House prices react to broader trends — so could rising grocery costs help first-home buyers?
It’s not their fault, but lettuces have been getting a bad rap of late.
They’re in short supply and hot demand, with prices for icebergs rising above $10 in some cases following devastating flooding along the east coast.
And it’s not just lettuces that are spiking — the cost of other basic groceries has also gone through the roof.
Compounding the supply issues are production and travel expenses linked to rising fuel and energy prices.
“What you’re seeing at the moment is the [result] of global and environmental impacts,” Franklin dos Santos, CEO of SA supermarket chain Foodland, told ABC Radio Adelaide.
He said it may take “four to six months” for prices to drop back down.
“Stock that would traditionally have been in oversupply [is] being trucked across to the Flemington markets, the Rocklea markets and also the Sydney markets.”
Flow-on effect tipped for housing
This clearly is not good news for flood-hit growers or for consumers — but housing experts have indicated there could be a silver living for first-home buyers.
The logic goes something like this: As the cost of groceries and other goods increases, pressure is applied to household budgeting, drying up the amount of disposable income available to sink into housing — driving down demand.
“People’s perception of their wealth is changing,” Ray White chief economist Nerida Conisbee said.
“The Reserve Bank sets monetary policy based on inflation, so they’re looking at those rising lettuce prices and thinking, ‘We better slow this down a bit’.”
That last comment was slightly jocular — interest rates are determined by many more factors than one basic foodstuff. But the basic point is a serious one that embodies an essential principle of economics.
“We are seeing a rapid rise in inflation at the moment and lettuce is a part of that — building cost is another, petrol is another. That’s driving up interest rates.
“We know that first-home buyers like transacting in slower property markets — we definitely have a much slower property market this year compared to last year.”
Property cycles ‘move at different times’
There is already evidence of increased affordability. House prices have dipped in Sydney and Melbourne, and University of Adelaide property market analyst Peter Koulizos said Adelaide and Brisbane — where growth has continued — would follow suit.
“The property cycles in each capital city move at different times,” he said.
“There is no doubt that we will follow Sydney and Melbourne.”
The link between house prices and daily expenses is complicated, and Ms Conisbee said factors pushing in the opposite direction should not be discounted where property is concerned.
“International migration [is] starting up again so we are going to go back to more normal levels of population growth,” she said.
“Building costs are getting very expensive and are actually rising at the fastest rate ever recorded, so building a new home is going to be more expensive.”
But Ms Conisbee said she expected the rising cost of goods to bring “some relief” to those searching for their first home, and Mr Koulizos was of the same opinion.
“There will be fewer properties bought because people will be hesitant to commit to paying a mortgage,” he said.
“The reality that people might be spending a few extra dollars on fuel and groceries is magnified.