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

Joel Robinson

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

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

Sammut secures approval for debut Brisbane apartment development in Toowong

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

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

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

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

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

WM Residences fills gap in Mordialloc townhouse market

Interest Rates

<html><body>
Philip Lowe, Governor, Reserve Bank of Australia's speech to the Australia-Canada Economic Leadership Forum.
Thank you for inviting me to address this year's Australia-Canada Leadership Forum. It is a real pleasure for me to be here.
The original plan for this session was to have Bank of Canada Governor, Steve Poloz, also speak. But the timing of the Bank of Canada's next regular monetary policy meeting has meant that this wasn't possible. Like us, the Bank of Canada has a blackout period around their policy meetings. So this means that I will need to wait for a future occasion to welcome Governor Poloz to Australia.
The Bank of Canada and the Reserve Bank of Australia enjoy a very warm relationship. Many of the issues we face are similar and our perspectives are often very close to one another. This is partly because of the similarities in our economies. But it is also because Australians and Canadians are both pragmatic and open-minded people and we don't take ourselves too seriously. So, there is a natural affinity.
On the economic front, we are both medium-sized trading nations. We are both rich in natural resources. We have both had to come to terms with volatile prices for our key exports. We both have strong and resilient banking systems. We both have floating exchange rates and we operate flexible inflation targets. We are both attractive places for non-residents to invest their savings. We both have growing populations. And we both have had to deal with very large increases in housing prices in some of our cities. With all this in common, it is not surprising that we find much to talk about and experiences to share.
Australia and Canada are also both countries that have benefited greatly from international trade. We are both strong supporters of a rules-based open international trading system.
Too often these days, a commitment to open international trade, integration into global capital markets, a strong role for markets and a dynamic financial sector are seen as liabilities, not as assets. Australia and Canada provide strong counter examples. We show that openness can deliver both prosperity and resilience. We both enjoy standards of living that relatively few people elsewhere in the world enjoy. And while our economies have had their ups and downs, they have also proved to be pretty resilient.
Australians and Canadians also understand that the benefits from openness can fall unevenly across our communities. We recognise that while openness makes the size of the pie bigger, it can also affect the distribution of the pie in a way that our societies feel uncomfortable with. This is something that we have both tried to address and have had more success on this front than some other countries.
With that introduction, the main focus of my remarks this morning is on the outlook for the Australian economy. I would like to talk about this outlook in the context of three issues that I hope will have strong resonance with the Canadians in the audience. The first of these is the cycle in investment in the resources sector. The second is developments in the housing market and household borrowing. And the third is inflation targeting in a low inflation, low interest rate environment.
The Outlook
The RBA released its latest economic forecasts a couple of weeks ago.
We expect economic growth to be around 3 per cent over the next couple of years. This is a little faster than our current estimate of the potential growth of our economy. Despite this, we do not expect much change in the current rate of unemployment, which stands at around 5¾ per cent. This is because some of the above-potential growth is a result of the expansion of LNG production, which does not employ that many people.
Given this outlook, we expect underlying inflation to increase, but to do so only gradually. Wage growth remains subdued, but is not expected to decline further, and spare capacity is likely to remain in the economy for some time yet. Our central forecast is for headline inflation to increase to above 2 per cent later this year, boosted by increases in oil and tobacco prices. The increase in underlying inflation is expected to be a bit more gradual.
Commodities and Investment
The first of the three issues that I expect will strike a resonance with Canadians is the shifts in commodity prices and investment in the resources sector. This is a major factor that has shaped economic outcomes in both our countries.
While the general stories are similar, the details are different. One area of difference is the size of the movements in the prices of our main exports, summarised in the terms of trade (Graph 1). Australia's terms of trade almost doubled over the first decade of this century and in 2011 reached their highest level since the gold rushes of the 1850s. The increase in Canada was also large in a historical context, although it was not as large as that in Australia.
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph1.gif" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph1.gif" alt="">
This difference reflects two factors. The first is that the prices of Australia's main commodity exports – iron ore and coal – increased by significantly more than the price of Canada's main commodity export, oil. The short-run supply curve in iron ore and coal tends to be very steep, so the prices for these steel-making commodities increased very sharply when Chinese investment in property and infrastructure really took off. The second factor is that commodities make up a larger share of Australia's total exports than is the case for Canada.
Both of our countries have also experienced a pronounced cycle in mining investment. Not surprisingly, reflecting the larger movement in our commodity prices, the cycle has been bigger in Australia. Here, mining investment went from 2 per cent of GDP in the early 2000s to 9 per cent in 2012 (Graph 2). Another difference with Canada is that our main export partner, China, has grown at an average rate of almost 10 per cent over this period, compared with just 2 per cent average growth in Canada's main export partner, the United States.
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph2.gif" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph2.gif" alt="">
 
Both our countries accommodated the increase in mining investment without overheating. Our flexible exchange rates played an important role here.
Given the larger cycle in mining investment here, the impact on the rest of the economy has been more pronounced. While many parts of our economy did well from the boom in mining investment, others did not as they dealt with the higher exchange rate and found it difficult and more expensive to hire workers. One illustration of this broad impact is the substantial decline in Australia in non-mining investment as a share of GDP from the mid 2000s (Graph 2). By way of contrast, Canadian non-mining investment has shown much less variation.
For some time, a major factor shaping our forecasts for the Australian economy has been a rebalancing of investment between the resources and non-resources sectors. We estimate that the decline of mining investment back to normal levels is around 90 per cent done. So this headwind, which has been weighing on GDP growth for some time, will blow itself out before too long.
Another headwind we have had for some years is the fall in commodity prices, but this has turned into a gentle tailwind since mid last year. Since then the prices of all our main commodity exports have risen. This is good news for us, although we are not expecting the higher prices to lead to the type of pick-up in investment in the resources sector that might once have occurred. There has already been a very large expansion in supply capacity and we expect some unwinding of the recent increase in prices as supply increases. The higher prices, though, are providing a boost to our national income and this is expected to have some flow-through effects to the rest of the economy.
The other part of the story has been the expected pick-up in non-mining investment. This pick-up has been a long time coming. As in Canada, the picture is complicated by significant differences across regions. In those parts of Australia where mining investment has been declining, non-mining investment has also been falling because of the significant spill-over effects (Graph 3). Elsewhere, the picture is more encouraging. Non-mining investment has now picked up in New South Wales and Victoria. Survey measures of capacity utilisation have increased and so too have broader-based measures of business conditions. So while the near-term outlook for non-mining investment for the country as a whole remains subdued, we continue to forecast a pick-up later in the forecast period.
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph3.gif" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph3.gif" alt="">
 
Housing and Borrowing
I would now like to turn to a second issue that I think will strike resonance with Canadians: housing prices and borrowing. This is an issue that is discussed a lot in both our countries. We have both had strong housing markets over recent years and there are concerns about the level of household indebtedness. There are some similarities in the factors at work.
One is that our populations have been growing quickly for advanced industrialised countries. In Australia, population growth has averaged 1.7 per cent over the past decade, while in Canada it has averaged 1.1 per cent. Over the past couple of years the growth rates have moved closer together.
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph4.gif" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph4.gif" alt="">
Another similarity is that there has been strong demand from overseas residents for investments in residential property, particularly in our wonderful Pacific-rim cities. Not only are these cities attractive places to live, but we also offer investors security of property rights and economic and financial stability. Given the strong demand and its impact on prices in some areas, some state and provincial governments have recently levied additional taxes on foreign investors in residential property.
Our housing markets have also been affected by the global monetary environment. We both run independent monetary policies, but the level of our interest rates is influenced by what happens elsewhere in the world. With interest rates so low and our economies being resilient, it is not so surprising that people have found it an attractive time to borrow to buy housing.
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph5.gif" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph5.gif" alt="">
Another characteristic that we have in common is that at a time of strong demand from both residents and non-residents, there are challenges on the supply side. I understand that zoning is an issue in Canada, just as in Australia. In some parts of Australia, there has also been underinvestment in transport infrastructure, which has limited the supply of well-located land at a time when demand for such land has been growing quickly. The result is higher prices.
We are also both experiencing large differences across the various sub-markets within our countries. The strength in housing markets in our major cities contrasts with marked weakness in the mining regions following the end of the mining investment boom (Graph 6).
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph6.gif" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph6.gif" alt="">
The increase in overall housing prices in both our countries has gone hand in hand with a further pick-up in household indebtedness (Graph 7). In both countries the ratio of household debt to income is at a record high, although the low level of interest rates means that the debt-servicing burdens are not that high at the moment.
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph7.gif" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph7.gif" alt="">
In Australia, the household sector is coping reasonably well with the high levels of debt. But there are some signs that debt levels are affecting household spending. In aggregate, households are carrying more debt than they have before and, at the same time, they are experiencing slower growth in their nominal incomes than they have for some decades. For many, this is a sobering combination.
Reflecting this, our latest forecasts were prepared on the basis that growth in consumption was unlikely to run ahead of growth in household income over the next couple of years; in other words the household saving rate was likely to remain constant. This is a bit different from recent years, over which the saving rate had trended down slowly (Graph 8).
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph8.gif" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph8.gif" alt="">
This interaction between consumption, saving and borrowing for housing is a significant issue and one that I know both central banks are watching carefully. It is one of the key uncertainties around our central scenario for the Australian economy. It was also cited as one of the key risks for the inflation outlook in the Bank of Canada's latest Monetary Policy Report. We are still learning how households respond to higher debt levels and lower nominal income growth.
Inflation Targeting in a Low Inflation Environment
I would now like to turn to a third issue where there is some commonality of experience: that is dealing with an extended period of low inflation.
For a few years now, both countries have experienced low rates of inflation (Graph 9). Many of the same factors have been at play. Wage growth has been subdued given the ongoing slack in the labour market. We have both also seen downward pressure on retail prices from intensified competition. In its latest Monetary Policy Report, the Bank of Canada noted that this was one issue affecting food prices. The same is true in Australia, but the experience here is broader, with new entrants, including overseas retailers, putting downward pressure on the prices of a wide range of goods.
<a href="https://www.propertyobserver.com.au/images/2017/02/22/sp-so-2017-02-22-graph9.gif" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/22/sp-so-2017-02-22-graph9.gif" alt=""> 
We are both expecting inflation to increase, but only gradually so. In our case, we expect the disinflationary effects of the earlier decline in commodity prices and the competitive pressures in retailing to wane. Some pick-up in wages growth is also expected, although wage increases are likely to remain below average for some time yet. Our liaison with businesses does not suggest that a pick-up in wage growth is imminent, but nor does it suggest that a further slowing is in prospect.
Over recent times, both central banks have had to think about the implications for their monetary policy frameworks of sustained low inflation and rapid increases in borrowing and housing prices. Both have recently reaffirmed that inflation targeting remains the right monetary policy framework.[1] We have also emphasised that our inflation targets are flexible, not rigid straightjackets. In our case, the emphasis is very much on medium-term outcomes, rather than the outcome over any particular period.
While there are some differences in emphasis in language, there is a high degree of commonality in our approaches. Governor Poloz has said on a number of occasions that the Bank of Canada takes a ‘risk management approach’ to monetary policy.[2] This strikes a very strong resonance with us at the Reserve Bank of Australia.
At any point in time there are quite a few possible paths that the cash rate could follow to achieve Australia's inflation target, which is to achieve an average rate of inflation over time of 2 point something. Consistent with the Reserve Bank Act, we set out to choose the path that, in our judgement, best promotes the welfare of the Australian people.
In our risk management exercises, we have been seeking to balance the risks from having inflation low for a longer period against the risks from attempting to increase inflation more quickly, which would partly occur through encouraging more borrowing.
If inflation is low for a long period of time, it is certainly possible that inflation expectations adjust, making it harder to achieve the objective. At the moment though, I don't see a particularly high risk of this in Australia. The recent lift in headline inflation is helpful here and most measures of inflation expectations are within the range seen over recent decades.
In relation to the risks from additional borrowing, it is possible that continuing rises in indebtedness, partly as a result of low interest rates, increase the fragility of household balance sheets. If so, then at some point in the future, households having decided that they had borrowed too much, might cut back consumption sharply, hurting the overall economy and employment. It is difficult to quantify this risk, but it is one that is difficult to ignore. As I said, our focus is on the medium term, not just the next year or so.
Another consideration in thinking about the risks are the trends in the labour market. All else constant, if the unemployment rate is high and rising, the stronger would be the case for policy to pursue a quicker return of inflation to the midpoint of the target. To date, we have been satisfied that the labour market is heading in the right direction, if not as quickly as we'd like. After declining over 2015, our unemployment rate has been broadly steady, with employment growth concentrated in part-time jobs. And like the housing market, the labour market outcomes vary significantly across the country. So it is an area that we continue to watch carefully.
In summary then, flexible inflation targeting with a medium-term focus remains the right monetary policy framework for Australia. In both Australia and Canada our monetary policy frameworks have played important roles in our economic stability of recent times. As I mentioned at the start of my remarks, we also share other strengths – a rich commodity base, strong and resilient banking systems, an attractive destination for foreign investment, flexible exchange rates and a commitment to openness and competitive markets. But overall, Australia and Canada provide pretty good advertisements for flexible inflation-targeting frameworks.
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Ratio of household debt to income at record high: Philip Lowe

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GUEST OBSERVER
As expected, the minutes of the February monetary policy meeting of the Board of the Reserve Bank provided little additional insight to the Governor’s post-meeting statement and the February Statement on Monetary Policy.
The surprise 0.5 percent decline in real GDP in the September quarter attracted considerable discussion although it has largely been attributed to temporary factors including disruptions to coal supply for exports and bad weather which impacted residential construction. It is also noted that slower growth in consumption has been an aspect of growth trends in recent quarters.
However this weakness is not expected to have continued into the December quarter with growth in retail sales volumes having already been reported to have increased.
Nevertheless there is an emphasis on increased uncertainty around the outlook for consumption. On the one hand the minutes note the importance of households’ perceptions of their personal finances and job prospects. The assumption that the savings rate will continue to fall and support consumption growth has been discarded with growth in household income now representing a constraint to consumption growth.
On the other hand the minutes also point out that due to the strong lift in the terms of trade national income growth will be boosted providing some scope for upside risks to the forecasts.
The Board remains guardedly optimistic about an improvement in growth in non mining business investment with New South Wales and Victoria leading the way and a recent improvement in approvals for non residential investment also pointing to stronger investment. As we have seen in previous minutes the chasm between housing activity in the mining states and Sydney/Melbourne is emphasised clearly. Prospects for activity in Sydney and Melbourne remain solid with in particular investor housing approvals having risen in recent months.
Prospects for the labour market remain uncertain although the unemployment rate is still forecast to edge lower, albeit at a sufficiently modest pace for spare capacity to persist for some time. 
The Board is relying upon a gradual return to the inflation target coming from a modest boost in labour cost pressures and an easing in competitive pressures on retail prices. Unlike in recent years there is no expectation that the earlier depreciation of the exchange rate will put any upward pressure on tradeables prices. That cycle is assessed to have run its course. 
International conditions are assessed to have been more positive over recent months with GDP growth forecasts for our major trading partners having been revised up a little. Higher oil prices and rising inflation expectations were expected to flow through to higher core inflation in the advanced economies over time. As in previous minutes, uncertainty around China’s growth prospects, including imbalances in the financial sector, are an ongoing concern in the medium term. As with most commentators, uncertainty around the US is high with fiscal policy and deregulation potentially boosting activity although restrictive trade policies pose downside risks. 
Conclusion
We see nothing in these minutes to change our view that the official cash rate will remain on hold throughout 2017 and 2018. Markets continue to anticipate rate hikes in 2018 while a considerable number of commentators are predicting rate cuts in 2017. The middle course seems a much more likely outcome particularly given our view that growth momentum can pick up in 2017 but slow markedly through 2018 posing risks for the labour market and economic activity.
BILL EVANS is chief economist of <a href="https://www.westpac.com.au/">Westpac</a>. 
 
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Official cash rate will remain on hold, maybe until 2018: Westpac's Bill Evans

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Minutes of the February Monetary Policy meeting of the Reserve Bank Board

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GUEST OBSERVER
Labour market statistics are among the most valuable pieces of data we analyse to gauge the health and strength of an economy. 
Trends in the labour market influence virtually every part of an economy. And they have a major impact on monetary and fiscal policy decisions as well as the functioning of society more generally. 
The latest ABS employment report allows us to draw a line under the sand on how the Australian labour market performed over 2016. It also provides a good stepping off point for thinking about how conditions in the labour market will evolve over 2017. 
In this note we take a frank look at how the Australia labour market performed over the past twelve months. We analyse key metrics like employment, unemployment, participation and hours worked. And we take a brief look at outcomes by state. We conclude by presenting our views on what we think is in store for the labour market over 2017 and what it means for policy. 
1. Employment 
We kick off with employment growth because job creation goes hand in hand with output growth (chart 1). Throughout 2016 average monthly employment growth was significantly lower than in was in 2015. The average monthly gain was 7.1k which is a third less than it was in 2015 (chart 2). As a result, annual employment growth in the year to December 2016 slowed to 0.9 percent compared with 2.5percent the previous year. And unsurprisingly, output growth eased over 2016. The latest national accounts put annual GDP growth at a below trend 1.8 percent in QIII 2016.
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In addition to soft employment growth, the composition of jobs growth has been suboptimal. Part-time employment was the sole driver of jobs growth over 2016 (chart 3). The ABS estimates that part-time employment lifted by 126k over 2016 while full-time jobs fell by 34k. To be fair, there was a pickup in full-time jobs over the December quarter which provides a glimmer of hope that things may be improving. But over the calendar year as a whole, the news was ordinary for those seeking full-time work.
To recap, a worker is deemed to be employed full-time if they are working more than 35 hours a week. Working between 1 and 35 hours a week means a worker is considered part-time. So a part-time worker could be working a significant number of hours or hardly working at all.
The latest figures show that a part-time employee works on average 17.0 hours a week. A full-time worker on average clocks up 39.2 hours. Having this data enables us to calculate full-time equivalent (FTE) employment growth and the news here is particularly sobering (chart 4). On our calculations, FTE employment growth was flat in the year to December 2016. In other words, the Australian economy created no FTE jobs over 2016. This should concern policymakers because growth in FTE jobs should be a lot higher (1 percent or above) to take into account new entrants into the labour market. It’s therefore no surprise that Australia has near record higher underemployment (see section 3). 
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2. Unemployment
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It’s fair to say that from where we were 18 months ago, the decline in the unemployment rate has bettered RBA and market consensus forecasts which previously had it stuck above 6 percent over 2016 and 2017. But before we get carried away, the unemployment rate moved a little lower over the year purely because of a fall in participation (see section 4). 
Australia has a strong population growth rate and generally needs to generate at least 15k a jobs a month to stop the unemployment rate rising. But over 2016 the economy was generating half as many jobs a month and yet the unemployment rate moved marginally lower. This is reconciled by a fall in participation. On our calculations, the unemployment rate would have risen to around 6.2 percent if the participation rate has remained constant. 
The slight downward trend in the unemployment rate has had a positive impact on job security concerns (chart 6). The WBC MI monthly gauge on unemployment rate expectations moved down a little over 2016 (a decrease indicates that respondents are less pessimistic about the labour market). This helps to loosen the consumer purse strings and since the spending of one person is the income of another, we also welcome the fall in job security fears. 
There is more work to be done, however, because the unemployment rate is still above the level we associate with full employment (around 5 percent) and job security fears are still quite elevated even though they have been receding. Further, the unemployment rate in Australia is higher than the equivalent rate in the US, Japan and the UK – three economies that Australia is generally assumed to be doing better against (chart 7). 
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3. Underemployment and underutilisation 
In the past the unemployment rate was deemed sufficient to measure labour market slack and therefore very little air time was given to the underemployment rate. But over the past two years it’s become increasingly fashionable to talk about the underemployment rate because it’s been rising while the unemployment rate has been falling. Underemployment provides a gauge of the proportion of people who are employed but whose labour is not fully utilised. That is, they have a job but want to work more and can’t find the work. 
The underemployment rate largely tracked sideways at around 8.4% over 2016 which is near its record high. This is undesirable and means spare capacity in the labour market is a lot higher than the unemployment rate implies. 
The sum of the unemployment rate and the underemployment rate produces the underutilisation rate which is the broadest measure of spare capacity in the labour market – it has been stuck above 14 percent for the past 18 months (chart 8).
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The number of additional hours of work wanted by underemployed workers has been stable at around two days (or a little under 15hrs) per week since the mid- 2000s. This compares with unemployed people who are on average looking for an additional 33 hours per week1. To put it in layman’s terms, at the end of 2016,  
8 1⁄2 percent of the Australian workforce wanted to work two more days per week than hey are currently working and 5 3⁄4 percent of the workforce were out of a job and wanted one. These numbers are too high and should concern policymakers.
There is a large pool of the workforce who either need work or want more work. 
Having the information on hours of additional work sought enables us to construct an adjusted underutilisation rate. To do this we weight the underemployment rate to take account of the average underemployed person seeking 15hrs a week work compared with 33hrs for an unemployed person. This measure provides the purist measure of spare capacity in the labour market. It moved a touch lower over 2016 from 9.7 percent to 9.5 percent but it is very high by our historic standards and presently sits above the level hit during the GFC. In fact, you have to go back to the late 1990s for the last time the adjusted underutilisation rate was so high.
The data shows that the economy is operating well below its capacity and there is an output gap. As we have covered previously, this has dragged down the pace of wages growth and inflation.
4. Employment to population and participation
The share of the Australian workforce in a job trended down over 2016. The employment to population ratio ended the year 0.4ppts lower at 60.9 percent (chart 9). This shift downwards basically reflects employment growth running below population growth. Normally that would be associated with the unemployment rate drifting higher, but a decline in the participation rate has allowed the unemployment rate to grind lower. A declining participation rate and flat employment to population ratio means that the downward trend in the unemployment rate is overstating the relative strength of labour demand.
The participation rate fell over 2016 for cyclical and structural reasons .
The cyclical force dragging the participation rate lower over the year largely reflects the discouraged job seeker syndrome. The participation rate fell sharply over 2016 in the mining states of WA and QLD (chart 10). And more so for men than women. The big downturn in mining-related investment has greatly reduced job prospects for workers in these states. Some workers appear to have given up looking for employment and have left the workforce. As a result, the participation rate has fallen. 
Structurally, the ‘grey army’ – those aged 65 and over – have continued to grow as a share of Australia’s population. This story will continue to play out over a long period of time and it will drag the participation rate down. Basically, the ageing of the population has increased the dependency ratio (the age-to-population ratio of those typically not in the labour force). This underpins the need for fiscal reform.
There is a misconception that Australia’s immigration policy will help to offset the impacts of the growth in the dependency ratio. It works in the short term, but it’s not a long term solution. As the Productivity Commission argued in April 2016, “the continuation of an immigration system oriented towards younger working- age people can boost the proportion of the population in the workforce and, thereby, provide a ‘demographic dividend’ to the Australian economy. However, this demographic dividend comes with a larger population and over time permanent immigrants will themselves age and add to the proportion of the population aged over 65 years.” In other words, it’s a policy more akin to kicking the can down the road. 
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5. Hours worked
Hours worked, as you would expect, is strongly correlated with output, consumption and employment growth. It is also a key input into examining productivity growth because we can measure output per hour (or unit of labour).
Monthly aggregate hours worked is quiet volatile so we look to the annual change in trend terms to best gauge what’s been happening in that space (chart 11). The 
news is not good. But it’s not surprising given what the other indicators of the labour market aforementioned are suggesting.
The data indicates that total hours worked was just 0.4 percent higher in the year to December 2016. This is weak given population growth is running at 1.4%. As such, hours worked per capita fell over 2016 to a multi-decade low (chart 12). In fact, you have to go back as far as the recession of the early 1990s for when per capita hours worked was as low as it is now. This trend is concerning because it means that unless there is a big lift in productivity, output per worker will be weak along with per capita income. It’s no wonder that there has been no meaningful improvement in Australia’s fiscal position given per capita hours worked has been falling. As we covered back in October, the performance of the Australian economy looks far from spectacular on a per capita basis.
Labour market by state
Back in November we flagged that Australia has a new “two-speed” economy that comprises: (i) NSW and Victoria (driven largely by Sydney and Melbourne); and (ii) the rest of Australia (see here). The evidence is in, among other things, the labour market.
There has been little in the way of jobs growth outside of NSW and Victoria (charts 13 and 14). Employment growth in the Garden State has powered along, driven in part by particularly strong population growth. Jobs growth has slowed in NSW, but Australia’s Premier State put on a lot of jobs in late 2015/early 2016 and the unemployment rate is close to the level we would associate with full employment.
On the other hand, the impact of the downturn in mining investment is particularly evident in the labour markets of Australia’s two resource-rich states. Employment growth in QLD is down a sizeable 1.4% through the year to December 2016 while it’s down by a similar amount in WA. Things have picked up in SA and employment growth is running at a respectable pace. Jobs growth in Tasmanian remains soft but things improved a little in the second half of 2016.
The unemployment rates across the states vary just like the employment data (chart 15). The unemployment rate has trended lower in NSW and sits at a healthy 5.0%. In Victoria, despite solid jobs growth, the unemployment rate ended 2016 unchanged on a year earlier at 5.9% because of a rise in participation. For the rest of the country, the unemployment rate sits at or above 6.0%. The trend is WA is particularly concerning given the unemployment rate has been moving north. It ended the year 0.6ppts higher at 6.7%. 
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What can we expect in 2017?
Our frank assessment is that the labour market was soft over 2016. But there are tentative signs that things may be a little better in 2017, at least in the near term. More specifically, jobs vacancies and business surveys are pointing to a lift in employment growth.
The latest NAB Business Survey (January) showed a material jump in the employment conditions indicator (chart 16). This index has historically had a high correlation with the ABS labour force data. It currently sits at its highest level since 2011 which points to a near term lift in employment growth. The rise in the employment index is consistent with a lift in capacity utilisation which provides a source of optimism for business investment - an essential ingredient to long-run job creation. The ANZ jobs vacancies series also posted a solid rise in January (4.0%) and annual growth accelerated to its strongest pace since August 2016.
In addition to the business surveys, the lift in commodity prices over the latter part of 2016 is flowing through to export receipts which filters through to domestic  income. Higher income growth supports consumption which ultimately underpins the demand for labour. So there are some causes for optimism.
But equally, there are plenty of risks. The rate cut chamber only has a few bullets left and even then, the ability of monetary policy to stimulate genuine economic activity from here is questionable. Consumer confidence is still fragile and the geopolitical backdrop suggests that the global economic outlook contains more uncertainties than usual. So while the business surveys suggest that near term employment growth should improve, that picture can change quite quickly, particularly given that the improvement in business confidence and increase in capacity utilisation has yet to translate into actual investment.
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What does it mean for monetary policy 
In our view, trends in the labour market are the one to watch in 2017 for clues on the next move in rates. Market participants became fixated on the inflation data throughout 2016 because the RBA eased twice, in May and August, when core CPI came in below target. But since Governor Lowe has been in the top job, inflation has continued to print below target and yet rates have remained unchanged. Concerns around the further build-up of household debt and strong dwelling price growth mean that it would take a slowdown in employment growth (or lift in the unemployment rate) for Lowe to entertain the idea of taking the policy rate lower. 
We think that jobs growth will be sufficient to keep the unemployment rate crabbing sideways which should fend off calls for rate cuts. The risk, however, sits with easing over the next six months while ever inflation is below target. Labour market slack needs to be gobbled up before we start to see wages growth lift. And in our view, that’s some way off. As such, talk of rate rises is premature and we cannot see the case for the policy rate rising over the next year. 
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Gareth Aird is economist at Commonwealth Bank and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/gareth-aird/14/790/905">here</a>.
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Labour market trends the clue to future rate cuts: Gareth Aird

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GUEST OBSERVER
While many media outlets paint a rather bleak and uncertain future for the world economy, long-term bond yields in Australia finished 2016 higher than at any other point throughout the year.
This is even more impressive considering that the cash rate (which has a strong correlation with bond yields) was cut twice for a total of 50 basis points over 2016. Figure 1 shows how much long-term rates increased towards the end of last year and into 2017. Yields on 10-year Australian government bonds have increased by 74 basis points since September and nearly 100 points since the last interest rate cut in August. 
Table 1 shows the difference between yields on 10-year government bonds and 90-day treasury bills in basis points (1 point = 0.01 percent). 
This tells a similar story to the graph in Figure 1; a widening between short-term and long-term rates. The important point is that this widening from August until December last year is driven by an increase in long-term yields rather than a cut in short-term rates, as it was from July to August.
 
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Often if the yield curve becomes too inverted, the RBA is forced to cut short term rates to improve liquidity by incentivising banks and other institutions to lend out money. 
An increase in long-term yields is a dream scenario for the Reserve Bank, as this is a signal of higher investor confidence and a better outlook for the Australian economy. 
December was also the first month since September 2014 that the entire yield curve was positive (long term rates above medium, and medium term rates above short term). This is a sign that investors expect improving economic condition in the long run. It also shows investors’ belief that the economy will do well over the next few years.
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The ASX Cash Rate Futures market pegs the chances of a decrease in official cash rates at the next meeting (7th March) at 5 percent. While this may seem appropriately low, it does highlight that even with a rising yield curve, investors still believe an interest rate cut is more likely than a hike in 2017. 
For more information from Secret Agent, <a href="https://secretagent.com.au/" target="_blank">click here</a>.
 
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Rate cut more likely than hike in 2017: Secret Agent

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RBA Governor Philip Lowe has given a clear message that interest rates have bottomed, implying the central bank won’t be cutting the overnight cash rate anytime soon, according to CBA chief economist Craig James.
At his first speech of the year during the A50 Australian Economic Forum, Governor Lowe said the “bank's central scenario is for some pick-up in economic growth and for inflation to move gradually higher”.  
The RBA is tipping economic growth of 3 per cent over 2017 and 2018. 
On inflation, he said that while it remains low, running at around 11⁄2 per cent in both headline and underlying terms, inflation is not expected to fall further. 
“Instead, our central forecast is for underlying inflation to gradually rise over the next couple of years,” he said. 
Clearly, that signals the bank is not in a hurry to cut rates, says James.
The Governor was also asked about the Aussie dollar, and based on the answer reported by the <a href="https://www.afr.com/news/economy/monetary-policy/donald-trump-might-even-be-good-news-says-rbas-philip-lowe-20170209-gu9iw6" target="_blank">Financial Review</a>, he also seems happy with current levels. 
"At the moment we think it'll deliver (economic growth of) 3 per cent, which is pretty good. While ever that's the case it's hard to say the exchange rate is fundamentally too high. At the moment I struggle to say the configuration that we have is leading to growth outcomes that are unsatisfactory." 
He also spoke of mixed conditions in the housing and job markets and the challenge in keeping high household debt under control. The Governor also said the RBA was closely monitoring the housing market and household balance sheets. 
He said, “the picture varies widely across the country. Prices for houses in Sydney and Melbourne are rising strongly, but apartment prices in some cities, including Perth and Brisbane have fallen. The population is growing strongly, but there is a large number of additional dwellings to come onto the overall market this year”. 
“Growth in rents is weak, but vacancy rates in most markets are not unusually high. And investor demand looks to have strengthened in the closing months of 2016. So it is a complex picture.”
While saying that high household debts are a risk, he was positive about the tightening of lending standards by banks over the past couple of years.
While upbeat on Australia and Australia’s prospects, the RBA Governor highlighted challenges including lifting productivity growth, greater engagement with Asia, lifting spending on infrastructure and keeping public finances in good shape.
On the unwinding of the mining boom, encouragingly the Governor said “we are already around 90 per cent of the way through the fall from the peak to expected trough in mining investment”. 
His near-term outlook was positive, according to James, though he did say the GDP fall in the September quarter was a surprise, but the economy was expected to have returned to growth in the December quarter.
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CBA economist Craig James says RBA has given clear message rates have bottomed

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GUEST OBSERVER
The RBA has downwardly revised its near term growth forecasts as well as shaving a bit from their medium term projections. Inflation forecasts remain intact and both headline and core inflation are expected to gradually rise from here.
The RBA see the unemployment rate tracking sideways over 2017 at 5 3⁄4 percent.
We have the RBA cash rate on hold at 1.5 percent throughout 2017.
The RBA’s updated forecasts are further evidence that Governor Lowe doesn’t intend to take the cash rate lower. The Bank has essentially looked through the QIII contraction in the economy and has forecast decent growth outcomes over the next two years. In addition, headline inflation is forecast to return to target over 2017. As such, the Bank retains a neutral bias despite there being no forward guidance in today’s Statement on Monetary Policy (SMP).
Looking at the Bank’s through the year forecasts implies that the pace of growth picks up from 2 percent/pa mid-2017 to an above-trend 3 percent by year end. It is expected to remain above trend over the rest of the forecast period (mid-2019).
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LNG production, infrastructure spend and a lift in non-mining investment are expected to push growth higher. The Australian economy would be deemed to be in good health if these outcomes can be achieved. While we think they are possible, they look a best case scenario and the risk is that growth outcomes undershoot the Bank’s forecasts. The Bank has upgraded its global growth forecasts on fiscal stimulus in the US.
Inflation is forecast to gradually rise. But core inflation is not expected to get back to target until 2018. The RBA sees headline inflation rising a little quicker because of price rises in fuel and tobacco. These forecasts look about right to us, but like the growth forecasts, the risks are skewed to the downside.
The Bank retains a temperate assessment on the labour market. Employment growth is forecast to basically run at a level that would see the unemployment rate crab sideways at 5 3⁄4 percent. Normally we would expect the unemployment rate to be falling if growth is running above trend. The GDP and unemployment rate forecasts are reconciled by the big contribution to growth that will come from LNG production which is not labour intensive and also a possible decline in underemployment.
The RBA has confused us a little with their assessment on non-mining business investment. In Lowe’s Statement on Tuesday, the Governor optimistically stated that, “some further pick-up in non-mining business investment is also expected.” The word “further” stood out to us because in our view we are yet to observe a meaningful lift in private non-mining investment. Today the RBA agreed with us by nothing that, “non- mining business investment has been weak for some time, despite the support provided by low interest rates and the earlier depreciation of the exchange rate. The outlook for non-mining business investment is relatively subdued in the near term”. We will await further clarity from Martin Place on this one.
Rate cuts look off the table for now given the strong growth in dwelling prices (largely Sydney and Melbourne) and the Bank’s relatively upbeat assessment of the economic outlook. Despite below target inflation, concerns around the further build-up of household debt and strong dwelling price growth mean that it would take a shift in the activity data for policy easing to come back onto the table. In our view, trends in the labour market are the one to watch. It would take a loss of momentum in job creation for Lowe to entertain the idea of taking the policy rate lower. We see rates on hold in 2017.
The risk, however, sits with easing while ever inflation is below target. 
RBA Key Views
Terms-of-Trade. The terms of trade are expected to decline gradually over 2017, but are expected to remain above their recent trough and be higher than previously forecast.
Unemployment rate. Unemployment rate to basically trend sideways at 53⁄4% in 2017. But it is expected to edge lower over the forecast period.
World growth. Growth forecasts for 2017 and 2018 have been revised a little higher reflecting the recent better data and the prospect of more stimulatory fiscal policy in the US.
Inflation. Inflationary pressures to be benign. Forecasts remained unchanged from November SMP. Inflation to gradually rise. But core inflation not expected to get back to target until 2018. Headline inflation rising a little quicker because of price rises in fuel and tobacco
Wages. Gradual recovery in wage growth from late 2017 assumes that some of the factors that have been weighing on wages will gradually dissipate.
Housing construction. The large amount of work in the pipeline should continue to support a high level of dwelling investment for the foreseeable future.
Dwelling Prices. Conditions in the housing market in Sydney and Melbourne strengthened over the second half of 2016, but they have remained relatively subdued elsewhere. Inflation in rents has eased to multi-decade lows.
Australia’s GDP. The pace of growth picks up from 2%pa mid- 2017 to an above-trend 3% by year end. Its forecasts to remain above trend throughout the rest of the forecast period. .
Fiscal policy. Little change to the forecasts of the consolidated deficit in 2016/17 of around 3 per cent of GDP which implies a modest stimulus to growth.
Oil prices. Higher oil prices should oil are expected to contribute to inflationary pressures in the period ahead. .
CBA’s View
The terms of trade are expected to drift lower over 2017 due to a pullback in commodity prices. But we have seen the low point for the cycle.
The unemployment should grind a little lower over 2017. Some job losses still to come out of the resources sector as the last of the major projects finish. NSW and Vic to have the strongest labour markets.
Global growth to lift a little to around 3 1⁄4 percent in 2017. Advanced economies, like the US &amp; Canada, likely to have above trend growth. China growth to firm at around 6.8 percent. UK economy to slow under Brexit impact and Eurozone growth to be similar to 2016.
Underlying CPI to remain below the RBA target band (2-3 percent) in 2017. Headline inflation to within the target band in H1 2017. Weak wages growth is keeping a lid on domestic inflation while tradables inflation is weak due the AUD holding up in the mid-USD0.70s.
Wages growth remains feeble, even with firmer commodity prices. Wages growth unlikely to materially lift labour market underutilisation falls. Job security concerns remain elevated and are also keeping a lid on wages growth.
Building approvals have peaked for the cycle and will continue to taper off over 2017. There is a significant pipeline of dwellings yet-to- commenced and completed. Commencements to be a robust 210k in 2017, slightly down from 220k in 2016. Alterations and additions spending likely to gradually rise.
Dwelling price growth is expected to moderate over 2017. Varied price growth across different regions to continue. Affordability remains a significant problem for low and middle income households. An increase in supply to stem dwelling price growth.
We expect the economy to grow by 2.4 percent in 2016 and 2.6 percent in 2017. Net exports, public investment and household spending to lift growth. This is partly offset by a drag from business investment.
Fiscal pressures to remain on Federal Budget and reform is slow and elongated. Public capex to lift. S&amp;P have put Australia’s AAA credit rating on negative outlook due to budget deficits.
Oil prices to drift a little lower which supports consumer spending. But because Australia is a net energy exporter, lower oil prices are a negative for terms of trade. 
<a href="https://www.propertyobserver.com.au/images/2017/02/10/Screen%20Shot%202017-02-10%20at%201.31.44%20PM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/02/10/Screen%20Shot%202017-02-10%20at%201.31.44%20PM.png" alt="" width="750" height="273">
Gareth Aird is economist at Commonwealth Bank and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/gareth-aird/14/790/905">here</a>.
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Rate cuts off the table given strong growth in dwelling prices: Gareth Aird

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Auswide Bank has raised a number of its variable interest rates for current owner occupiers and business customers, with the lender justifying the move as necessary to protect stakeholder interests. 
The non-major lender, which has assets under management of nearly $2.8 billion, said reference rates for existing owner-occupied mortgages will go up by 10 basis points, increasing the bank’s predominant standard variable rate to 5.43% per annum.
The change comes into effect immediately, according to a report in the <a href="https://www.brokernews.com.au/news/breaking-news/challenger-bank-pushes-up-variable-rates-231096.aspx">Australian Broker</a>.
Owner occupiers paying the standard rate on a $250,000 loan will now have to cough up an additional $15.59 per month, based on a principal and interest home loan paid off over 30 years, says the report.
Variable rates have also increased by 10 basis points for business loans.
These increases have been necessary to protect stakeholder interests, said Auswide managing director Martin Barrett.
<img src="https://www.urban.com.au/images/2017/02/10/AuswideLogo.png" alt="">
“Our operating margin has sat just under 2% for many years and this decision protects that long-held position in a competitive funding environment where a large proportion of our loan funding is sourced from depositors,” he was cited as saying in the report.
Barrett said that although Auswide had adjusted its investment home loan rates in December, it had held off as long as possible on increasing rates for owner occupier and business customers.
Customers with fixed rate home loans, personal lines of credit, and investment home loans will not be affected by these changes.
The discount variable rate offer for new package loans over $150,000 with an LVR of under 90% will not be impacted, nor will customers with the RBA Rate Tracker Home Loan which was launched in October 2016.
 
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Auswide Bank raises variable interest rates for owner occupiers

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GUEST OBSERVER
There are a number of ‘hot button’ issues to monitor at present: home prices; inflation, the Aussie dollar and the outlook for the US and the global economy.
So what are the current RBA views?
Well, in typical economist parlance, there is a lot of ‘on the one hand this, on the other hand that’.
For instance: “conditions in the housing market vary considerably around the country”; “Labour market indicators continue to be mixed”; and “the economy is continuing its transition”.
Importantly though, the Reserve Bank remains positive.
The global economy has “improved”; domestic economic growth is forecast around 3%; and headline inflation is tipped to lift to over 2% in 2017.
So while the Reserve Bank is sticking with its “neutral stance”, it clearly won’t be cutting rates anytime soon.
The Reserve Bank has left the cash rate at 1.50%.
The previous rate cut was in August 2016 (25 basis points).
There have now been 12 rate cuts since November 2011, cutting rates from 4.75% to 1.50%.
The Reserve Bank had previously lifted rates seven times from October 2009 to November 2010 – a total of 1.75 percentage points, from 3% to 4.75%.
If the Reserve Bank was to change rates in coming months, the trigger is more likely to emerge from overseas, probably a development from policies adopted by the new US government.
For instance, stimulatory policies could serve to lift the US, and the broader global economy, in turn boosting inflation.
In that event, rate hikes would be more likely in Australia than rate cuts.
Conversely, if the fiscal stimulus doesn’t emerge in the US, rather protectionist actions are advanced, that could serve to restrain global economic growth, stifle inflation pressures and cause Australia’s Reserve Bank to cut rates to protect domestic activity.
Oil prices need to be watched carefully in coming months.
<a href="https://www.propertyobserver.com.au/images/2017/02/07/Screen%20Shot%202017-02-07%20at%207.18.00%20pm.jpg" target="_blank">Click to enlarge</a>
<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/2017/02/07/Screen%20Shot%202017-02-07%20at%207.18.00%20pm.jpg" alt="">
If key oil nations continue to comply with new production targets and support oil prices, then deflationary fears will continue to ease.
Fixed-term interest rates have lifted sharply over the past six months.
But future moves will be dependent on European elections in 2017 as well as US monetary and fiscal policies.
Bank depositors are getting better returns at present, but still returns remain more attractive amongst blue-chip listed companies.
The Reserve Bank will especially watch the following in coming months: US fiscal policy; Chinese economic activity; commodity markets; Australian home prices; inflation expectations; and the local job market.
CommSec expects the Reserve Bank to stay on the interest rate sidelines for the 2017 year.
Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.
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Reserve Bank set for a long wait on sidelines on interest rates: Craig James

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The RBA held at its February 2017 meeting with the cash rate at 1.5 percent.
The hold decision from the RBA was widely anticipated, especially considering the strength in the housing market over the second half of 2016 as well as the consistent rise in investment activity since the latest round of rate cuts in May and August last year. 
With inflation consistently tracking below the RBA’s target range for almost three years, it’s likely that the heat in the housing market is one of the primary reasons why the cash rate hasn’t moved lower in an attempt to stimulate spending and push inflation higher, CoreLogic's Tim Lawless reported.
CoreLogic reported capital city dwelling values were 10.7% higher over the past twelve months, which is a substantially higher growth rate than the 7.4% recorded over the same period a year ago. 
Laing+Simmons Managing Director and REINSW President-elect Leanne Pilkington says the Reserve Bank had neither the justification nor the desire to reduce the official cash rate today after the rate cuts of last year.
Ms Pilkington believes further easing is not needed in the current cycle.
“Obtaining housing finance at attractive terms is already possible for those with the means. It’s those without the means – stuck in the rental cycle or unable to accumulate a suitable deposit – that face the greatest challenge in the market,” Ms Pilkington says.
“And further rate cuts are not a solution to the problem. Between Government and the industry, we need to table some alternative solutions to help people buy their first home.
“From a housing industry perspective, rates are already low and have been for some time, so that piece of the affordability puzzle is in place.
“It’s through other avenues like stamp duty reform that improvements in affordability need to be addressed,” she says.
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