The Micro and Macro
The best place to begin is with the big picture, and for this exercise that big picture is ‘Interest Rates’. Behind the decision to keep the interest rates at their current level is the RBA’s view that the overall market is softening in the Melbourne and Sydney markets. Corelogic reported that this month has been the first decline in dwelling values in these markets since May last year. When this occurred May 2016, it was met with a cut to the cash rate in May and August of that year at which time investment growth accelerated.
No such life line will eventuate this time, and in all likelihood as quoted by corelogic, we will continue to see the trend rate of growth easing across the Sydney and Melbourne markets. While the outlook for the domestic economy has improved, growth in wages and inflation remain subdued. Additionally, a cooling housing market should ease some of the pressure on the reserve Bank to push the cash rate higher.
Why this is relevant?
There is a common held view that the Geelong market follows the Sydney and Melbourne markets, but is 12 months behind. Keeping a close eye on the metropolitan markets ensures that we can read the market and be able to advice with a level of surety and confidence.
Geelong is definitively one of the beneficiaries of a slowing Melbourne market and may play a small part in this slowing. The Domain group reported that Geelong is the only regional Victorian hub to record double digit house price growth in the last year. The increase represented annual growth of 13.1%. The buyers that are continuing to be forced out of the metropolitan Melbourne market are looking to secure property that is within easy commuting distance of the city. This is why Geelong has remained so appealing, that is comparable affordability, excellent infrastructure and no compromise on amenities. Domain group chief economist Andrew Wilson said Geelong was an affordable major regional centre in Australia with a port, university, hospital, and airport, and ‘It still looks undervalued to me’.
The keys points summarised
Geelong is viewed as undervalued; there is a softening of values in metro markets, this combined with household debt and other factors there are no immediate signs to shift interest rates; Geelong is the strongest regional market pulling buyers from metropolitan markets. All of this points to continued growth and strength in the Geelong market.
Written by Nathan Ashton