Tech bubble Mk II

Bubble on

When you think back to the tech wreck and all the crazy stories about companies with no earnings being bid up to the sky, you might think: imagine living through something like that!

Well, here we go again!

It started with cyrptocurrencies with names we'd never heard of, but now we're moving into stocks...

Late last year some users of the commission-free trading app Robinhood found a glitch which allowed them to use unlimited leverage, and naturally dollars began to flow into the hot stocks. 

The Robinhood debacle was symbolic of a wider shift into the rampant speculation market phase. 

Some of the discussions on the chat forums literally defy belief. 

Flick of the switch

You could pick any one of a thousand ways to measure these things, but the end result will be the same, because in short run markets are a voting machine, and in the long run they're a weighing machine.

In other words, in the short term speculative money flows toward what is presently popular, but at some point a switch is flicked and rational thinking returns, so markets begin to look at what a realistic valuation should be. 

Unfortunately humans invariably fail to learn from the past, so we're doomed to repeat it!

Huge blow to inbound tourism

Tourism slammed

Despite the extreme Big Dry, up until December 2019 tourism was still faring surprisingly well in Australia, at least in terms of the number of visitors. 

Chinese tourism had already begun to roll over, however, even ahead of the enormous impact of the coronavirus in the new year, but this slack was picked up by cricket-loving Kiwis and tourists from other parts of Asia in December.

I was at Changi Airport last week and I've never seen it so quiet; it was abundantly clear that many are opting not to travel unless they must. 

China is Australia's largest and most lucrative source of tourism, and one can only expect there will be a tremendous slowdown in visitors from China in Q1 lying squarely ahead.  

Education arrivals, also largely hailing from China - as well as other parts of Asia - were at a record high in the 2019 calendar year. 

And this is a sector which will be hit hard in the first quarter of 2020, as students cannot return from China after the Xmas break.

MOAR intake

Despite the above, Australia's population growth continued at a rollicking pace through 2019, with gross arrivals (my bad) tracking at a record high. 

Net of permanent and long-term departures, net migration was running hot at around +294,000 for the calendar year, implying total population growth not far shy of +400,000 after accounting for the natural increase in the population. 

Australia's population clock is now above 25.6 million, according to the ABS:

With apartment completions now faltering, expect to see rental vacancy rates gradually falling through 2020. 

Before then, though, Australia is facing a negative quarter of growth, and possibly further challenges beyond that. 

Rental vacancies tumble, having peaked

Rental vacancy declines

Apologies, been a bit quiet on the blog due having been, ah, busy...

Australia's greatest ever construction boom has caused some headaches for landlords since 2016, with a record volume of supply hitting the market.

However, vacancies have now peaked in Sydney, Brisbane, Perth, and Darwin, according to SQM Research's latest, er, research. 

JLL noted in its latest quarterly that inner city apartment completions had shrunk by a fifth, and the supply is now set to tighten. 

In Sydney the rental vacancy rate tumbled from 3.6 per cent to 3.1 per cent in January, despite the potential for challenges related to the return of Chinese students. 

Perth's vacancy rate is now down to just 2.1 per cent, while Brisbane isn't too far behind on that curve at 2.4 per cent. 

Adelaide's vacancy rate is now very tight at just 1 per cent, and following on from Hobart looks set to be the next city to see a sudden 'pop' in rents and prices. 

Nationally the vacancy rate at 2.1 per cent is now tracking lower than a year earlier, with supply set to slow considerably through 2020. 

The annual growth in Chinese short-term arrivals fell to its lowest level in almost a decade in December - and that's before the coronavirus kicked into gear - so that's an issue which as yet remains unresolved. 

Sydney and Melbourne recorded increases in asking rents for houses and units in January. 

Average new mortgage size $500,000

Mortgage size rises

In July I noted via a stylised example how the lifting of the minimum 7 per cent mortgage assessment rate - when combined with the monetary easing then priced in - might result in a 15 per cent increase in borrowing power and activity for homebuyers (but not portfolio investors). 

This is pretty much what's played out, with investor credit growth running at the lowest level on record and mired in negative territory, while homebuyers have come back into the market with gusto.

As written about previously, Australian Finance Group (AFG) saw a $35,000 jump in the average loan size across two quarters of its lodgements data, largely driven by upwards moves in New South Wales and Victoria. 

And now the December 2019 housing lending figures from the ABS showed the average new mortgage size for homebuyers rising to around $500,000 for the first time, recording a surprising 16 per cent or $60,000 leap since the election.

The increase here was again driven by New South Wales and Victoria, and to a secondary extent the other mainland states.

While it may be a noisy data series, in NSW the average mortgage size surged by $103,000 or 20 per cent since May for the purchase of existing homes. 

With this week's wage price index likely to record year-on-year growth of just +2.3 per cent there probably isn't much more gas in the tank here until the economy gets moving again, which doesn't look likely any time soon. 

Thin volumes

Hammer time

There's still not much stock out there in property land, making life tough going for buyers, and volumes remain fairly thin.

The preliminary auction clearance rate for Sydney was 84.4 per cent this weekend, which is a high result. 

The market is mainly being driven by homebuyers rather than investors to date, and the median price of detached houses remained lower than a year earlier.

For attached dwellings median sales prices were strong, which will likely continue given that the first home loan scheme will direct a wave of first homebuyers towards 1- and 2-bedroom units. 

Source: Domain

Both the volume and value of properties selling in Melbourne are higher than a year earlier. 

The final clearance rates will be revised lower, but there's nothing here to suggest that prices won't rise at double-digit pace in 2020, even in the face of negative economic growth in the first quarter.

Sentiment turned on a dime and the housing turnaround began practically hours after the election result, and has continued ever since.

---

US stocks are now pushing into virgin territory on a number of different metrics.

Tread carefully out there!

Weekend reads

Must see articles

This week at Property Update a look at what's been for the housing rebound, and what lies ahead according to housing finance figures and forecasts. 

See here for more or click on the image below:

You can subscribe for the rapidly growing and free Yardney podcast here.

Time for the beach, have a great weekend!

Our 4Fs framework: This is why fitness matters

Mental fitness

Something a bit lighter for the weekend after a heavy week of markets news - fitness - see here for more (or click the image below):

Our 4 Fs framework

4 Fs for life

See here for more (or click the image below):