Flat wage growth and more casual employment, should home hunters be worried?

The latest jobs data paints a gloomy picture of the labour market with wages flat and an increase in casual employment over full-time jobs

The figures provided the first glimpse into the employment market in 2018, but experts are quick to point out monthly data can be volatile.

So should home hunters we be worried? Domain talked to three economists about how the jobs market will impact the property market in 2018. 

Ryan Felsman – Senior economist at Commsec

While the Australian Bureau of Statistics Labour Force figures for January showed 49,800 full time jobs were lost and 65,900 part-time jobs created Ryan Felsman said it shouldn’t alarm anyone just yet.

“In terms of the casualisation rate, it has been pretty consistent at 10 per cent in the 2000s. The participation rate is at the highest rate in   six years, the jobs market has strengthened and that keeps the unemployment rate low,” Mr Felsman said.

In the grand scheme of things, he believed the jobs market was very strong with more than 400,000 jobs created in the  past 16 months – the longest period of jobs growth in more than a decade.

“The jobs market is very strong and certainly first-home buyers are feeling more comfortable to enter the market now, too, with stamp duty concessions. They’ve [first home buyers] now increased their proportion of getting their foot in the door,” Mr Felsman said.

Despite low wage growth Mr Felsman was optimistic about people being able to afford a property in 2018.

“Sure they don’t have pay rises yet but they have security in their ability to take on a mortgage,” he said.

Saul Eslake – Economist and Fellow Vice Chancellor at Tasmania University

The underlying trend of strong jobs growth rather than the month-to-month fluctuation of job figures is the best way to interpret the data, according to Saul Eslake, but it may not make a dent in home-ownership any time soon.

“Strong growth in employment means more are earning an income and potentially have the capacity to buy a home or if they already own they have more capacity to service a mortgage,” Mr Eslake said.

“But the home-ownership rate has been declining since the 1960s and the obvious reason is the increase in house prices has outpaced the growth in income so that the average priced house is now, in most capital cities, more than five times the income,” Mr Eslake said.

He believed that while the jobs data was good news it wasn’t going to make much difference until Australians got a sizeable pay rise.

“It’s better to have continuing employment than unemployment. What would make a difference is to accelerate the growth of people’s income which may well make it more likely to purchase a home and certainly would increase consumer confidence,” Mr Eslake said.

It echoed the Reserve Bank Governor Philip Lowe’s call for stronger wage growth. Mr Lowe said a 3.5 per cent wage growth, as opposed to 2 per cent, would bring stronger results in consumer confidence and spending.

Mr Eslake also noted that while wages growth was very low, in the  past two months consumers have been more optimistic when it came to confidence and spending. A stark change to survey results in five years gone past.

Callam Pickering – Economist at Indeed

The growth in the labour market would favour the housing market to a certain extent, according to Indeed’s Callam Pickering. But a lot more needs to happen before it translates into more people purchasing homes, he said.

“You do see a lot of volatility from month-to-month but overall full-time jobs have made up for 75 per cent of the 400,000 jobs created in the last 16 months. That’s a good run of employment data and that’s helping the housing market,” Mr Pickering said.

Coupled with this strong jobs growth  was the combination of a cooling market, stamp duty concession and restricted lending, which has undoubtedly also helped first-home buyers increase their share of home-ownership in 2017, according to Mr Pickering.

But in 2018 wage growth will be the key to unlocking economic growth and access to the housing market.

“If wages continue to grow by 2 per cent then house prices can’t grow much more than that going forward either. So it’s no surprise Mr Lowe wants higher wages because it would make his job easier. It’s the key to monetary policy, retail spending and housing,” Mr Pickering said.

“We’re certainly optimistic that wages will  grow in the second half of 2018. But for anyone looking to buy a house I wouldn’t be banking on huge wage hikes just yet. You’d have to be very frugal and save lots of money to try and buy now,” he said.