Inflation and the Housing Market
ABS figures showed the highest annual rate of inflation in June 2022 in almost 32 years. As we head into the new financial year, annual inflation is expected to peak at over 7%, according to the Treasury and the RBA. This means household budgets will be tighter, savings will be reduced and housing demand will likely be lower.
Inflation impacts housing markets both directly and indirectly. But whether these impacts are ‘good’ or ‘bad’ depend on what is driving inflation, as well as what else is going on in the economy at the time.
A key feature of inflation in 2022 is that price rises have been particularly steep for “non-discretionary“ items, such as fuel, housing & food. The ABS reported annual inflation in non-discretionary spending was almost twice that of discretionary spending in June 2022.
The implication is that mortgage holders are likely to feel more of a pinch in their household budgets, with rising rates adding significantly to mortgage costs at high debt levels, while households may find it difficult to fund these costs by cutting back on things like fuel and food.
As interest rates rise, and economic activity slows, inflation may be reduced. A consequence of this is that borrowing money to buy housing becomes less desirable, which in turn slows purchases and prices in the housing market.
Inflation is expected to remain high in 2022, with a mix of domestic and international factors putting upward pressure on prices. However, there are early signs of relief in supply and demand pressures in the economy. Money markets are indicating a lower peak in the cash rate than originally anticipated a few months ago, and CBA has suggested RBA cash rate cuts could be in store as early as next year. If these trends in easing inflation begin to manifest more widely, it could signal a floor for the housing market decline as early as 2023.
Fred’s Big Run
For the month of August, some staff members are participating in Fred’s Big Run in support of the Fred Hollows Foundation to help to restore sight to those who are needlessly blind.
So far, we have raised enough funds to restore sight to up to 75 people.
You can follow our journey here –
Thank you for your ongoing support!
Regards David, Benjamin & the Team at DB Philpott Real Estate