- Chief Economist Shane Garrett covered several topics
- Mr Garrett said he believes house prices will "probably not do anything exciting"
- Cement and concrete prices may rise
Interest rates are tipped to rise another percentage point, with some pundits as high as 1.15 pp or 1.2 pp by next year, and inflation is set to hit its peak soon, said Master Builders Australia Chief Economist Shane Garrett at the Master Builders Associations of WA luncheon.
Also speaking were Ministers John Carey, Tony Buti, Rita Saffioti; and Master Builder’s Rocky Slater and Michael Van Dongen.
Inflation to peak soon, and interest rates may top out at 4%
Master Builders Australia’s Chief Economist Shane Garrett said the markets are betting the interest rates will rise by another circa one percentage point, with the cash rate to hit its height around a year from now, around September or October 2023.
Inflation is expected to top out at eight per cent before Christmas and start to ease thereafter.
Mr Garrett said the speed at which home building product prices have increased has shown a welcome slowing, the first time in a while that has happened; he added that a turning point just might be being approached.
Among other records, Mr Garrett said building products inflation hit its highest rate since 1975 earlier this year.
The price of building materials, nationally, went up 16% over the year to September, with the knock-on effects evident in the rising cost of creating a new home for owner-occupiers. Nationally, prices rose 20.7% year-on-year, with Perth seeing the steepest rise in the country at over 30%.
In parts of the eastern seaboard, the cost of new homes was a little lower than the national average, with Sydney at a yearly increase of 16.4% and Melbourne 20.4%. Popular pandemic postcodes beginning with a 4, 5, or 6, all saw prices well above the national average; Brisbane with 24.8%, Adelaide 26.2%, and the aforementioned Perth at 31.1%.
Cement and concrete prices may rise
The annual rise in building materials has been marked, plywood and board up 38.1%, terracotta tiles 32.8%, timber windows 31.6%, and structural timber 31.1%. Mr Garrett said steel product prices have decelerated.
For other fittings and fixtures, price rises haven’t been very problematic, with cement up 3.5%, taps and valves 5.3%, cupboards and built-in furniture up 6.5%, and switches and distribution boards up 2.6%.
Mr Garrett did note, however, inflation experienced in timber and steel has started to spread to products related to cement and concrete, which may be a bit of a worry.
Prices to fall as materials gambit gives up
One of the issues with commodities, said Mr Garrett, is that when prices rise strongly, some see it as easy profit, buying up product, speculating on it, treating it like cryptocurrency, hoping the price keeps rising, and selling it on at a profit when the price does go up.
Buy, hold, and speculate has very much been the case with building materials, Mr Garrett said:
“People have been buying [building materials] as a gambling token and not use them, just storing them, waiting for the price to go up.”
Shane Garret, MBA Chief Economist
Mr Garrett added that we now may be at a turning point for materials prices, with speculators likely to realise this in the coming months. When materials speculators realise the game is up, they will sell on the stored products, which is likely to accelerate the process of prices dropping.
Fewer homes on the horizon, with renovations to rise
It would not be surprising to see fewer homes built as interest rates continue to rise, with the cost of business also rising with the rates. Mr Garrett said it will be a tricky few years ahead.
Renovations are likely to pick up again over the next few years, with home renovations typically and disproportionately concentrated into homes around 30 to 35 years old.
Perth has a very large stock of home built in the late 80s, early 90s, which will mean many are due in for a spruce up.
Industrial strength to continue
The sector has seen substantial investment throughout the pandemic, Mr Garrett said that on-shoring of warehousing and production as a result of companies trying to mitigate the supply chain challenges experienced.
While Mr Garrett said he believed industrial has probably seen a little bit of over-investment and may contract a bit over the next year or so, he still thinks the long-term prospects are markedly improved as a result of the experiences throughout the last three years.
Disclaimer: The Property Tribune attended the luncheon as a guest of the Master Builders Association of Western Australia.