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Australian wage revival may bolster property market

Recent data has suggested property price growth across Australia as a whole has stalled, but the market may be kick-started again if economic recovery brings higher wages.

That may have seemed a distant prospect in recent months as the economy has been seemingly locked into a pattern of low growth, low inflation and low wage increases. Indeed, the latest official figures have put wage growth at a record low annual rate of just 1.9 per cent.

However, the situation will change in due course, according to Reserve Bank of Australia (RBA) governor Philip Lowe.

In a speech made after the RBA had voted to hold rates again, he said: "I am optimistic enough that I don’t see it [low wage growth] as a permanent state of affairs. It is likely that, as our economy strengthens and the demand for labour picks up, growth in wages will pick up too."

He acknowledged that low wage growth will continue "for a while yet", suggesting that this would help employment increase. However, Mr Lowe insisted, the "laws of supply and demand" have not ceased to work and in time these will lead to more wage inflation, particularly as the economy picks up.

Higher incomes will mean more Australians can afford to make house purchases and thus could reignite a stalling housing market.

Earlier this week, figures from CoreLogic indicated the average house price across Australia had not risen at all, although it had crept up by 0.1 per cent in capital cities. 

However, there were significant variations, with Hobart enjoying its best growth rates over the last 12 months since 2014, while Perth and Darwin have seen drops of 2.8 per cent and 4.2 per cent respectively over the past year. 

Sydney prices were flat in line with the national average, which may suggest that after 75 per cent price growth the city is not in a position to see any further rises while pay levels are so low. 

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