October 11, 2023 by Dymphna

Vacancies tank while builders bust: the economy in pictures

See the world through the eyes of an economist: vacancies, insolvencies, rate hike expectations and more

Here are the charts that caught my eye this week.

First up, there’s the rental vacancy rate data, which continues to hold at record lows.

This is why you can’t get a rental for love or money right now, particularly in the capitals. This tightness will be feeding through into rental price growth for many months to come.

Speaking of rents, our next chart tracks rental prices as reported by Corelogic (new rental agreements), and as its reported in the CPI (based on the rental stock, not just new agreements.

New leases are booming, but because CPI looks at the stock, there’s a lag there. What it means is that the rental boom will be feeding through into the CPI for another year or two.

It doesn’t have a huge weight in the CPI basket, so its probably not enough to change the outlook for rates. But its not helping.

Speaking of rates, markets now think we’ll have one more rate hike over the next six months or so, before rate cuts will follow in the middle of the year.

This is based on market pricing, so tends to be economist’s best guess at where rates are headed. I’m no so sure we’ll see another hike, but I do expect to see cuts in the new year.

Finally, a chart from the RBA shows that company insolvencies are lifting, driven by firms in the construction sector.

Construction companies have been hammered by rising material costs and fixed price contracts.

And its another reason I only expect the housing shortage to get worse in the years ahead.

And that’s how the world looks through the eyes of an economist.