Issue 16 | July 19th, 2018 | Will Interest Rates Be Rising?
There is lots of discussion over the last couple of weeks as a result of an ex-Reserve Bank Board Member who suggested that the Reserve Bank needs to start putting up interest rates for no other reason than, believe it or not, to prepare Australians for higher interest rates. Go figure that. It has been nearly two years since the Reserve Bank of Australia last changed interest rate settings. What an incredible period of time we are in at present with record low-interest rates for a record length of time.
The leading economists who look at more than just the interest rates settings are of the firm belief that interest rates won’t increase until at least 2020 at the earliest. Whilst we have a brightening outlook for mining investment, strengthening non-mining investment, booming infrastructure spending and strong growth in export volumes, these factors are likely to be offset by a slowing in residential development construction and constrained consumer confidence. This is likely to keep our growth in the 2.5 – 3% bracket, although there is a chance that we could get above 3%.
WILL WE SEE AN OUTBREAK OF INFLATION?
As I have mentioned before, we are not likely to see an outbreak of inflation or much stronger economic growth until we see wages growth, which is only showing some signs now of activity. The current interest rate settings have been important to stimulate our economy and this is not the time to turn down the stimulation. Just early signs of activity are not sufficient to warrant raising interest rates. We still have spare capacity in the economy and, as I touched on last week, whilst we have falling unemployment we still have an issue of underemployment, that is people not working to their full capacity even though they have a job.
We have seen in our major markets of Sydney and Melbourne that real estate prices are now in a correction mode after their strong boom period, so that will act as a counterbalance to the need for higher interest rates almost on its own.
Against this backdrop to suggest that you have to prepare households for higher global rates now is to run the risk of turning off the stimulus needed to really get our economy going. We would be shooting ourselves in the foot.
The Reserve Bank needs to set the Australian interest rates for Australian conditions, and not on the basis of what is happening in other ecnomoies.
We know at some stage that interest rates will increase but no need to do that before we really get our economy up and running on a sustained basis.
As interest rates are so intricately linked to real estate, we certainly see that the interest rates are most favourable for the real estate market and as such there is no reason to believe that interest rates will have any negative effect on the real estate market for many years to come.
GET INTO THE SPIRIT OF THINGS
I want to share with you something really exciting. A fortnight ago the Gold Coasts most stunning development was launched. The breathtaking 88 level Spirit apartment building on the foreshores of the Surfers Paradise beach. Spirit is under construction now and is breaking away from the tiny little apartments that have been a feature of last 10+ years of development, with spacious 1, 2, 3 and even 4 bedroom apartments. Clever designs with amazing facilities that sets this building apart from all others. We are honoured to have been appointed the project marketers and have literally had to put additional staff on over the past 2 weeks to handle not only the general enquiry on it but to actually process all of the contracts that have already been entered into.
Spirit has truly captured the imaginations of everyone who loves the Gold Coast. It is the essence of Gold Coast lifestyle and is due for completion in 2021. We will, of course, be seeing stage price increases throughout the period of construction, so do yourself a favour and get down to our display at The Paradise Centre, Surfers Paradise or contact firstname.lastname@example.org or phone 1800 161 888 now to get a copy of the information about Spirit. Get into the Spirit of things. This is most probably everything you were looking for in a Gold Coast apartment.
That is it for this fortnight. I look forward to being with you again in two weeks’ time with more news about the Gold Coast and everything that affects the real estate market.
Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group