Andrew Bell’s Market Update: How Good Is The Gold Coast?

MARKET WRAP
Issue 24  |   November 8th, 2018  |  How Good Is The Gold Coast?

There has been quite a bit of information which come through over the last week or so that all bodes well for the real estate market. One of the five fundamentals of the real estate market is employment or unemployment. Nationally, we have now hit a six-year low in unemployment at just 5%. This is where most economists agree is somewhat full employment. As I think we all know, there is a percentage of the population who will never work but once we get to 5% or under is classified full employment.

Of great significance among those figures is that manufacturing jobs are experiencing resurgence. Employment in manufacturing has declined steadily for the past 40 years, falling from 1.38 million jobs in 1973 to just 870,000 at the end of 2017. However, strong growth in the year to August 2018 has seen that figure jump passed 956,000. It is great to see us back producing goods and not just providing services. This is a very positive recovery in the vital sector of the economy.

On that topic. How amazing is the Gold Coast? Where we see the unemployment rate is hovering around the 4.4% margin and has been at that level for some 3 months now.  Whoever would have thought the Gold Coast would outdo the country nationally in the space of unemployment where everyone thought the Gold Coast was where people who didn’t want to work come to live. In fact, we have been ahead of the national unemployment level for some 7 months now. Congratulations, Gold Coast.

It is acknowledged that wages growth is a lagging contributor not only to our national economy but to support the real estate market. It hasn’t ticked up significantly but as we hit full employment it will be an inevitable by-product. There are signs of it in some segments of the economy so we will keep an eye out for that occurring on a broader base.

We certainly have a double-edged sword in housing approval numbers, which encompasses both detached housing and apartments. There is a significant decline in the rolling pipeline of units completed, under construction, in marketing, approved, or submitted approvals. Now there is a definite positive in this, and that is any concerns people may have had about an oversupply of new developments causing an imbalance in the supply/demand equation will be hosed down. We have to remember that nationally 18% of every approval over the past 30 odd years has never proceeded to construction. I would suggest with the current massive clamp down on bank finance that number could be floating at more like 50%. This means that an ever-increasing percentage of housing demand will be forced back into the resale market with less choice in new construction because of unavailability. The negative side is that housing construction plays a significant role in our economy; creating jobs, and so we hope that any slowdown is modest and not significant.

My last point for today is on inflation. Our Reserve Bank has a target range for inflation at 2-3% annually. Below 2% there is a raft of ramifications, such as putting breaks on economic growth, which has knock-on effects to employment and wages growth. The upside of inflation is a fairly balanced economy without upward pressures which would include a need for higher interest rates to put breaks on inflation, steep rises in CPI, and the cost of living etc.

The latest figures from the Australian Bureau of Statistics shows inflation lifted 0.4% in the September Quarter, and this brought headline CPI growth for the year to September to 1.9%, although it was down from 2.1% in the year to June. This was largely because of a decline in childcare costs, believe it or not. However, we are hovering around the bottom end of the target range.

Interestingly, the annual rate of inflation in housing costs moderated to 1.6% from over 3% in the June quarter.

Whilst the recovery in annual core inflation from our lows of 1.4% at the end of 2016 has been painfully slow, it is actually the reason why our interest rates have remained at record lows. Everything suggests we won’t see the RBA wanting to increase interest rates anytime soon and any increases we do see will actually be as a result of banks borrowing costs overseas to provide borrowing needs of Australians.

Some pretty good news that certainly went under the radar screen of most people, as good news so often does. My guess is it is the old story of whether you look at the glass half empty or half full.

That it is for this fortnight. I am going to have a fascinating story to share with you in my next report in two weeks’ time. Until then, stay safe and let’s be a little kinder to one another in a world that does have quite a bit of conflict at present.

Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group

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