Construction costs ease across Australia as key materials prices stabilise
Following hefty increases in recent years, there’s some relief in sight for home builders – and their clients
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Construction cost increases have fallen to their lowest point since the start of the pandemic according to the latest data from CoreLogic.
The property data provider’s Cordell Construction Cost Index (CCCI) shows a growth rate of 0.7 percent over the June quarter, which is the lowest figure recorded since September 2020.
The CCCI tracks the cost of building a typical three-bedroom, two-bathroom new home in Australia.
While there was variation and volatility across building product types, CoreLogic Construction Cost Estimation Manager John Bennett said steel and timber prices had begun to stabilise. It’s a trend he said was likely to continue.
“There’s been a significant drop off in dwelling approvals in the year to April, which will flow through to prices,” Mr Bennett said. “As the level of residential construction work reduces, pressure on material costs and labour supply is likely to reduce further.”
The price of timber has escalated sharply in recent years as local stocks dried up following the 2019 bushfires and demand for materials increased following the Federal Government’s HomeBuilder initiative. It’s a similar story with steel, which has been impacted by the war in Ukraine, the strength of the Australian dollar and supply chain issues.
However, there appears to be some relief on the horizon with the latest national figures well below the 1.2 percent decade average, CoreLogic data shows, representing a further softening from the 0.9 percent growth rate during the first quarter of this year.
CoreLogic head of research, Eliza Owen, said the figures bode well for a further reduction in the rate of inflation.
“The cost of new owner occupier dwelling purchases comprises the largest weighting in the CPI ‘basket’, which means the ongoing reduction in the CCCI is good news, potentially signalling lower inflation numbers,” she said.
Borrowers cannot control the Reserve Bank, but they can control how exposed their household budget is to its next decision. The RBA meets on 29 September with inflation concerns still elevated and major-bank economists increasingly bringing forward their rate-rise calls. Fixed mortgage rates have also been moving, reducing the value of waiting for perfect certainty. …
Continue reading “What mortgage holders should do before the next RBA decision”
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2 minBorrowers cannot control the Reserve Bank, but they can control how exposed their household budget is to its next decision.
The RBA meets on 29 September with inflation concerns still elevated and major-bank economists increasingly bringing forward their rate-rise calls. Fixed mortgage rates have also been moving, reducing the value of waiting for perfect certainty.
The first task is to calculate the impact of another 0.25 percentage-point increase. Indicative Canstar figures reported earlier this month suggest that such a move would add about $91 a month to repayments on a $600,000 loan, $122 on $800,000 and $152 on $1 million, although actual changes depend on rate, term and loan structure.
The second task is to compare the current loan with the market. Borrowers should examine the interest rate, annual package fee, offset balance, redraw rules and the revert rate on any expiring fixed portion. A lower advertised rate is not necessarily a better deal after fees, lost features or refinancing costs.
Third, test the household budget at least one percentage point above the current rate. This is not a forecast; it is a resilience exercise. Include council rates, strata, insurance, maintenance, school costs and realistic discretionary spending. Investors should also allow for vacancy and repairs rather than assuming uninterrupted rent.
Fourth, contact the existing lender before lodging multiple applications. A borrower with a sound repayment history may be able to negotiate a discount without refinancing. If the offer is weak, obtain comparable quotes and seek advice on whether changing lenders will genuinely improve the position.
Fifth, preserve liquidity. Using every available dollar to reduce principal may feel prudent, but an offset account can provide interest savings while retaining access to cash. The right structure depends on tax position and loan purpose, particularly where owner-occupied and investment debt coexist.
Borrowers considering a fixed rate face a trade-off. Fixing can provide repayment certainty, but may restrict additional repayments, offsets or early exit. Splitting a loan can diversify rate exposure without removing risk.
The worst time to examine a mortgage is after repayments have become unmanageable. A review conducted now gives borrowers more choices: renegotiate, refinance, adjust spending or build a buffer while their record remains strong.
Borrower checklist
Calculate: Repayments after a 0.25 and one percentage-point increase.
Compare: Rate, fees, offset, redraw, cashback conditions and total cost.
Review: Fixed-rate expiry, interest-only expiry and remaining loan term.
Protect: Emergency liquidity and insurance.
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