Ray White: Market downturn unlikely to spread further

Nerida Conisbee, Ray White’s Chief Economist, explained that many of Australia’s main inflation drivers have started to decline in cost to the US, painting a picture of what we can expect on our coasts when the Australian Bureau of Statistics (ABS) releases July inflation figures.

The US stock market started to rebound. The S&P 500 is up 15% since mid-June. Inflation slowed to 8.5% from 9.1% in June, the decline being due to two factors that strongly affect inflationary pressures in Australia: fuel prices and supply chain improvements .

Crude oil prices fell 25% from $120 to $90, while the Baltic Dry Index – which measures the cost of shipping around the world – saw an 80% drop. Given the importance of these factors in driving up national inflation, the US results give us some insight into our own inflationary future, Conisbee said.

She explains that with the decline in inflation, it will also be necessary to raise interest rates.

ASX 30-day interbank cash rate futures expect rates to peak at around 3.6% by the middle of next year. Some big four lenders, such as ANZ, in late July, expected the cash rate to hit 3.35% in November before dropping to 2.85% at the end of 2024.

Importantly, for Ms. Conisbee, sentiment about where rates will peak has shifted in recent months.

But what do all these conditions mean for the downturn in the real estate market? CoreLogic explained that it was “on par with the global financial crisis” earlier this month due to accelerating price declines in five Australian capitals, including Sydney and Melbourne, where values ​​fell 2.2% and 1.5% respectively.

Ms. Conisbee believes that with these changing conditions, a quicker conclusion to the current market downturn is likely.

She cited the increase in clearance rates – which marked a 12-week high last week when it reached 60% for the second week in a row – as well as the increase in the number of active bidders per auction, up to to 2.5 in August, and the increase in the spread between the higher pre-bid and the auction price, which in Sydney this month rose from 8.6% to 10.6%.

While acknowledging that interest rate hikes are unlikely to end anytime soon and that a return to record house price growth is not yet on the horizon, the likelihood of a Sustained market downturn and steep price declines appear to be gradually dissipating, according to the Economist.

Ray White: Market downturn unlikely to spread further

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Last update: August 24, 2022

Posted: August 25, 2022