No more rate hikes + biggest money arguments

Hi everyone, happy Friday

The take-homes in this week’s newsletter are:

• The bell has rung at the top of the interest cycle — no more rate hikes, but they won’t come down anytime soon.

• Inflation continues to slow… and at a greater rate than the Reserve Bank expected.

• The latest movements in the value of your home.

• Does a pool add value to a property?

• What are the biggest money issues couples argue over… can you relate?

• And just a bit of trivia about last night’s huge Powerball jackpot draw. The chances of winning the division one is 1-in-134,490,400 – the chance of being struck by lightning is 1-in-12,000 and being killed by a bee is 1-in-54,093.

For weeks I’ve been pointing toward Wednesday’s December quarter Consumer Price Index (CPI) announcement as being crucial to setting the tone for interest rates this year. 

Well, the result was really encouraging and basically signalled the top of this interest rate cycle. The headline CPI rose 0.6 per cent for the December quarter and 4.1 per cent for the year… well below what economists were expecting and down from the 5.1 per cent annual rate for the September quarter. 

The headline was good news, but the RBA actually focuses on the “trimmed mean” which takes out one-off, volatile components of the CPI basket to give a more stable reading. The trimmed mean CPI came in at 0.8 per cent for December (it was expected to be 0.9 per cent) and 4.2 per cent for the year. 

But here is the important part. The RBA expected this annual trimmed mean figure at the end of 2023 to be 4.5 per cent. So, Wednesday’s figure came in better than the RBA prediction. They have to be happy with that. 

To put it into perspective, this time last year the annual rate was a whopping 7.8 per cent. It has nearly halved in a year on the back of the steep rise in interest rates. 

If you want to see what’s driving inflation (and which prices are dropping to make sure you are getting the best deals), IFM Investors have put out this great summary.

Now is the time to buy any new furniture and look at those lamb and goat prices – that helps with the cost of meals. 

But the increases were in tobacco (because of the rise in excise taxes), new dwelling costs, rents and insurance premiums. 

Speaking of which, you should never automatically renew an insurance policy. Always check whether you can get a better deal elsewhere. You’ll be amazed at what you can save. I’m biased as the economic director of Compare the Market, but comparison sites are just so easy to use to find a better deal. 

Housing is the biggest sub-sector of the CPI at 22 per cent of the CPI basket. It measures the change in the cost of newly constructed dwellings and major renovations by owner-occupiers, and the change in rents paid to landlords. 

For the purchase of new homes, the CPI measure eased to 5.1 per cent, down from 5.2 per cent in the previous quarter and a peak of 20.7 per cent in the year to September 2022. While the rate of increase is easing, residential construction remains a substantial contributor to inflation overall and was the most significant contributor to inflation in the last quarter. High labour and material costs continue to put pressure on the price of new homes. 

Annual growth in the rent component of CPI was 7.3 per cent, down from 7.6 per cent. Over the decade before COVID, average annual rent rises averaged 2.3 per cent. So, still very high but they seem to have steadied and hopefully continue to slow. Fingers crossed they eventually get back to that 2.3 per cent level.

The ultimate energy bill hack to save you hundreds of dollars

Energy costs still remain stubbornly high in the CPI figures. But here is an easy energy hack to slash your bills. 

Grab your last energy bill and look for the panel which says, “Could you save money on another plan?”. The Australian Energy Regulator has made this a compulsory part of all energy bills.

Your energy retailer must examine your usage and notify you if there is a better plan for you to be on. They have to point out the savings and then you have to contact them and change over. They won’t automatically do it for you. 

It is right under our noses but very few people actually read the panel. 

That’s an immediate saving within your own provider. It should prompt you to also check other providers to see if there is a better deal as well.

Aussie consumers digging further into the bunker

Remember how the RBA warned they’d have to keep lifting interest rates if Aussies kept spending at the shops? Looks like they can’t argue that anymore with this week’s December retail sales figures. 

They were a shocker. 

The 2.7 per cent decline in December sales was the weakest since the height of the COVID pandemic in August 2020. Sales for the year 2023 were up 0.8 per cent but that was the slowest annual growth rate since August 2021 during lockdowns. 

Back in November retail sales were pretty strong because of the Black Friday and Cyber Monday sales, but the drop in December far outweighed those gains. Over the three months to December, sales rose just 0.5 per cent even though there were an extra 380,000 employed and earning money over the last year.

Property values continue to climb… but it’s patchy

CoreLogic’s national Home Value Index (HVI) rose 0.4 per cent in January, which is up from the 0.3 per cent increases seen in November and December – it’s the 12th straight month of value rises. 

But the housing market performance remains patchy around the country. Three capitals recorded a subtle decline over the month (Melbourne -0.1 per cent, Hobart -0.7 per cent and Canberra -0.2 per cent), while Perth, Adelaide and Brisbane values continued to rise at a monthly rate of 1 per cent or more. 

Perth was again the standout with home values up a further 1.6 per cent in January. 

House values have continued rising at a faster rate relative to unit values in January, with the gap between the median capital city house and unit values rising to a record high of 45.2 per cent in January. Across the combined capitals, detached housing values rose by half a percent over the month, adding the equivalent of around $4,800 to the median house value while units increased a smaller 0.1 per cent, equivalent to a $900 lift. 

Despite inflation and rising interest rates, demand for property remains strong. Big migration figures are bringing in more potential buyers and a lot of renters are switching to buying because of soaring rents.

As I constantly say, property is all about demand and supply. A lead indicator on the level of housing supply coming down the pipeline is building approvals, or the number of development applications being approved by councils for new properties. Then it takes an average of 2-3 years for that building to be completed and obviously longer if it’s a block of units. 

Building approvals were down 9.5 per cent in December; units down 22.4 per cent and houses 0.6 per cent. In fact, 2023 was the weakest year for building approvals in 10 years. 

So there certainly isn’t much housing stock coming online over the next few years to ease the shortage.

Does a swimming pool add value to a property?

The other week I wrote about real estate giant Ray White looking at the added value of having a tennis court. This week they’ve looked at the value-add of swimming pools. 

They found out of the top 10 suburbs with the most swimming pools, eight are coastal suburbs less than 20 minutes from the coast, and two are located inland. It begs the question: Why are homeowners spending an average of $35,000 to $100,000 to install a swimming pool when they could travel 20 minutes to the coast and access a beach for free? 

Wouldn’t their money be better spent on adding other features to their property, such as a granny flat?  

Swimming pools generally increase the value of a home at a minimum by the amount they cost to build. So, if you install a swimming pool for $50,000 you can expect your house price to increase by a minimum $50,000. House price growth beyond that is hard to quantify. 

However, the popularity of swimming pools continues to grow with nearly 300,000 more Australians living with a swimming pool since 2018 according to research group Roy Morgan. ‘Swimming pool’ has been the highest ranked search term in many property listing websites for the past four years, reinforcing their high demand from many prospective buyers.

So while some may live 20 minutes from the coast, adding a swimming pool to your backyard may be the key to making your property more attractive to a larger number of buyers. Ray White auction data unsurprisingly shows that when property appeals to more buyers it creates stronger competition at auction, pushing up selling prices and clearance rates.

While it may be unknown exactly how much a swimming pool will increase your house value by, it seems worthwhile to add a swimming pool into your backyard if you live in one of these suburbs or states with the most swimming pools. Not having a swimming pool in these suburbs will put your home in a weaker position when competing with other homes when it comes time to sell. 

The Northern Territory had 45 per cent of all its listings over the past two years feature a swimming pool, whereas Tasmania, being the coldest state, had only three per cent of all its listings feature a swimming pool over the same time period. 

Fighting with the family: A third of Aussies argue with loved ones over money

Summer holidays are meant to be the most cheerful time of year, but 38.3 per cent of Australians are arguing with their loved ones over the rising cost of household bills. I know it is probably stating the bleeding obvious, but I always reckon it’s interesting to see what everyone else is arguing about to judge whether Libby and I are any different. 

According to a Compare the Market survey of their customers, the bills causing the most arguments are groceries (76.8 per cent), energy bills (65.6 per cent) and fuel costs (47.9 per cent). 

Meanwhile, just over a quarter are disgruntled about the cost of car insurance (27.6 per cent) and health (25.8 per cent).

It makes sense that people are arguing the most over energy and fuel costs because they’ve increased the enormously over the last year.  

Australia’s big energy retailers have reported a dramatic increase in the number of households struggling to pay their electricity bills. One company revealed there are more people accessing hardship programs now than at the peak of the pandemic. 

The research shows that for Boomers in particular, everyday expenses are causing them more arguments, whether it’s with providers, people who live with them or otherwise. This is surprising in a way as there’s a public perception that Boomers have it easier and are wealthier than their younger counterparts. 

But not everyone who retires has retired comfortably. Pensioners, in particular, might be experiencing higher increases in the cost of living, which could be why older Australians are arguing over rising bills the most. The dollar isn’t stretching as far, so if people are dipping into their super or relying on government payments, it’s going to be hurting the household budget. 

In retirement there is always a fear of running out of money because there isn’t the safety net of a regular wage landing in your bank account to help with unexpected bills.

A couple of tips from me to reduce the arguments and to stop the household bills from bubbling over:

Compare your bills 

From your energy bills to your healthcare costs and mortgage repayments – make sure you’re on the most competitive deal. Comparison websites like Compare the Market take all the hard work out of having to do your own research. If it’s been a while since you’ve switched providers, then you’re probably paying more than you need to. Spending a bit of time comparing your bills each month can save you a ton of money. 

How to lower your energy bill

• Ditch the dryer and instead use the sun or an indoor rack placed near a sunny window to dry clothes.

• Close all the doors, windows, and blinds to trap the cool air inside when running the AC.

• For cooling, set your air conditioner temperature between 24°C and 26°C. Each 1 degree of extra cooling or heating could increase your electricity usage between 5-10 per cent.

• Open your windows and doors to create cross breezes and use fans to circulate and cool the air.

• Make sure you are using energy efficient appliances.

• Turn off switches if you’re not using appliances. Vampire power can add 10 per cent to your power bill. 

Negotiate or switch to a lower interest rate 

Mortgagees need to make sure they’re on a competitive low rate. If you find a rate that’s lower than the one you’re on, ask your current lender to match it. If they don’t at least offer you a discount, be prepared to walk. We’ve had someone recently refinance through Compare the Market who saved $623 on her monthly mortgage repayments. Suitable products and rates available to you can vary, but it’s worth checking to see how your rate stacks up. 

Fuel up for less 

You can save money every time you fill up your car by simply checking cheap fuel finder apps like the Simples app. But if you’re still feeling the price pain at the bowser, maybe try carpooling, public transport, walking or cycling. You could also try driving at off-peak times to avoid getting stuck churning through fuel in traffic. Maybe there’s a gym near your work and you could do a workout before work and stay ahead of the morning peak hour commute.