Interest rates up but when and by how much?

Of course, interest rates are going to rise.

The banks are already lifting long term rates as the cost of money is rising and it is only a matter of time before one of the big four breaks ranks and lifts variable mortgage rates.

Of course, financial instructions like the cover offered by the RBA cash rate before they hike.

The RBA had been talking about no rate rises until 2024.  Now they are making noises about 2023 and expressing concerns about inflation.  We all know that APRA have just raised the home loan assessment buffer from 2.5% to 3.0%.

More APRA pain might be on the cards, but that depends on what the RBA does.

So, when will the RBA lift the cash rate and by how much this cycle?

The market is expecting the RBA to lift the official cash rate several times during the second half of calendar 2022.  Most economists say 2023.  I think these things are very political and the second half of 2022 – post the federal election – we will see the RBA tap the brakes, but most of the lifts will be during calendar 2023 and 2024.

And by how much?  Current model estimates of the neutral rate average around 3%.  That is a big lift from the current 0.10% RBA cash rate.  A lot depends on inflation and its longevity.

Covid has reset the baseline on spending and as we come out of Covid there should be a surge in inflation… the question is, will this be a sustained increase or is it a correction back to the norm?

Also, there is the question about wage growth.  Is the current lift sustainable?  Will a return of net overseas migration limit wage growth?  What about technology, robotics, digital stuff, and the internet of things?  Then there is geopolitics.

I will cover wages next week – but for now – there is a strong body of evidence that suggests that wage growth will remain weak over the medium to long term.  And as a result, a limited increase in official interest rates this cycle should be enough to adequately dampened inflation and lessen irrational exuberance.

For mine I don’t see the RBA overreacting and as a result I see the offical cash rate lifting between 1.75% and 2.0% by the end of 2024, with the first lift being just 0.15% – bringing the cash rate to 0.25% – sometime in late 2022.  After which I see 0.25% increases, and most likely on a quarterly basis, during calendar 2023 and 2024.

A few are now forecasting house price falls during 2023 as a result of rising interest rates, a lift in the number of dwellings for sale, affordability limits and even buyer fatigue.

The CBA is the most bearish (at this stage) with a forecast that dwelling values could fall by 10% in calendar 2023, after growing by 7% next year.  The CBA is keen to stress that this will simply see dwelling prices return to current levels.

The other three major Aussie banks (again at this stage) appear a bit more bullish, with average forecast dwelling value declines ranging between 4% and 8% during 2023 depending on who you ask.

I have included three charts this post that clearly show that rising interest rates do have a negative impact on values, sales, and housing construction.  And conversely falling interest rates have a positive impact.

So, what is my medium-term price forecast? 

Well, I don’t like to put a figure on it.  It is a bit like playing darts on a moving boat.  Ha, more like riding on a jet ski these days.

I do think we will see a plateau in home values over the next five plus years.  Some years values will fall, and during others they will rise, but overall, there won’t be much change until the next big thing drives values higher (or lower).

The trouble is that we have used up most of the ‘upside’ drivers such as falling interest rates, double income households, strong wage growth, low household debt, cheapish and more plentiful urban land, just to name a few.

Maybe generational wealth transfers, returning expats or more overseas buyers will have a positive impact in coming years?

To be honest looking forward the housing market looks like it will have to navigate headwinds rather than ride on the coattails of a tailwind, so maybe best not pay too much for your home, that investment property or development site.

But in the meantime, my short-term housing value model suggests there is some price growth left in the kitty.

House price outlook #3

I have covered this topic a few times already this year.

Our analysis is proving to be a reliable indicator of short-term house price growth.

In May I suggested that Australian house prices could rise by 14% for fiscal 2021 and by 25% for the year ending September 2021.

In August we found out that median house prices rose 19% for the twelve months ending June 2021.  That post we suggested that house prices could rise by 38% for calendar 2021.  Our anticipated 25% annual lift by September was still looking likely.

This post, we now know that Australian house prices rose 22% during the twelve months ending September (compared to our 25% forecast) and the revised official lending statistics suggest that house prices could now rise by 31% for calendar 2021 (down from our projected 38%) and median house values appear set to rise by 16% for the year ending March quarter 2022.

So, house price growth is expected to continue over the next six months with the pace of escalation slowing down early next year.

Apartment + Townhouse Property Clock – Nov 2021

Last week’s property clock post, sparked quite a few questions.  

Three of them I thought were worth answering.


Many asked if I had an apartment + townhouse property clock.  Yes I do and see below.


A few peeps also wanted to know how I assess where each location is positioned on the property clock.

On my socials I usually reply “darts” with a hyperlink back to my website and an invite to search away.

But to my tribe the answer is the “forward direction in the balance between supply and demand” and I do undertake a review of such fundamentals when updating my property clocks.

See table 1 below for the current state of play for apartments/townhouses across the Australian capitals.

I have updated last week’s post with a similar table for detached houses.  Revisit that Missive here.

PS. Regarding the * in table 1, I believe that once lockdowns cease in Sydney and Melbourne sales volumes will lift and most likely substantially for all housing types.


A few smart cookies also wanted to know when was the last time that most of the major detached housing markets across the country were similarly congested around the upswing and recovery phases on the property clock.

In short, for mine, that was between 1987 and 1989.

And whilst the economic conditions and policy responses were quite different in the late 1980s when compared to now; it is worth noting that there was very little price growth for a long period of time once the overheated housing market peaked in 1989.

It took almost a decade for half decent annual price growth to return.

See table 2 below.

As I noted a few weeks back – revisit here – next year looks much quieter on the Australian housing market front and I think calendar 2022 will be the start of long slowdown in price and rental growth, similar to what happened during much of the 1990s.

Housing market update

This week is a housing market update.

Four charts and two tables are included with a quick summary at the end of the visuals.


We all know that the current housing market is hot.  Crazy really.

For now, demand is outstripping supply.

National dwelling values are up 20% on the year before and median weekly rents have increased by some 15% over the same time frame.

These results are at odds with the past, where both nation-wide prices and rents showed little change on an annual basis in 2018, 2019 and even 2020.

Revisit charts 1 to 4.

Values and rents even fell in some locales over this period.

Table 1 suggests that we are facing a return to tranquillity over the next 12 to 24 months.

Given the attractive range of government incentives and record low interest rates it is little surprise that there has been an increase in first home buyer activity over the past two years.  See table 2.

Next year I expect to see a lot more expats and foreigners in our buying mix.  First timers’ activity is also set to decline, replaced by domestic second and subsequent owner residents.

Established home buyers have been facing a lack of stock, but once lockdowns are done and dusted, stock levels are likely to lift.  High prices are now also restricting buying activity and looking forward employment security plus rising interest rates/harder access to credit are starting to emerge as concerns.

The new housing market is suffering from a lack of economically priced development sites plus a lack of labour and certain construction materials.  In general construction costs are currently rising above the market’s willingness (ability?) to pay and tighter credit is already starting to bite into the first home buyer market.

As a result, 2022 looks much quieter on the Australian housing market.

I do think that the forecasts as outlined table 1 are too optimistic on the price growth front and somewhat undercooked when it comes to the rental market.

Returning expats and more overseas buying interest should see rental vacancy rates tighten especially in the middle ring suburbs in our capitals cities and in places like the Gold and Sunshine Coast.

I expect the BTR sector to start to expand into the townhouse and detached housing markets from next year.

In summary, 2022 is the start of a long rest on a high plateau after an unexpected and somewhat exhausting ramble up a very steep incline.


A few weeks back I posted a population update.

Revisit that missive here.

That post held this table.

Several people questioned if the Net Overseas Migration (NOM) result – being a loss of 95,000 residents due to more people leaving Australia than arriving over the last 12 months – was correct.

I think a lot of peeps think that NOM excludes movements by Australian citizens.

Confusing this issue further was a recent statement by Scott Morrison stating that some 380,000 Australian residents (as at late July this year) have boomeranged back to Australia since the start of Covid.

Before we unpack this stuff, lets review how NOM is defined.

For the purposes of estimating NOM – and thereby Australia’s official Estimated Resident Population (ERP) counts – a person is regarded as a usual resident if they have been (or expect to be) residing in Australia for a period of 12 months or more over a 16-month period.

 As such, NOM and ERP estimates include all people regardless of nationality, citizenship, or legal status, who usually live in Australia.

 Moreover, the term NOM is based on a traveller’s duration of stay being in or out of Australia for 12 months or more.  It is the difference between the number of incoming travellers who stay in Australia for 12 months or more and are added to the population (arrivals) and the number of outgoing travellers who leave Australia for 12 months or more and are subtracted from the population (departures).  

 Hence NOM is a net measurement.

Clear as mud?

I have included three charts that might better help explain things.

Chart 1 shows that there were 115,000 ‘long-term’ overseas arrivals to Australia for the year ending March 2021.  Some 210,300 people – who stayed for over 12 months – left Australia for overseas: resulting in a net overseas migration rate of minus 95,300 people.  Remember these figures are based on people staying 12 months (over a 16-month period) in Australia.  This chart shows NOM results.

Chart 2 outlines the net result (arrivals minus departures) of all people travelling to Australia or leaving the country regardless of time frame.  This includes visitors and Australian residents.  It shows that Australia lost 120,000 net visitors for the year ending September 2021.  This compares to a 410,000 gain in net visitors the year before.  Again, this chart captures all travellers regardless of time frame.

Chart 3 outlines the movement of all Australia residents, to and from Australia since the start of Covid-19 (in this case being from April 2020).  It shows that between the 1st of April last year and the end of this August about 414,500 Australian residents have returned to Australia, whilst 423,500 Australia citizens left the country.  This has resulted in a loss of some 9,000 Australians going overseas.

Chart 3 also shows that such movements are starting to decline.

Some comments

The table in this post best outlines what is happening with our permanent population base and its annual growth.  Between census periods, these estimated resident population counts are the best indicator regarding our numbers.

Regardless of the Covid restrictions there has been some movements to and from Australia.  Such movements are down substantially when compared to the volumes typically experienced before Covid.

Statistical information on persons arriving in, or departing from, Australia is collected via various processing systems, passport documents, visa information, and incoming passenger cards.  Importantly they exclude multiple movements; travel related staff and undocumented arrivals.

Movements to and from Australia is likely to pick up, and maybe substantially, in coming months.

There is also evidence that expats have been buying Australia homes with the intention to return to Australia once travel restrictions are removed.

Our work suggests that one in seven (15%) homes sold across Australia since early last year have been purchased by an someone living overseas.


When thinking about a missive I often quiz myself about the topic.  ‘Questions to myself’ so to speak.

I also think that Q+A webinars and presentations work much better than the typical ‘I deliver, you listen’ approach.

Anyhow, here are five questions and my answers to the current APRA move in

attempt to slow the housing market.

Q1:  Will Australian Prudential Regulation Authority’s lift in the minimum buffer of 3% (instead of the previous 2.5%) above a mortgage loan rate ready slow to housing market?  It seems like a very small move.

My gut call is no, it won’t.  Well not much.

Official interest rates have not increased.  Just the buffer.  It also assumes – which is a big assumption – that loan applications are honest when it comes to such things as income and liabilities.

APRA’s new rule is also not active until November this year – and pre-­approved loans will not be reassessed at the higher buffer rate – so one can expect a rush in real estate activity and new home approvals this month.

This is already evident by the high auction clearance rates across the country last weekend.

APRA estimates that this new buffer would reduce the borrowing capacity of a typical ­applicant by 5%, dropping the average Australian household’s borrowing by $35,000.

Based on the big four banks, their variable mortgage rate currently averages 2.65%, so the minimum new ‘stress test’ rate would be 5.65% from November, up from the current 5.15%.

Yet Australian house prices, on average, have risen by $100,000 between December 2020 and June this year, and are set to potentially rise by more than double this amount between the 1st of July and the end of calendar 2021.

 These rises are locked in.

Also, the new buffer rule also only applied to bank loans and not non-bank lenders.

Since the start of the pandemic the share of home loans to non-bank lenders has risen from 6% to 11%.

The irony is that APRA’s current move has probably added more heat to the housing market rather than actually cooling it.

Q2:  Surely most are honest these days when applying for a home loan?

Not really.  We too have embellished our earnings and lowballed our expenses in our early years, and I am sure that many others do to.

According to recent research by UBS some 41% of new home loan applications during fiscal 2021 were ‘not completely factually correct’.  This is up from 3% on last year and has risen from 27% in 2015.

In terms of the areas where people are misrepresenting their financial situation, the largest portion comes from under-estimating their living costs followed by under-representing their financial commitments (i.e., not declaring other debts and borrowings).

Perhaps the most shocking thing in the UBS survey is that an astounding 69% of people with ‘liar loans’ in the broker channel claimed that it was the broker that suggested that they over/underrepresent to be able to get approved.  This is up by over 20% when compared to 2020.

More worrying, if you ask me, is that 22% of people with liar loans said it was their banker that suggested that they should be less than fully truthful on their application.

Q3.  It this ‘loan lying’ a capital city thing or more widespread?

If you look at where the properties that are purchased with a liar loan are located, there has been a steep increase in regional and rural properties – some 57% during financial 2021 versus 41% in 2020 – which I guess can be explained by the number of people moving away from the capital cities because of the pandemic.

The UBS work also shows the propensity to be less than fully truthful on a loan application if you own one or more investment properties, indicating that most of those lies are connected to income and expenses connected to investment properties.

In conclusion, it seems like the recent strong house price growth is forcing people to be less truthful on their mortgage applications.

Q4.  Do you think the housing market needs slowing down?

An effective housing policy does not exist in Australia.  If we had one, then the answer would be no as the market would rise and slow accordingly.

But what we have is politics instead of policy.

The list of political (vote getting) interferences with the housing are a mile long. These are well known and have been written about endlessly in inquiries/reports and include:

  • First-home buyer schemes since the mid-1960s
  • Capital gains tax discount and negative gearing
  • Punitive taxes on developers and builders
  • Zoning restrictions
  • Under-funding of transport infrastructure
  • Higher immigration after 2005
  • And, above all, the recent cut in the RBA cash rate to 0.1 per cent.

And we have now more emotion in the mix than usual.  This has been caused by the pandemic.

To most Aussies our homes are everything.  We now work there, as well as sleep, eat and watch TV there.  Many of us can’t (or won’t) travel or go out much – we’re stuck at home, at least for a while longer.

It’s no wonder the market has got emotional.

I wrote as part of a Covid caveat in my consultancy work in the early days of the pandemic….

…. residential property is unlikely to be affected anywhere near as much as other property classes.  People will always need somewhere to live, and homes are the true “safe haven” in the current environment. 

 This sentiment may also loiter after this emergency passes.  It may even strengthen the longer the virus remains unrestrained.

Positively clairvoyant!

But seriously folks the current housing boom is mostly due to the lowest interest rates in history, which of course is also due to the pandemic.   Despite the rise in house prices and household debt, overall repayments have fallen.

But I digress, back to the question.

Strong price growth and over the top price expectations can lead to over-exuberance in housing markets.

In practice, however, it is difficult to determine if housing prices are over-valued in real time.

On one hand owner resident models – which compare the relative costs of owning versus renting a property, and so consider a range of factors including the decline in interest rates – suggest housing prices remain broadly in line with fundamentals.

But on the other hand, investment metrics of over-valuation such as price-to-rent and price-to-income ratios have increased markedly, suggesting that in most Australian cities housing values are currently overpriced.  See chart 1.

But history suggests, unless we get a black swan event, then housing values are likely to plateau after this current surge.

Note that I didn’t say ‘another’ black swan event, as I believe that Covid-19 was a grey rhino not a black swan as many suggest.

Q5.  So, what’s next?  More APRA stuff or interest rate rises.

I think the solution – if we really do want to slow the housing market rather than give it just lip service – is to increase home loan rates.

This may happen to some extent without a move from the RBA as banks may need to lift them as a large part of their monies comes from overseas these days, but to really have some bite, and wide scale impact, the official cash rate needs to rise.

I think one of the more foolish things I have heard of late – well apart from “Queensland hospitals are for Queenslanders” – is the RBA ‘promising’ that “interest rates won’t change until 2024”.

I think they will rise, and the first increase will be in 2022, post a federal election.

It won’t take much to slow the housing market if actual home loan rates increase (rather than an increase in a loan buffer) as there is little wage growth and when you investigate our household savings rate – see chart 2 – we really don’t have much saved for a rainy day.

Any end comments?

The new 3% APRA buffer is useful in that is informs us – well me anyhow – where interest rates are likely to end of in the next couple of years.

At present the cheapest home loan you can get now is about 2%, that will be 5% in the next three to five years.

The best buffer is likely to be an honest one.


Late 2021: Reading + Listening

Twice a year – typically at Easter and Christmas – I share a list of books which I think are worth reading/listening to plus some music that I have recently enjoyed.

I have heard some great tunes – yes from the older cats – in recent months and have also read/listened to some impressive tomes too.

So I have shared these now rather than wait until closer to Santa time.


Covid impact: Population growth

This week’s post is about population growth.

I usually don’t post about population stuff until December each year as I like to use the stats for the full financial year, but the recent ABS release warrants some commentary as it represents the first full year of Covid-affected population growth.

And affected it was.

Australia’s population has stalled, standing at around 25.7 million as at the end of March this year.  This was an increase of just 35,700 over the past twelve months – the lowest growth rate since our population declined in 1916, due to World War I.

In terms of natural increase – births outweighed deaths – by 131,000 – but this was offset by substantially more people leaving to go overseas than coming into Australia.  Net overseas migration (NOM) was -95,300 for the 12 months ending March 2021.  NOM is historically positive, and a major driver of Australia’s population growth.

We’ve had a NOM between 200,000 and 300,000 per annum for many years until Covid hit.

Table 1 breaks down last year’s population change by state and territory.

New South Wales continued to eke out small population increases, as overseas arrivals were positive – due to taking the largest share of returned travellers into quarantine – yet NSW’s NOM net result was negative, as more people left than arrived.  Interstate migration remained negative, but this is not a new trend for NSW, as it has long been the case pre-Covid.

Victoria’s population declined substantially over the last 12 months.  The previous five years, Victoria had been the fastest growing state or territory in Australia.  Last year’s result was the largest absolute population decline Victoria has ever had.  As a percentage, it ranks third, behind 1916 and 1915.  Most of this recent decline is due to negative NOM (-53,500) but also strong interstate migration loss (-18,000).  Being the most lock downed location in the world has no doubt had an impact.

Queensland accounted for more than 100% of the national population growth last year; and don’t the local talking heads like to tell everyone about it.  NOM there was negative too, but the Sunshine State made up for it with high internal migration – but this is not a new trend.  Net interstate migration was higher than in previous years – with few more coming in and less leaving the state – but it doesn’t stand out that much in a historical perspective.  See chart 1.

Western Australia is also growing strongly. The state with the toughest border controls still managed to attract more net internal migrants last year since 2012.  A hot iron ore price (up until recently) meant more people come in and less leaving, offsetting the loss of the overseas migrants, and adding to natural increase there.  Yet how long this can last is questionable.

Covid’s impact

One thing which is clear from these figures, is that the ‘Covid-Zero’ states which have not been heavily affected by the virus and associated lockdowns, are growing, while the most affected states are declining or stable in population.

There is a clear movement out of New South Wales and Victoria into Queensland and Western Australia whilst South Australia has turned the tables from losing population interstate, to a slight gain.

Looking forward

Population growth is expected to recover once international borders are re-opened, which, as at the last guidance, will be from mid-2022.  Immigration accounted for two-third of Australia’s population growth prior to the pandemic and the federal government appears committed to resuming past NOM flows.

Current Treasury projections has Australia’s annual net immigration back to 235,000 people by fiscal 2024 and the latest Intergenerational Report (IGR) suggests that NOM – again averaging 235,000 people per year – will apply for decades to come.

If this happens Australia’s population would increase by 13 million people (over 50%) over the next 40 years to 39 million people – equivalent to adding another Sydney, Melbourne, and Brisbane to Australia’s existing population.

‘Big Australia’ here we come.

But one must wonder – especially now that Covid has given us cause for pause – if lifting immigration back to its previous levels is the wise thing to do.

For mine, the first and foremost goal of public policy should be to protect the welfare of existing citizens and not make a problem worse.

‘Big Australia’ immigration, on most fronts, violates this principle.



My post about Big Australia earlier this year outlined 10 reasons for a rethink when it comes to high population growth rates.

And if that list wasn’t compelling enough I can now add an eleventh reason – and this one is likely to resonate with many – being that recent work by the IMF found that a lower rate of population growth helps reduce interest rates.

Since the GFC, lower population growth in the relevant countries has helped reduce their real interest rates by 40%.

Working from home, an update

There is quite a range of conjecture at present when it comes to the number of people working from home and whether this trend is going to retain some permeance once we return to some form of normality.

I wrote about working from home in the early days of Covid and you can revisit that post here.

That post outlined – prior to Covid – that some 29% of Australian workers did undertake some work from home.  This is up 1% from ten years ago.

Yet it was estimated – again prior to Covid – that just under 10% of the Australian workforce work at home on a regular basis.

Therefore, we can estimate that about 1.3 million workers across Australia worked from home on a steady basis before March 2020.

We also know that about 20% of Australian businesses (not employees here but businesses) had some employees teleworking from home prior to Covid.   So, inversely some 80% businesses didn’t support working from home in early 2020.

So, what has happened over the last 18 months?

A recent release from the ABS finds that 27% of those businesses that didn’t allow teleworking prior to Covid, have introduced working from home in response to Covid-19.

The ABS study also found the 27% of businesses that did support teleworking prior to Covid increased the number of their staff working from home over the last 18 months.

In addition, a further 33% of these ‘did support’ businesses increased the frequency of staff teleworking.

As a result of these changes, it is estimated that today, some 31% of the Australian workforce works from home on a consistent basis.

This amounts to about 4 million workers, and this is three times the number of regular teleworkers prior to Covid.

The current breakdown of the number of teleworkers (31%) by business is as follows:

  • 11% of businesses have under 25% of the workforce teleworking,
  • 7% of businesses have between 25% and 75% such workers, and
  • 13% of businesses have teleworker numbers currently set between 75% and 100%.

So, if appears that it is either some of business’s employees or almost all of them telework.

The future?

Looking forward 1% of Australian businesses expect to increase the number teleworkers, whilst 60% expect that the current levels to remain steady post Covid.

At present only 9% of businesses expect to reduce or eliminate the number of teleworkers in the future.  And 11% – at this stage – just don’t know what the future holds.

Australian business believes that teleworking has helped improve staff wellbeing (45%); reduced overheads (27%); increase productivity (26%); retain existing staff (18%) and has broadened their potential recruitment pool (6%).

When it comes to the teleworkers, most say (65%) that what they like the most about working from home is that they do not have to commute to and from work.  A further 58% like the flexible scheduling that working from home allows.  This is followed by being better able to complete work (38%) and being able to spend more time with the family (36%).

Another study, this time from the Australian Government Productivity Commission, found that three quarters of teleworkers survey considered that they were at least as productive working from home as from the office.  It is of little surprise that employers had a different view.  Yet the difference between the two was marginal overall.

Working well from home depends on the teleworker being able to so effectively and this is determined by their role and tasks (both at work and at home), and their family and housing circumstances.

The latest research (mid-2021) finds that 74% of survey teleworker respondents worked from their own work room or dedicated work space in a shared room.

Another three quarters of those surveyed also had the equipment at home to work successfully.

My comments

With the two big states still in extended lockdown and several others exercising strict border controls, it isn’t that surprising that about a third of Australian’s are currently working from home.

What is surprising – well to me anyway – is that some 60% of businesses don’t expect to see a change once we resolve how we live with Covid.  Given that an addition 11% of businesses remain undecided as to how they will manage staff post Covid restrictions, this 60% could be even higher.

If that eventuates then we will see major changes across our urban and regional landscapes.

But I still reckon that once we get our freedoms back – well some of them at least – many, if not most, will go back to the previous long-term work patterns.

We are social creatures and our infrastructure (and who owns it) is centred around expensive physical assets and almost all of it involves people working together in concentrated urban centres.

As I stated in early 2020, working from home has big urban advantages, but I just don’t see us – collectively – changing our entrenched patterns of behaviour that much once finally get a grip on how we manage this respiratory infection.

But that 60% figure, I must admit, has given me pause for thought.

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