Andrew Bell’s Market Wrap: Wages Growth and its Impact on the Real Estate Market

Issue 21 | October 10th | Wages Growth & its Impact on the Real Estate Market

Hi, Andrew Bell with you and here we go into the last quarter of the year, and usually the busiest quarter for most of us.

I have mentioned on numerous occasions through this year that I think the biggest issue facing Australia at present economically, and therefore impact on many areas of the economy such as the real estate market, is the lack of wages growth.

If Australian households are not earning more money every year, then the existing income they have is ever-increasingly consumed by the rising costs of living. Not only do we have the existing weekly household items, but increasingly Australians are adding additional costs to their household budgets; whether that is Netflix, Spotify, or any number of new applications that come out all the time. What we are seeing is that without wages growth, people are saving less and less and they don’t have a lot of disposable income for other expenditure. It is ultimately this lack of saving that has an effect on the real estate market as people don’t have increased amounts of money to pay higher prices for real estate. We are blessed here on the Gold Coast that this is somewhat offset by the downsizers who are selling their interstate properties for sizable amounts and are cashed up to be able to buy Gold Coast properties, but that won’t last forever.

It was interesting to see the latest figures on wages growth where we see that the growth remains unchanged at 2.3 percent per annum despite the slightest increase in the June quarter. That wages growth pretty much just offsets some of the KPI increases we experience on our already existing cost of living.

Wages growth is very much aligned with unemployment. When unemployment rises, you will see no upward pressure on wages. People aren’t concerned about seeking a wage increase when they know they are just lucky to keep their job. There were hopes, as unemployment has been falling in recent years, that we would start to see a pick up in wages growth, but as unemployment came down to the 5.2 percent bracket, we started to see the impact of trade wars and other economic challenges globally that has resulted in the recent announcement that unemployment had risen to 5.3 percent.

There is no real prospect of wages growth in the near future which means that whilst we have an economy in positive growth, and certainly one of the better ones in the western world, we are a long way short of party time. What is confusing for many Australians is what to do with their savings or what investment strategies to undertake. There is no point leaving money in the bank these days as there is negligible interest paid on deposits. The stock market has been so volatile and that was more than evident again in the last ten days or so. There is that feeling that real estate continues to be the best option as it is real. It is bricks and mortar and it is based on the premise that everyone in Australia needs somewhere to live, and we have an ever-growing population and therefore an ever-growing demand. It has served so many people so well over the past century that it is no surprise that it remains the foundation of most Australians wealth.

The activity in the real estate market was again evident at last weeks auctions with a packed room and with a host of buyers vying to secure their preferred piece of real estate. A lot of competition, allowing the market to determine current values and, pleasingly, they reflected strongly at the auction with many properties, both residential and commercial, selling under the hammer. Quite a number were sold prior to and of those that passed in, most have gone to Contract over the last week.

‘Steady as she goes’ seems to be the order of the day for the real estate market and the reality is, that even with modest to medium price growth, the longer people put off locking in their real estate purchases, the higher the prices they will have to pay.

That is all for this fortnight. I look forward to catching up with you in two weeks’ time. Until then, make the most of this beautiful country and use our beautiful weather for plenty of exercise, eat well, and lets look after one another.

Kind regards,

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

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