Interest Rates and Unemployment

Unemployment rose this week to a 5 year high at 4.6% for August and it is expected that the RBA cash rate which is currently at 4.35% will rise by 0.25% next week. (In September 2006 the RBA Cash Rate target was 6% and in 2016 it was 1.5%). These are the 2 big determinants of a stronger or softer real estate market. Normally higher unemployment numbers means falling interest rates, increased borrowing capacity, buyer confidence and rising prices. However the expectation is that unemployment will rise further first and the economy will continue to weaken at which time interest rates will be lowered. What we are seeing with the 3 interest rates rise earlier this year and with the increased petrol prices has been a weaker sales market. Prices are 10% lower back to pricing levels we were at 36 months ago. Buyers are still keen to transact but only at today’s lower price levels. As mentioned earlier in the month well priced and presented property is still selling well.

Are we at the bottom of the market? I’m not sure but we must be close to it and if I was buying today I would be acting on any properties that suit my buying requirements to take advantage of the softer market. Also there has been an increase in the number of listings in all suburbs for Spring. However as occurred earlier in the year I feel many of them will be withdrawn and not sold as the owners can wait for a better market, which will keep the amount of supply tight keeping a floor under local prices.