over the decade and averaged 2.8 per cent over the last 15 years.</p>
<p>The non-farm economy rose by 1.1 per cent in the March quarter after increasing by 0.6 per cent in the December quarter. Annual growth stands at 3.6 per cent.</p>
<p>Farm GDP fell by 1.9 per cent in the March quarter after declining by 1.8 per cent in the December quarter. Farm GDP fell by 14.9 per cent over the year.</p>
<p>At current prices, GDP rose by 2.2 per cent in the March quarter after 0.9 per cent increase in the December quarter. Annual growth stands at 3.9 per cent. As at March 2018, the Australian economy was valued at $1,815 billion.</p>
<p>The biggest contribution to growth came from net exports (+0.4pp), government consumption (+0.3pp), household consumption (+0.2pp), dwelling investment (+0.1pp), non-dwelling construction (+0.1pp). Private equipment was flat. The only drag on growth came from public investment (-0.1pp).</p>
<p>In terms of domestic price pressures, the household consumption implicit price deflator rose by 0.6 per cent in the March quarter after increasing by 0.6 per cent in the December quarter. Annual growth stands at 1.6 per cent. Real non-farm unit labour costs fell by 1.6 per cent in the March quarter after increasing by 0.5 per cent in the December quarter. Real non-farm unit labour costs rose by 1.1 per cent over the year.</p>
<p>Gross value added per hours worked in the market sector rose by 1.0 per cent in the March quarter, but was down by 0.1 per cent on the year. Hours worked in the market sector fell by 0.2 per cent in the March quarter, but was up by 2.4 per cent on the year.</p>
<p>The only data available is state final demand (more accurate data would include net exports but it is not available for all states and territories). In the March quarter, growth was strongest in Tasmania (up 2.0 per cent), Victoria (up 1.9 per cent), NSW (up 0.7 per cent) and Queensland (up 0.5 per cent). State final demand fell in South Australia (down 0.2 per cent), ACT (down 0.8 per cent), Western Australia (down 1.1 per cent) and in the Northern Territory (down 2.0 per cent).</p>
<p>Consumer spending lifts. Household spending rose by 0.3 per cent in the March quarter to be up 2.9 per cent for the year. Only four of the 17 sectors recorded weaker spending in the quarter. Spending rose most for Electricity, gas and other fuel (up 2.3 per cent) and Communications (up by 1.5 per cent). Spending fell most for Alcoholic beverages (down 2.0 per cent) followed by Hotels, cafes and restaurants (down by 1.8 per cent).</p>
<p>Thirteen of the 19 industry sectors expanded in the March quarter. Strongest growth was by Administration and Support Services (+3.0 per cent), Mining (+2.9 per cent) and Manufacturing (+2.4 per cent). Agriculture, forestry and fishing (-1.7 per cent) and Accommodation and Food Services (-1.3 per cent) recorded the biggest falls in output. Two sectors both added 0.2 percentage points to GDP growth and six sectors each added 0.1 percentage point to GDP growth. Only one sector detracted 0.1 percentage points.</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/6/6/commfigure3.jpg" target="_blank">to enlarge.</a></p>
<p><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/2018/6/6/commfigure3.jpg" alt=""></p>
<p><strong>Other points:</strong></p>
<p>Profit share rises. In seasonally adjusted terms, the ratio of profits to total factor income rose from 27.0 per cent to 27.8 per cent in the March quarter. The wages share fell from 52.9 per cent to 52.4 per cent.</p>
<p>Household savings ratio falls. The household saving ratio fell from 2.3 per cent in seasonally adjusted terms to 2.1 per cent in the March quarter – the lowest level since December 2007. In trend terms household saving rose from 2.1 per cent to 2.2 per cent.</p>
<p>Imports rose as a share of spending. The imports to sales ratio rose from 0.390 in the December quarter to 0.397 in the March quarter.</p>
<p>The inventory to sales ratio fell from 0.610 per cent to 0.603 per cent in the March quarter.</p>
<p><strong>What is the importance of the economic data?</strong></p>
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<p><span>The quarterly </span><span>National Income, Expenditure and Product release (national accounts) </span><span>from the Bureau of Statistics is an </span><span>assessment of Australia’s economic performance. Detailed </span><span>estimates are provided on incomes (wages, profits), spending (such as household, dwelling investment and trade (exports and imports) and production. Other data includes household saving and the economic performance of States and Territories. The main use of the national accounts figures is as a historical record of economic performance. The information has little forward-looking value for currency, interest rate or share markets. </span></p>
<p><span>What are the implications for interest rates and investors?</span></p>
<p>Australia’s record-breaking expansion continues. Importantly, economic growth is strengthening. After a below- par level of activity, largely due to weather disruptions to our export sectors in 2017, output rose back above long- term trend levels in early 2018.</p>
<p>The year has begun strongly with the equal best quarterly growth in output for over six years. And the annual growth rate is near the best in two years. The Reserve Bank is tipping annual growth of 3.25 per cent in 2018. We appear to be on track, though its early days.</p>
<p>Productivity continues to be a key focus and is a necessary ingredient to lift sluggish wages growth. And extra workers taken on by business need to start adding to output. Pleasingly, levels of productivity broadly picked-up over the quarter and year, despite remaining below long-term trend levels.</p>
<p>While the business sector is humming along nicely at the moment, complemented by the fiscal expansion from the government’s infrastructure projects, close attention will continue to be paid to the household sector. Home prices are falling for the first time in five years. Victorian and NSW households are still spending. But consumption remains weak in the mining states. Also, Aussies are drawing down on their savings in the face of weak income growth and rising cost of living pressures. But this may be a sign of confidence in the jobs market.</p>
<p>Employee compensation grew by 1.2 per cent in the March quarter, supported by rising company profits, up by 5.2 per cent – a trend that needs to continue in order to see wages lift sufficiently to boost inflation and interest rates. CommSec expects no change to official interest rates until February 2019.</p>
<p>Ryan Felsman is a senior economist at CommSec.</p>
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No change to official interest rates until February 2019: CommSec

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<div class="column">We have delayed the timing of when we expect the RBA to start a gradual rate hiking cycle.<br><p style="display: inline !important;"> </p>
<p style="display: inline !important;">The change reflects the fact there is no sign yet of stronger wages growth and unemployment has been stuck around 5.5% for the best part of a year.</p>
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<div class="column">While still very data dependent we now have the start of the rate hiking cycle in mid-2019.</div>
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<br><p style="display: inline !important;">We still expect the economy to strengthen, leading to a declining unemployment rate. This should eventually translate into stronger wages growth and give the RBA confidence that inflation will track back to its 2.5% target. However, we acknowledge there is considerable uncertainty around the timing at which wages growth will strengthen, and the time of the RBA’s next move will remain highly data dependent.</p>
<p>For some time NAB has been forecasting that if the economy were to improve as expected, then the RBA would at some point feel confident enough with the economic outlook to start the process of raising the cash rate from its current low level of 11⁄2%. In particular, our view has been that economic growth will strengthen over the coming year and that, with the pace of jobs growth already solid, this would lead to a declining unemployment rate and as a result upwards pressure on wages growth and inflation.</p>
<p>We still consider that this is the most likely trajectory for the economy and RBA policy. However, this week’s data on wages and the labour market indicate that November 2018, our previous forecast for the first rate rise, is too early and we now expect the RBA to be on hold through the rest of this year.</p>
<p>The unemployment rate ticked up 0.1ppt in April to 5.6%, and while the monthly data can bounce around, it adds to the evidence that progress in reducing the unemployment rate has stalled. The ABS measure of the trend unemployment rate has been at 5.5% since August last year; while jobs growth has been solid over this period, this has been offset by further increases in workforce participation. On the wages front, the Wage Price Index (WPI) for the March quarter 2018 was unchanged at 2.1% y/y, with private sector wages growth also unchanged at a slightly weaker 1.9% y/y and showing no signs of accelerating.</p>
<p>The RBA’s view on the outlook for the Australian economy is similar to NAB’s, in that it expects growth to strengthen, and for unemployment to decline leading to a pick-up in wages. The Bank continues to expect progress on unemployment, wages and inflation to be only gradual and has made clear that there is not a strong case for a near-term change in the cash rate. This week’s wage and unemployment data clearly will have done nothing to change this view. Quite reasonably, the RBA does not see 2% wages growth as consistent with 2.5% inflation over time and wants to see some pick-up in wages before lifting rates.</p>
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<p><span>We still believe that conditions are in place for wages growth to rise in the future. Our modelling of factors that affect wages – inflation, labour market underutilisation, productivity and the terms of trade - suggest that we would already have expected to see stronger wages growth. Clearly this has not happened and may reflect the need for the unemployment rate to get closer to its long-term ‘neutral’ rate of 5% or lower, before </span>sufficient wage pressures emerge. This has been the experience of other countries in recent years.</p>
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<p><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/2018/5/21/NAB2.jpg" alt=""></p>
<p>With the unemployment rate stuck around 5.5% recently, we now don’t expect the unemployment rate to get close to the 5% mark until mid-2019. That said, businesses continue to indicate – through our Quarterly Business Survey – that they are finding it increasingly difficult to find suitable labour; historically this has been associated with a decline in the unemployment rate, as well as the underutilisation rate and, ultimately, wages growth.</p>
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<p><span>As a result our forecasts for WPI growth are more conservative than the model projections but we still expect to see some acceleration in wages growth. We are projecting that by mid-2019 WPI growth will reach the 21⁄2% y/y mark. At that time, with unemployment close to its full-employment level, growth above trend and wages growth gradually accelerating, we expect the RBA would have sufficient confidence that inflation will move back towards target and so start to gradually lift the cash rate off its current very low level. </span></p>
<p><span>We expect once the tightening cycle starts, further rate increases will be very gradual. We are now expecting the first move to be in mid (May) 2019, with the next move after that not until late in the year (November 2019).</span></p>
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<p><span>However we acknowledge that there is considerable uncertainty around the timing of the RBA’s next move. The divergence of wages growth from what is suggested by the models makes this uncertainty greater than usual. The RBA will remain heavily data dependent and will want to see sustained signs of a pick-up in wages growth before moving, even if the rest of the economy moves in line with expectations.</span></p>
<p class="p1"><span class="s1"><em>Alan Oster is group chief economist, National Australia Bank, and can be contacted </em><a href="https://business.nab.com.au/author/alan-oster/"><span class="s2"><em>here</em></span></a><em>.</em></span></p>
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