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

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The Victorian new homes market risked heading into new boom and bust cycle if interest rates had been cut this week.
We have seen a 25% jump in activity off the back of the 0.25% rate cut in February.
The Reserve Bank needs to exercise caution with the interest levers or we risk another boom bust cycle.
The entire housing market was building a head of steam with record clearances and top prices paid on the weekend.
The new homes market in Melbourne's growth areas was in equilibrium for the first time in decades with supply and demand in a long term balance.
The entire industry prefers stability to boom and bust and right now we have a uniform market that is good for both vendors and purchasers.
Oliver Hume Research has found the growth areas property market is underpinned by strong population growth but increased land supply has seen land prices constrained at an average $197,000 - well below the 2009 peak of $225,000.
The current low interest rate environment was a major incentive that, combined with new housing styles, promoted affordability, and this could be at risk.
There are more 50,000 new home starts forecast for 2015 with numbers expected to climb through to a peak in 2017.
There are 143 projects active in Melbourne's growth areas with 140,000 blocks approved for development and many more coming through the approvals process , according to our research.
Other sectors of the economy may need some interest rate relief but the housing policy levers in Victoria are working very well with no price inflation on the horizon.
Paul Ciprian is new communities director with <a href="https://www.oliverhume.com.au/" target="_blank">Oliver Hume</a>.
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PaulCiprian-mBo5V8NYCB

Further interest rate cuts risk a boom and bust for Victoria's new home market: Paul Ciprian

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GUEST OBSERVATION
The World Economic Forum recently released a <a href="https://www3.weforum.org/docs/WEF_Emerging_Horizons_Real_Estate_Profile_Prescriptions_Proposals_report15.pdf" target="_blank" rel="nofollow">report</a> as part of its asset bubble project.
It's actually worth the read, particularly the case studies. The key to asset bubbles lies in behavioural decisions and pricing: what causes the divergence of price from value for the (normally) level headed?
<div>
Should governments intervene when a bubble is forming? A vexed question: bubbles are almost always acknowledged ex-ante – with the wisdom of 20:20 hindsight we hear the almost constant drone of, "we told you so". But, so few were those who foresaw the global financial crisis that it royally begs the question: how could the economists fail to miss something so big?
"Hubris" and "wishful thinking" were part of the response. Blind faith placed in the "wizards" of the banking world – trusting they actually knew what they were doing. And the bankers did little to bring their egos back to earth.
Also, failing to see the forest for the trees. Risk management practices were robust in the context of any individual deal, being outside of a reasonable remit to assess the global financial system when undertaking a risk audit. A house of cards was under construction. 
Distinguishing between cyclical periods of natural growth and unconstrained excess is challenging – even professional forecasters have famously botched it. Intervening too soon or by too much may nip economic growth in the bud or do more harm than good (think: London '74 or Australia '91). And besides this, there's the belief underpinning laissez faire markets: governments do best when they do nothing at all.
Booming property markets generally underscore booming economies, leveraging ever larger transactions in a kind debt-capital feedback loop. Governments typically fail to act (until its too late) as growing economies are typically what people and businesses want. It's seen as a hallmark of good government - albeit at the detriment of good governance. 
The property sector underpins the economy, with returns to capital finding some basis in the land rent. The scale of capital involved in institutional transactions is significant such that a few sensational losses can rouse the animal spirits, spreading fear and causing panic. Fundamentally, we need shelter and housing markets are coupled to the economy via the banking sector and the wage-mortgage/rent relationship. A healthy, growing economy generally resonates in an appreciating housing market.
Too many rules stifle growth, while too few fail to restrain our excesses as collectively we try to get ahead. How many haven't dreamed of the day when we finally shake that monkey from our backs? In this context, we return to our opening question, with the observation that price is what you pay, while value what you get.
Martin Bregozzo is principal and property economist at <a href="https://www.ow-capital.com" target="_blank">OW Capital Advisory</a>.
</div>
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mbregozzo-j6q7uYzhAT

Be mindful of value, price and exuberance: Martin Bregozzo 

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Low interest rates can benefit property investors as much as home owners. 
Investors often opt for fixed rate interest-only mortgages to maintain control of their outgoings and as such may miss out on the rate reductions. But those who have variable mortgages and investors who are taking out a loan for a new purchase or refinancing an existing property will find their costs are lower – and therefore their returns greater – than they would have been when rates were higher.
Australia’s already record low interest rate was cut again in February to 2.25% and many commentators are predicting a further cut in March. Financial markets had better-than-even odds on a rate cut to 2% at the end of February less than a week before the March announcement.
As at the end of February, 30 lenders had followed the Reserve Bank of Australia’s lead and cut their mortgage rates, according to Finder.com.au. The comparison website estimates that by March there will be 158 variable home loans with rates under 4.6%.
RateCity.com.au lists variable rate investment loans from Beyond Bank with a comparison rate of 4.35%, from Bank Mecu with a comparison rate of 4.39% plus a $595 application fee and from IMB with a rate of 4.48%. However, there are other variable investment mortgages that charge above 5.8%. 
Paying 1.5% more interest on your mortgage makes a huge difference to the bottom line of your investment. 
Monthly interest-only repayments on a 30-year $350,000 investment loan charging a 4.35% are $1268.75, according to Aussie Home Loans’ calculator. That’s $456,750 over the term of the loan. 
At a 5.85% interest rate, the same sized mortgage would cost $1706.25 a month, or $614,250 over the 30-year term.
That’s a massive $437.50 a month and $157,500 over 30 years.
To put that further into perspective, to increase the income from the property by $5250 a year – the equivalent of the monthly interest saved by having a 4.35% mortgage compared with a 5.85% mortgage – the investor would have to lift the rent by more than $100 a week.
The sums above also ignore tax. Investors have to pay tax on rental income, whereas interest expenses on a mortgage are tax deductible. 
After tax, a $100 increase in rent per week would equate to around $70 a week before deductions and offsets, depending on the investor’s marginal tax rate. Lower amounts of interest paid on a mortgage reduce the value of tax deductions.
While many investors may be locked in to a fixed-rate loan, for those with the flexibility to move, looking for a lower rate mortgage can lift the returns on an investment.
Just as owner-occupiers, investors should consider what’s right in their own situation. Investment loans may charge fees or come with restrictions. The Homeloan HQ investment refinance loan, with a comparison rate of 4.46% is only available up to maximum loan-to-value ratio of 70%, for example. Other investment loans are available for LVRs up to 97%.
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zfielding-GvX3Uq9KTa

Low interest rates can benefit property investors as much as home owners

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More than half of the 37 experts surveyed by comparison website <a href="https://finder.com.au">Finder</a> predict that the Reserve Bank will keep the official cash rate on hold at today's meeting.
The 21 respondents who believe the cash rate will stay at its record low of 2.25% include National Australia Bank's chief economist Alan Oster, who said the effects of last month's 25 basis point cut will "take some time" to become apparent.
Although Oster believes that the interest rate will stay on hold, economists from the other big four banks don't agree. Warren Hogan from ANZ, Michael Blythe of Commonwealth Bank and Bill Evans of Westpac all predict that the cash rate will be cut this month.
In general, the experts surveyed predict a low interest rate environment will continue until June 2016.
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jrichardson-uRX5hFdKfN

Experts split on Reserve Bank's March rate move: Finder 

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GUEST OBSERVATION
The CAMA RBA Shadow Board is a project by the Centre for Applied Macroeconomic Analysis, based at the ANU, which asks industry and academic economists what interest rate the Reserve Bank of Australia should set. Timo Henckel is the non-voting chair of the board.
<hr>
Timo Henckel is lecturer, Research School of Economics, ANU, and research associate, Centre for Applied Macroeconomic Analysis at Australian National University:
Last month, the Reserve Bank of Australia surprised many by lowering the cash rate from 2.5% to 2.25%, pointing to a likely fall in economic growth over the next 12 months – around 2.25%, well below trend of 3%. Some analysts are calling for another cut tomorrow.
(The RBA Shadow Board had on balance recommended <a href="https://theconversation.com/interest-rates-decision-could-boil-down-to-oil-rba-shadow-board-37037" target="_blank">a policy of no change</a>. Read a further explanation by Shadow Board member and UNSW Australia Business School Professor James Morley <a href="https://theconversation.com/the-rba-cut-rates-we-said-it-shouldnt-heres-why-37666" target="_blank">here</a>.)
Weak labour market data confirms the soft economic outlook, and financial markets are anticipating another possible rate cut during the next few months. The CAMA RBA Shadow Board, however, on balance prefers to hold rates and still considers it necessary that the cash rate is lifted in six-12 months.
In particular, the Shadow Board recommends with confidence that the cash rate be held at its current level of 2.25%; the Board attaches a 64% probability to this being the appropriate policy setting. The confidence attached to a required rate cut equals 14%, while the confidence in a required rate hike stands at 22%.
Recent labour market data underline the cracks in the Australian economy: according to the Australian Bureau of Statistics the unemployment rate jumped to 6.4%, its highest since 2002. The seasonally adjusted labour force participation rate remained at 64.8% but wage growth is weak, 2.5% in nominal terms. Stagnant real wages will put the brakes on consumer spending and make it less likely that GDP growth ticks up again.
The fall of the Aussie dollar has halted at around 78 US¢. There are clear signs the weaker dollar is helping the domestic economy. However, the danger is that Australia is becoming embroiled in the global currency war, whereby countries loosen monetary policy in an attempt to gain international competitiveness.
While feasible for countries individually, collectively the world as a whole cannot devalue (exchange rates are relative prices, not absolute prices), and consequently the world economy becomes inundated with liquidity, leading to all sorts of false price signals and economic dislocations. Such concerns underlie the scepticism towards further rate cuts.
Confidence measures remained mixed. Consumer confidence bounced back in February, with the Westpac Consumer Sentiment Index coming in at 100.70 this month (93.2 in the previous month). Business confidence measures remain largely unchanged, but the most recent estimate of capacity utilisation dropped from 80.53% in December to 79.96% in January. As the economy is rebalancing and trying to come to terms with the many domestic and international uncertainties, consumer and business confidence measures will continue to lack clear direction.
The picture for the global economy looks much the same as in the previous month: Europe is weak while working through a plan to restructure Greek debt, China is steadying, while the US economy remains the only relative highlight in the world economy.
<h2>What the CAMA Shadow Board believes</h2>
The consensus to keep the cash rate at its current level of 2.25% equals 64%. There is little confidence (only 14%) that another rate cut is appropriate whereas the Shadow Board considers it more likely (22%) that a rate hike, to 2.5% or higher, is the appropriate policy decision for this month.
The probabilities at longer horizons are as follows: six months out, the estimated probability that the cash rate should remain at 2.25% equals 31%. The estimated need for an interest rate increase lies at 56%, while the need for a rate decrease is estimated at 13%. A year out, the Shadow Board members’ confidence in a required cash rate increase equals 63%, in a required cash rate decrease 12% and in a required hold of the cash rate 26%.
<img src="https://62e528761d0685343e1c-f3d1b99a743ffa4142d9d7f1978d9686.ssl.cf2.rackcdn.com/files/73395/width668/image-20150302-16172-4vux6y.png" alt="">
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<hr>
<h2>Comments from Shadow Reserve bank members</h2>
Mark Crosby, Associate Professor, Melbourne Business School:
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“The RBA could use up all its ammunition.”
Having unexpectedly cut last month, it would seem to make sense to hold and wait before moving again. International developments remain uncertain but are stable, and I have a concern that the RBA is using up all of its ammunition before it becomes absolutely necessary.
At longer horizons it still seems likely that raising to more neutral levels rather than cutting rates would seem desirable.
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Bob Gregory, Professor of Economics at Australian National University:
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I did not support the interest rate change last month. Still worried about housing and think we gain very little else from a cut.
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Guay Lim, Professorial Fellow, Deputy Director, Melbourne Institute of Applied Economic and Social Research at University of Melbourne:
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“It’s unclear that further cuts would stimulate real spending.”
It would be difficult to make the case for another cut in the cash rate following so soon after the cut last month. This is not to detract from real concerns that growth remains below trend, but one reason for pause is that it is unclear that further cuts would stimulate real spending.
This is not the appropriate forum to discuss economic research, but it is apposite to note that the relationship between spending (in real terms) and the cash rate appeared to have changed post-global financial crisis. From 1993-2007, lowering the cash rate appeared to have had the desired effect of stimulating growth in real GNE, but post GFC, the evidence is not so apparent.
Unless there are clear signals of worsening economic conditions, it seems prudent to keep rates steady rather than risk fuelling asset-price inflation. And there are signs of improvement! The US economy is recovering steadily and growth in China, though slower, is still robust. Meanwhile, the exchange rate has depreciated and consumer confidence has picked up.
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Jeffrey Sheen, Professor and Head of Department of Economics, Macquarie University, Editor, The Economic Record, CAMA:
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“In the absence of a fiscal response, monetary policy carries the burden.”
The Australian economy continues with below-normal activity. There is little on the horizon that might restore normality: the labour market weakened in January with the unemployment rate reaching 6.4% and wage rises showing moderation at 2.7%; planned capital expenditures are showing significant declines, particularly in mining and manufacturing; the TWI appreciated by 3% in February despite continued weakening in commodity prices; and the weighted growth of Australia’s major.trading partners remained modest.
The main downside risk to a further easing of monetary policy is asset price inflation, but this is not an obvious problem at this stage - for example only Sydney and Melbourne housing prices are growing much faster than Australia’s 5%.
The RBA Board judged the evident weaknesses last month to merit a relaxation of monetary policy, and the data releases this month give further support to that judgment. In the apparent absence of a cogent fiscal response, monetary policy needs to carry an even bigger burden for the time being.
This article was originally published on <a href="https://theconversation.com" target="_blank">The Conversation</a>.
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TimoHenckel-dMcwuZpzVD

Labour market weakens, but RBA Shadow Board recommends against further rate cut

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Falling consumer sentiment is not expected to affect the recovering market for new homes in Victoria.
A decade of our research shows interest rates were a much larger factor in the health of the market.
In many ways falling consumer confidence and interest rate cuts will add stimulus to the market which will then have a positive impact on new home sales in 2015.
Even though the Westpac-Melbourne Institute Consumer Sentiment Index fell in January the market is expected to continue to surge in 2015 on the back of low interest rates and continued strong migration.
We had the best Christmas period we have had for many years and it doesn't look like slowing down. From our perspective there is no need for a further rate cut.
My concern is that a rate cut in first half of 2015, could risk tipping us back into a boom and bust cycle.
<img src="/images/2015/02/26/cip%20feb%2026%20one.png" alt="">
Source: Oliver Hume
The graph above shows that consumer confidence has been falling since September 2013 but land sales for new homes has been growing strongly from just over 600 month (Sept 2013) to more than 1,000 a month in September 2014.
There is a strong link between the record low interest rates in September 2012 with the growth in population that has been propelling the market since sales bottomed around the same period.
The only concern in the economic outlook was Victoria’s unemployment rate that is currently running at 6.8% which could act a break if it continued to rise.
State government figures indicate the Melbourne market will require 161,000 new homes to 2021 with 340,000 new homes to be delivered by 2031 based on state government figures.
There are currently 143 projects across Melbourne’s new communities market with 3,500 blocks actively being marketed.
New land sales are now back to 2009-2010 highs with an average of 1,000 blocks a month sold across Melbourne in the September quarter with a total value of around $600 million.
This is double the sales from the lows of 2011-2012 after the GFC flattened the market and the First Home Buyer Grants stopped.
Housing recovery is being driven by a range of factors including low interest rates and a great perception of value rather than any major government incentives or consumer sentiment.
It has taken three to four years for the first home buyer market to recover and it is now tracking at around 50% of all purchases which is at historic average levels.
I expect the market to continue to perform strongly with Melbourne’s population expected to grow by 90,000 people a year to 2031 with half that from migration.
Paul Ciprian is new communities director with <a href="https://www.oliverhume.com.au/" target="_blank">Oliver Hume</a>.
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Interest rate cuts propelling new land sales: Paul Ciprian 

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On Tuesday the Reserve Bank of Australia (RBA) will host its March board meeting, with the outcome of this meeting seemingly hanging in the balance.
At the close on Friday, futures markets priced a cut as more likely than not at a 62% likelihood, with another cut to a cash rate of 2% by May considered all but certain.
Implied yields on November 2015 cash rate futures contracts are now plumbing new depths at just 1.69%, reflective of two further cuts being fully priced in for this calendar year.
<img src="https://1.bp.blogspot.com/-jjQdy6E0Ezc/VPIa0sqb_-I/AAAAAAAATcg/fA3eX9iObMg/s1600/rba.jpg">
Viewpoints are split on this month's decision. Via the medium of Twitter, I enquired of Shane Oliver of AMP if he was sticking with a cut forecast for March, and given that his response was only three letters long he seemed fairly unequivocal.
<img src="https://1.bp.blogspot.com/-Diznv4gA8ts/VPIbZcjHk7I/AAAAAAAATcs/UeaIF__2FYs/s1600/RBA%2Bshane.jpg">
Bill Evans of Westpac has also taken the view that if further rate cuts are indeed deemed necessary then they should be cut now rather than later, perhaps seeing this as the so-termed "path of least regret".
Evans would prefer to see an immediate cut with an explicit easing bias, regardless of whether that bias was later acted upon.
On the other hand, Terry McCrann took to the format of <a href="https://www.heraldsun.com.au/video/id-BlMjJuczrpI2Doztmk7QglEBHVae9MLb/Private-profits-and-public-losses" target="_blank">video</a> on Friday in order to predict rates staying on hold, which at least should keep debate centred upon monetary policy this month rather than his use of <a href="https://www.forexlive.com/!/terry-mccrann-is-a-big-fan-of-forexlive-20150204" target="_blank">punctuation</a>.
Risks to each decision
A number of factors which I have previously looked at in turn in greater detail <a href="https://petewargent.blogspot.com.au/2015/02/all-about-that-baseno-trouble" target="_blank">here</a> suggest that the labour market, investment outlook and inflation may each be soft enough to warrant another cut, but the RBA has itself identified a risk that lower rates could ignite a rocket under Sydney's buoyant housing market.
However, given that markets are presently torn between rates staying on hold or being cut, a decision to stay on hold presumably also risks sending the dollar back up and away from the assumed ~75 cents that the Board would likely prefer to see.
Interest rate history
While interest rate movements and expectations are far from being the sole driver of our property markets, the impacts of adjustments to monetary policy are likely to be felt more keenly than they were prior to the <a href="https://petewargent.blogspot.com.au/2014/05/interest-rates-more-important-than-they" target="_blank">deregulation</a> of financial markets.
Over the past quarter of a century we have seen the commencement of five easing cycles, and in every case dwelling prices have subsequently responded by rising within the following 24 months, although, as one would expect in illiquid markets, there can be a lag.
<img src="https://2.bp.blogspot.com/-RGvWXrHD5-Q/VPIa0k6TnCI/AAAAAAAATcc/yRH1912tvtU/s1600/Rba%2Brate%2Bhistory.jpg"> <a href="https://2.bp.blogspot.com/-RGvWXrHD5-Q/VPIa0k6TnCI/AAAAAAAATcc/yRH1912tvtU/s1600/Rba%2Brate%2Bhistory.jpg"></a>
What we can conclude from the above is that interest rate cuts are rarely "lone wolves" and that they tend to come in a salvo.
The RBA's rhetoric over the past year has certainly indicated a clear preference towards interest rate stability, but after a long period of inaction the February decision to ease by 25bps to 2.25% betrayed a view that more than one cut is deemed likely to be required.
Discount rates and fair values
Just as the <a href="https://petewargent.blogspot.com.au/2014/05/value" target="_blank">Gordon growth model</a> fulfils a simple method of share price valuation, it is of course possible to model a fundamental or fair value for housing markets. Such a model can be used in order to weigh up a rent versus buy decision through discounting expected future cash flows and using real mortgage rates as the discount rate.
However, if you have ever undertaken such an exercise you will have quickly discovered just how sensitive the outcome is to assumptions relating to real rental growth and expected capital appreciation. It has always been my contention that while sustained real rental growth is likely in certain land-locked capital city areas due to growing demand and inelastic supply (e.g. inner ring Sydney), it is unrealistic to expect this to occur in most regional or more elastic outer suburban markets over the longer term.
Assuming real rental growth in a fair value model increases the present value of future cash flows from rental payments (or the implied user cost) net of running costs such as repairs, rates and insurance. These same forces are also what give rise to expected future capital appreciation - although to some extent this is offset by the discounting applied to the final capital gains upon sale.
These two key inputs are inter-related, and generally suggest that home ownership is marginally more attractive than renting where real rental growth is expected, though only for longer term owners due to the high transaction cost associated with Australia housing. While the future of course in unpredictable, a widespread belief that mortgage rates will be lower in the future than they were in the past are a key input into the fundamental value of housing - and by taking on greater household debt, the market has pushed in turn paradoxically pushed the <a href="https://petewargent.blogspot.com.au/2014/04/what-is-neutral-interest-rate-are-low" target="_blank">"neutral" rate</a> of interest lower.
Real estate cycles
Capital city markets with an expanding population will always cycle as construction and therefore dwelling supply ebbs and flows in response to demand.
<img src="https://4.bp.blogspot.com/-CddOt596vnw/VPIj9J3GmDI/AAAAAAAATc8/YGDZrlSbvfw/s1600/AW1.jpg">
But, as I looked at in more detail <a href="https://petewargent.blogspot.com.au/2013/08/market-psychology-sydney-property" target="_blank">here</a>, when it comes to property market psychology expectations of dwelling price movements - and the emotions of fear and greed which these suppositions engender - play at least as important a role in the near term and therefore accentuate the cycles.
This is precisely why another interest rate cut in this easing cycle will likely send Sydney's property market soaring for the stars - with 2015 forecasts already ranging from <a href="https://images-2.domain.com.au/file/2015/02/27/6304392/2015%2520Property%2520Guide.pdf?rand=1425011523149" target="_blank">7 to 12%</a> capital growth and risks to the upside - simply because recent history leads to a critical mass of those active at the margin to an ingrained belief that prices will rise. CoreLogic's preliminary weekend auction clearance rates from Melbourne (and possibly even to a certain extent Canberra) and a huge surge in the <a href="https://petewargent.blogspot.com.au/2015/02/housing-finance-straps-on-jet-pack" target="_blank">latest housing finance data</a> suggest that it is not only folk in Sydney who presently feel this way.
I should add that from the hordes of people I witnessed at viewings on Saturday, the inner ring Brisbane market now appears very likely to heat up too. For all of the above, real dwelling price growth through this cycle outside the largest cities has been weak, suggesting that the easy gains in Australia's housing markets took place further towards the left of the interest rate history chart above. One of the issues facing property market commentary has been recency bias which has led to some unrealistic expectations of real growth in perpetuity in more elastic markets where this was never probable, or even likely. Greater Sydney has suffered from a chronic <a href="https://petewargent.blogspot.com.au/2015/02/sydney-land-it-goes-ballistic-supply-is" target="_blank">supply deficiencies</a> which should have been obvious to observers close to a decade ago, and despite an increase in approvals, the lack of appropriate supply is now coming home to roost. There is an avalanche of data due out this week, so stay tuned for that!
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.
His new book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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pwargent-M4siyDbqQY

Will interest rates fall again on Tuesday? Pete Wargent 

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All the advertising around low home loan interest rates was stimulating activity, the outgoing head of Mortgage Choice Michael Russell told an investor briefing.
But rates will get to a point where it will not be material enough to bring forward future buying demand, he suggested.
"We have to be getting close to that point now," he added, though not for refinancing loans.
Mortgage Choice Limited today announced its financial results for the six months ending 31 December 2014. 
The company's net profit after tax was $10 million, up 3.3% annually. Total group revenue was $97 million, up 11% on 1H14 with its total loan book reaching $48.4 billion. 
"This was up 4.5% from $46.4 billion at 31 December 2013 and is poised to hit $50 billion by 1H16," Russell advised.
"We are about to smash through the $50 billion milestone," he told the investor briefing. He said the biggest lending boost within their boost had been derived from CUA lending given their sharp lending rates.
Some $6.9 billion worth of housing loan approvals were written in the six months to 31 December 2014, up from $6.2 billion in 1H14. 
It's annual share of new home loans remained at 3.9%, although strong growth was achieved especially on Queensand's Gold Coast were it held a 10% plus market share.
Micheal Russell said the group had adopted a "steely focus" to boost its lending book.
"Victoria was starting to hit its straps," he said in what was the mortgage broker chief executive's swan song half year results.
Mortgage Choice has previously announced the appointment of John Flavell as its chief executive officer, set to join the company in April 2015.
Michael Russell will work alongside Flavell in a transition phase and then depart the business at the end of the 2014/15 financial year.
Russell joined Mortgage Choice as CEO in 2009, developing two three-year plans to expand the company.
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jchancellor-FAypfDUnLy

Low interest rates almost at tipping point: Mortgage Choice

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Lower interest rates may do nothing more than inflate property prices, according to Bank of America Merrill Lynch's Australian economist Saul Eslake.
Eslake suggests further cuts to the cash rate "may be relatively ineffective in directly stimulating improved levels of activity in the economy over the short-term".
However he is tipping a second 25 basis point cut to 2%.
Eslake predicts an increase in the median national dwelling price from an average $469,000 to $497,000 in 2015, along with debt metrics at levels not seen since the heady days before the onset of the global financial crisis.
"Indeed, on the majority of measures and metrics Australia's household debt level is already high compared to our own history and other developed nations," he said.
"The household sector holds more debt than the non-financial business sector and all levels of government combined.
"And as a proportion of GDP [it holds] more than any other comparable developed economy," he said.
Constraints on fiscal spending, the federal government's inability to push through budgetary reforms, and state governments' reluctance to sell public assets had added to pressure on the RBA, Eslake said.
"The RBA finds itself in a difficult position," he told the Australian Financial Review.
"Households with a mortgage continue to pay the same mortgage amount each month with only the principal and interest proportions altered," he said.
"In this way, lower interest rates have largely been cashflow neutral."
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Saul Eslake tips another RBA rate cut, but wonders on its effectiveness

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GUEST OBSERVATION
I am a member of the <a href="https://cama.crawford.anu.edu.au/pro-pol/" target="_blank">“Shadow” RBA Board</a>, which is made up of a collection of industry and academic economists. Just before every meeting of the real-world RBA Board, we announce our recommendations for monetary policy.
Prior to the February meeting, we argued that <a href="https://theconversation.com/interest-rates-decision-could-boil-down-to-oil-rba-shadow-board-37037" target="_blank">RBA board members should hold the policy rate steady at 2.5%</a>. But they cut the rate for the first time in 18 months to 2.25%. This was a surprise to many, including financial markets which responded with big gyrations in the dollar and equity prices.
So did we, like many others, simply get it wrong?
Not really, because a key distinction between the Shadow Board and many market commentators is that we are supposed to recommend what the RBA should do, not predict what it will do.
Of course we hope that the reasons behind our recommendation are so compelling that the RBA would come to the same conclusion, even if it does not directly follow our advice. So this distinction between what it should do and what it will do gets blurred somewhat in practice.
Was the RBA wrong to cut rates?
What to make of the RBA cut then? Did it make a mistake?
The short answer is “not exactly”. (I know, you’re thinking that’s a typical <a href="https://quotationsbook.com/quote/11809/" target="_blank">two-handed economist</a> answer to a simple question. But I will explain.)
In <a href="https://cama.crawford.anu.edu.au/sites/default/files/outcome/attachments/2015-01/shadow_board_comments_february2015.pdf">my recommendation</a> not to cut, I focused on the huge recent drop in oil prices. I argued that this contributed to a temporary decline in inflation below the RBA’s target range of 2-3%, with the latest CPI annual rate at 1.7%. I acknowledged that low inflation provided some scope for the RBA to cut rates. But I suggested that the fall in oil prices, along with the fall in the dollar and robust growth in the US, would help broaden growth beyond interest-rate-sensitive sectors such as the housing market. So a cut could be delayed until the RBA had better prepared financial markets for one.
In the <a href="https://www.rba.gov.au/media-releases/2015/mr-15-01" target="_blank">policy statement</a> and the subsequently released <a href="https://www.rba.gov.au/monetary-policy/rba-board-minutes/2015/2015-02-03" target="_blank">minutes</a> from its February meeting, the RBA actually covered a lot of similar ground, albeit in much more detail.
The big difference was the RBA emphasised that the unemployment rate would, according to its forecasts, peak at a higher level than previously thought. This change in the forecast was driven in part by revisions of GDP data which suggested weaker growth over the past year.
Given this new information and the RBA’s modelling of how it changes the forecast for the unemployment rate, an immediate cut in the policy rate was deemed to be the best course of action. Its concerns were subsequently confirmed by the latest unemployment rate data that showed a jump up to 6.4% in January, the highest rate in more than 12 years.
So the RBA looks prescient. At the same time, trying to prop up demand in a way that stimulates the housing market has its risks. The US experience in the early 2000s makes this abundantly clear. Ultimately, we won’t know whether the RBA made the right call for years, if ever.
Known unknowns
The last Shadow Board recommendation wasn’t actually as simple as saying the RBA should hold rates steady. In general, we acknowledge uncertainty about the appropriate level for the policy rate by assigning probabilities to different possibilities. Think of this as like placing bets on what the right thing to do is.
Averaging across all of our members, we assigned a 68% probability that the appropriate policy was to hold steady, with a 13% probability for a cut and a 19% probability for a rise.
Importantly, we assign individual probabilities without conferring first. This is designed to avoid “group think” and there is a fair amount of variation in recommendations across members. (In February, I assigned 65% to holding steady, 20% to a cut, and 15% to a rise, which wasn’t too far off the average probabilities. The reasons for these probabilities can be discerned from my current and <a href="https://cama.crawford.anu.edu.au/rba-shadow-board/past-outcomes">past written comments</a>.)
Not trying to sell newspapers
Unfortunately for those who might enjoy a little controversy, we’re not in this to criticise the RBA.
This is in contrast to the original <a href="https://en.wikipedia.org/wiki/Shadow_Open_Market_Committee" target="_blank">“Shadow” Fed</a> in the US, which was founded in the 1970s. It was quite critical of the Federal Reserve’s policy at the time, not just in terms of policy actions, but its whole policy framework.
Monetary policy has changed a lot since the 1970s, with the adaption throughout much of the world of the remarkably successful Kiwi export of <a href="https://en.wikipedia.org/wiki/Inflation_targeting" target="_blank">inflation targeting</a>. This policy framework emphasises transparency and a nominal anchor (i.e., stable CPI inflation) that stands in stark contrast to the secretive and scattershot policies that were carried out in the 1970s.
The RBA has an inflation target and it is guided in its policy actions by forecasts of inflation and the unemployment rate. It explains in a transparent way why the policy rate is set at a given level, including how it will bring inflation within its 2-3% target range.
This framework has allowed the RBA to achieve very close to 2.5% inflation on average since the introduction of inflation targeting in 1994. So it is hard to be critical of the policy framework.
The Shadow Board, what is it good for?
So what is the Shadow Board’s role then? I believe one answer is to provide some independent thought on monetary policy, including why it can sometimes make sense to raise rates, rather than cut them.
I’ve noticed a fairly unremitting enthusiasm in the financial press for rate cuts. And these do stimulate the economy, so why not? The answer, of course, is that these rate cuts can also lead to inflation and various imbalances that create long-run pain after the short-run gain.
At the same time, we need to avoid what Paul Krugman refers to as VSP (“very serious people”) Syndrome, which leads to a constant and highly irresponsible call for short-run pain to somehow prove our economic virtue. Despite such economic bloodletting being equally as bad as the long-discredited medical version, VSPs keep pushing their <a href="https://www.afr.com/p/markets/australia_needs_recession_to_concentrate_W6pbeWWbdXJmpouyxXGvRM" target="_blank">shockingly bad advice</a> and sometimes even get to <a href="https://theconversation.com/crisis-envy-and-the-budget-a-very-serious-problem-26060" target="_blank">try it out with fiscal policy</a>.
Monetary policy will always involve dilemmas with no easy solutions. A record low policy rate of 2.25% helps the Australian economy adjust to the end of the mining boom. But it almost certainly overstimulates the housing market, which will cause problems down the road.
The Shadow Board won’t provide a definitive answer as to what the RBA should do. We are clear about our own doubts. But we try to think through the possibilities in an objective way and hope to contribute to the public discourse on monetary policy.
Just don’t ask us to predict what the RBA will do at the next meeting.
<img src="https://counter.theconversation.edu.au/content/37666/count.gif" alt="The Conversation" width="1" height="1">James Morley is professor of economics and associate dean (Research) at UNSW Australia Business School.
This article was originally published on <a href="https://theconversation.com">The Conversation</a>.
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