The big news last week was that the Reserve Bank of Australia increased interest rates for the first time in 11 years. The increase was one-quarter of one per cent and most banks were quick to pass it on to mortgage holders.
Many are saying that this is the beginning of the end. I am not so sure.
To use a sporting metaphor, this week I have gone "around the grounds" to look at the pulse and heart rate of the local economy to see what kind of shape it's in.
According to the latest Corelogic data, Illawarra house prices rose by 1.4 per cent last month - massively outpacing Sydney house prices which were flat in April. Illawarra house prices rose a staggering 24 per cent over the last 12 months, compared to Sydney house prices which rose a "mere" 17 per cent.
While the dizzying property price rises place home affordability further and further out of reach for the average "Illawarrior", the wealth of the average home owner in the region has been on the rise - and that's good news for the economy.
On average, the owner of a home in the Illawarra region is almost $180,000 wealthier than 12 months ago - so the so-called household balance is $180,000 stronger than it was a year ago.
So the theory goes, when people get wealthier, or should I say feel more wealthy, they spend more and that continues to create economic activity which in turn creates more jobs and incomes.
There is no doubt that interest rates will continue to rise. And if they rise by a meaningful amount - say one or two per cent - then real estate prices will moderate as borrowers feel the pinch.
However, the household balance sheet that has been built up over the last 12 months will ensure that households are protected somewhat from a downturn - were it to eventuate.
Restaurants and shops are the busiest that I can remember in years. There are people milling about everywhere and traffic is back. These are signs that the regional economy is bustling.
And the numbers confirm this. According to the latest information from the Australian Bureau of Statistics (ABS), the unemployment rate in the region averaged around 3.1 per cent in the first quarter of this year.
That's the lowest average unemployment rate that we have seen in the Illawarra for at least 25 years of records available. The number of unemployed in the region averaged around 5200 - also the lowest number of unemployed that we have had in the region in 25 years.
It's hard to believe that in June 2020, unemployment in the region touched eight per cent and the number of unemployed people was enough to fill more than half of WIN Stadium. The recovery from the pandemic has been rapid, suggesting that most businesses in the region went into hibernation rather than shutting down.
The recovery from the pandemic has been rapid.
I am really having trouble getting a roofer and fencer out to my home to carry out some flood-related repairs. I can't even get anyone out to give me a quote. What's bad news for me, of course, is good news for the region. We are in the middle of a construction boom and builders are very busy. The building approvals numbers from the ABS underline this.
Unlike real estate numbers and jobs data, building approvals are purely about the future. Data comes from councils about building projects approved for construction. They therefore tell us what building projects will unfold over the next 18 to 24 months.
And the building approvals data is bursting at the seams. Building approvals for the nine months to March 2022 came in at $934 million. This is the second highest level that we have seen over the last five years. This data follows on from the 2021 building approvals numbers which were also at record levels. Of course, we are currently in the middle of that construction activity.
Economic records are being broken in the region left, right and centre. Illawarra property prices continue to test record levels and to outpace Sydney. Employment is at record levels and there are still plenty of jobs around. Building approvals data tells us that this boom and strong economy should, by all accounts, hang around for at least another 18-24 months.
There is a potential downside if the ratcheting up of interest rates by the RBA begins to grinds down investment, building projects and economic activity in the region - but the economy is still in great physical shape going into contact.
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