Falling rental rates unlikely to bounce back soon: Cameron Kusher

EXPERT OBSERVATION

The latest consumer price index (CPI) data released shows that Australia is in deflation, and over the quarter, national rents fell by -1.3 per cent, which was both the largest and first quarterly decline on record.

Nationally, the cost of renting is now back at levels last recorded in March 2017.

Despite falling rents throughout the quarter, the volume of rental searches on realestate.com.au is actually up 38.5 per cent.

Not only are people searching more, the volume of high-intent activity on the rental section of realestate.com.au is also up by 74.5 per cent over the same period.

The results are a clear indicator of how COVID-19 has changed the property market dynamic.

Rental rates are coming under pressure from multiple sources. We have virtually no migration, there is new stimulus encouraging purchasing from first home buyers who otherwise may have been renters, and then there's the fact that unemployment is rising, and younger people are most affected.

With a moratorium on rental evictions in place until September, the next quarter is unlikely to see rental CPI fall as severely. Thereafter it is likely rental rates will fall further and will take quite some time to recover to previous highs.

The high demand on realestate.com.au is likely due to the possibility of finding cheaper and or better rentals, as evidenced by the CPI data.

Cameron Kusher is director of economic research at the REA Group