The big news this week was Australia’s amazing employment numbers.

Unemployment hit 5.1 per cent at the end of May, putting it back at the level it was at before COVID-19 (it was 5.1 per cent in February 2020)! 

All the economists had predicted the unemployment rate would stay at 5.5 per cent (i.e. where it was at the end of April). The RBA have been forecasting unemployment wouldn’t hit 5 per cent until the end of this year.

  

The latest figures show the total number of employed Australians has increase by nearly one million people since the peak of COVID-19 (June-July last year), when it hit 7.4 per cent.  

The number of Aussies with full time employment increased by nearly 100,000 in May – the largest increase in the history of the data.

So, what does it all mean?

Unemployment has dropped faster than expected, but we haven’t seen wage growth yet. Wage growth is currently sitting at 1.5 per cent - the RBA wants that to between 3 per cent and 4 per cent before it increases rates.

There is a popular theory that unemployment might need to be in the 3 per cent range before we see that kind of wage growth. The rationale being the high amount of ‘underemployment’. Underemployment is at 7.4 per cent which means about 1 million of the 14 million Aussies employed today have jobs but want more hours. 

To put it in perspective, that’s a quarter of all part time workers. 

What it all ultimately means is that Australia is doing incredibly well in its recovery from COVID-19, but not well enough to result in wage growth just yet. Accordingly, we don’t think it will change the RBA’s position on rates staying where they are until 2024.

Yes, the US Federal Reserve flagged that its rates would probably go up in 2023 instead of 2024 as originally planned. However, the US has wage growth and we don’t. In fact, wages for hospitality workers in the US are up 10 per cent in the past 12 months!

The good news is even if rates do go up, it will coincide with wage growth and inflation. And where there’s inflation and wage growth, there’s rental growth.

Speaking of rents going up, Brisbane landlords should be preparing themselves to do just that.

According to SQM, Brisbane’s vacancy rate hit a very low 1.3 per cent in May (down from 1.4 per cent in April). For perspective, a balanced rental market has a 2.5 per cent vacancy rate.

The number of properties advertised for rent across Brisbane has literally halved in the past 12 months. It’s for this reason the vacancy rate dropped from 2.5 per cent to 1.3 per cent in just 12 months.

If you’re an investor, make sure you’re checking your lease expiry dates and doing your research before deciding to re-let or list your rental properties over the second half of 2021. If you’re a rentvestor, perhaps try and lock your landlord into a long-term lease!

CoreLogic produced a report this week listing all of the $1 million suburbs in Australia. In the past 12 months alone, the list of suburbs grew by 218 with the majority of those (198) house markets throughout Australia.

OF those 54 suburbs were in Sydney, 35 in Melbourne, 30 in regional New South Wales, 25 in regional Queensland, 22 in Brisbane, 18 in Adelaide, 17 in ACT, 12 in Perth and 5 in regional Victoria.

Queensland is the only state where the combined regions have a similar number of million-dollar suburbs to Brisbane itself. This is driven by the surge in prices (and migration) across the Sunshine Coast and Gold Coast (as well as Brisbane itself) in the past 12 months.

We reckon the median house price in Australia is fast approaching the $1 million mark...!

At the other end of the market, Domain produce a periodic report that works out the time taken to save a 20 per cent deposit in each capital city market. 

Its numbers suggest that a 20 per cent deposit will take the average worker a period of 7 years and 1 month to save in Sydney, 6 years and 1 month in Melbourne, 6 years in Canberra, just under 5 years in Hobart and just over 4 years in Brisbane and Adelaide.

Interestingly, Brisbane was the only market where the time to save a deposit fell in the past 12 months (by 4 months).

If you listen to our weekly podcast you would know that you can get into the market for a lot less than a 20 per cent deposit (more like 5 per cent!). If you want to know what you need, hit us up on email or register for our webinar next week where we discuss exactly that!

Finally, we mentioned earlier this year that we thought banks might start to lift their servicing criteria before interest rates go up.

Well, that’s now started with the Commonwealth Bank the first cab off the rank, lifting its home loan assessment floor rate used to assess home and investment home loan applications from 5.10 per cent per annum to 5.25 per cent per annum.  

 

For background, lenders in Australia are required by the Australian Prudential Regulation Authority (APRA) to ensure that borrowers can repay loans at a rate 2.5 per cent more than current interest rates, or the floor rate set by each bank. 

The Commonwealth Bank hasn’t changed its policy on the 2.5 per cent buffer.

 

However, the move means it will have the highest floor rate of the big four banks, with its serviceability floor rate above Westpac (5.05 per cent), NAB (4.95 per cent) and the ANZ (5.1 per cent). 

What does that mean for investors? Our borrowing capacity today might not be our borrowing capacity tomorrow. Do what you can, while you can.

 

 

Interested in knowing more? Check out the weekly podcast we do at The Double Shot Podcast.

 

James and Alex