From our CEO

• The RBA’s decision to pause rates aligns with improved inflation number.

• Cost of living, affordability, and serviceability remain the key issues for new home buyers.

• Some developers may sit out this cycle until the broader economic factors improve, which will attract serious buyers.

Recent shifts in the property and economic landscape are beginning to craft a narrative of cautious optimism for the next six to 12 months. The quarter saw a 13% increase in sales in the Melbourne and Geelong growth areas, putting an end to the six-quarter decline. While this could signal the initial stages of new home demand recovery, much of the upswing was driven by incentives, pent-up demand and subsiding inflation.

Inflation rates, which, while remaining stubbornly high, have shown improvement from a peak of 7.8% to 6%. This offers households a degree of short-term relief. Many economists are now predicting either no further or one more rate increase before an extended period of stability. The RBA has highlighted that while the impacts of these increases are gradually taking hold, more time may be needed for their full effects to unfold. The impact of the steep rise in the cost of living, together with uncertainty and weak consumer sentiment, are fuelling a slower decision-making process for new home buyers. New home buyers have had a significant reduction in borrowing capacity over the past 18 months, and incentives alone will not bridge the gap between affordability and serviceability. A shift in the RBA’s monetary policy is also needed to improve consumer sentiment and further foster a more optimistic outlook.

Builder sentiment, in the eyes of the consumers, is also weighing heavily on the decision-making process for new buyers, given recent defaults and price escalations. While we note the cost of building materials is beginning to normalise, there remains a pronounced shortage in the labour market –particularly within the building industry – which continues to drive price pressures on new builds. This is further exacerbated by the current demand for state infrastructure resources.

Additionally, the demand for new homes remains unrelenting. Based on the current trajectory to 2027, nationwide new dwelling supply will fall short by over 100,000 to satisfy projected household formation demand; and Victoria is expected to shoulder a significant portion of this. With Australia’s borders now open and migration expected to reach record highs, the impending influx of new migrants has the potential to further exacerbate existing demand. This surge underscores the industry’s vital role in ensuring an ample supply of suitable housing options.

We cannot ignore the substantial challenges ahead, however, it is equally important to recognise that this is a time for measured optimism as the market takes its initial steps towards correction.

Should you require further details, please visit: www.rpmgrp.com.au. For a detailed market analysis or a special report, email the team at contactus@rpmgrp.com.au

Gary Dunne Chief Executive Officer gary@rpmgrp.com.au