Economic, property market uncertainty messing with people’s minds

It seems like no time at all since the property market was a predictable juggernaut delivering endless riches to homeowners and insurmountable obstacles to first-home buyers.

The Reserve Bank of Australia had made it clear interest rates weren’t rising for a couple more years and China was buying everything we could make and paying record prices for our resources.

That era of apparent certainty was, counterintuitively, playing out during a global epidemic. But no sooner have our facemasks been consigned to a bottom kitchen drawer of clutter, used batteries and unused spices, than the economic environment has flipped on its head.

Interest rates are taking off, property and resources prices are tanking, and China has refused to answer our calls let alone buy our dairy, wine, barley or beef.

The result within households around the country has been a sense of uncertainty, stress and for some, a wholesale surrender.

In the current climate of fast-rising inflation and interest rates, nearly half (44 per cent) of Australians have lost their motivation to save, invest or increase their income, according to a study by finance platform Money.com.au.

Licensed financial adviser and Money.com.au spokesperson Helen Baker warned that this complacency could put them at risk of falling behind the rest of the population.

“It’s surprising to see that younger individuals aren’t focused on building their wealth,” Ms Baker said.

“They also risk falling behind those who are – and who will likely have better opportunities and funds for the future, such as for their retirement.

“In contrast, the return of immigration and a more competitive job market will prove challenging for those who have lost their motivation.”

Source: Wealth Building Motivation Study - money.com.au.

Rebecca Jarrett-Dalton, mortgage broker and founder of Two Red Shoes, said 2022 had been a confusing one for many property speculators.

“It has been an interesting year for property, one that’s left experts scratching their heads since no one really understands what’s going on,” she said.

Ms Jarrett-Dalton described the year as a good one for those buyers who were able to find a suitable property.

“It’s a strange juxtaposition - usually low stock and higher demand mean higher prices, but property prices have been on a steady decline all year.

“However, the data is showing we could be near the bottom of the dip and time, and potentially other lending changes, will tell.

“While many current homeowners may be looking for a new property, they could be out of luck as there just aren’t that many nice properties available to buy at the moment, so many potential sellers and buyers are holding off until they can find what they want.”

Deflated by inflation

With inflation running at around triple the pace of wage growth in Australia, low-income and older households, and those with mortgages, are facing the most severe cost-of-living pressure.

Research by Associate Professor Ben Phillips, from the Australian National University, concluded that the poorest 20 per cent of households by income are currently facing the equal-highest cost-of-living pressures of any income group.

He added that wages were usually the sole source of income for poorer households, while wealthier households often had access to other sources, such as superannuation, shares, rental income and property appreciation, and were therefore less impacted by the differential in wages growth and inflation.

Source: Wealth Building Motivation Study - money.com.au.

For those being hurt by rampant inflation, their collective sense of assurance that it will be reigned in soon is seemingly forlorn.

Money.com.au’s survey of 1,010 people found that more than half (59 per cent) of respondents believe inflation won’t return to its average 3 per cent growth rate. 

More than half (61 per cent) of under-30s and 58 per cent of over-30s did not think inflation will be controlled. Across the states, two-thirds (66 per cent) of West Australians, 63 per cent of Queenslanders, and 60 per cent of Victorians indicated the same.

Australians are spending more but it’s not frivolous spending.

Commonwealth Bank of Australia (CBA) Chief Economist Stephen Halmarick said higher prices for goods and services prices saw the CommBank Household Spending Intentions (HSI) Index rise marginally by 0.9 per cent in October to 116.0.

“Increased household spending in October reflected higher prices and seasonality, with discretionary spending continuing to weaken in response to increased interest rates.”

“Cost of living pressures saw many spending categories continue to weaken and there was a marked decline in total spending growth from September,” he said.

Source: Wealth Building Motivation Study - money.com.au.

Rolling the dice

Uncertainty over when interest rates might peak was shaping much behaviour around property purchases, according to Ms Jarrett-Dalton.

“Gone are the days when people would shrug off an extra $10,000 or spend that extra $20,000 to get the home of which they’ve been dreaming.

“Now, buyers will pinch the pennies until they cry for mercy to make sure they don’t go over that ever-present loom of the interest rate rises squeezing the budget.”

She added that the buyers were confused about building homes and buying land, with the building industry having experienced considerable turmoil in the last two years.

“Land has become a scarce commodity. 

“Many people seem to be concerned about building, causing them to hold off on pulling the trigger to get things built. 

“They seem to be waiting for the prices to go down, which may not be wise.

“Supply chain and other cost factors are driving the price up, which is being passed onto the consumer.

“Holding off on building in the hopes of a price drop could have you holding your breath for a long time.”

Tim McKibbin, Chief Executive Officer, REINSW said the compounding impact of interest rate rises is fuelling some interesting behaviour among buyers and sellers.

“Some buyers are playing the game of try to guess the bottom of the cycle but this will only be apparent in hindsight.

“People who hold off on the purchase of a property they’ve identified as ideal in the hope of paying less down the track will typically end up missing out and settling for less, in a property not as well suited to their needs.

“Supply is low and options are slim - if you find your perfect property then now is the perfect time to buy.

“For vendors, many are taking a wait-and-see position

“Both perspectives are understandable but both are inherently risky.

“Housing is a nondiscretionary, essential commodity and trying to predict where we’re at in the cycle is fraught with danger.”