Rate hikes are NOT on the cards

Inflation ebbs away

One of the easier trades you'll ever come across, with inflation missing market expectations yet gain.

Money for jam, here.

Rate hikes never were on the cards any time soon - as well documented here often enough - but that's even more obvious now with inflation missing (yet again!).

Both of the core measures came in at just +0.4 per cent for the December quarter.

While underlying inflation rate ticked up to +1.9 per cent, the 6-month annualised pace is incredibly weak at just +1.6 per cent.

Inflation has now missed the 2-3 per cent target on the downside for 9 consecutive quarters, and the pulse looks to have weakened again. 

Tradables prices picked up a bit in the December quarter, but were negative over the year.

The headline result of +0.6 per cent for the quarter and +1.9 per cent for the year was pumped by a jump in fuel and fruit prices (someone needs to look up whether avocados and capsicums are fruits or vegetables, I have no idea). 

Overall, though, this was once again very weak underlying inflation, though importantly the result was not under the Reserve Bank's forecast for the end of the year.

So that basically means that interest rates will be left on hold for a record length of time, barring a shock of some kind.

Rents off the mat

Rents began to rise moderately again in 2017, mainly thanks to Sydney (+2.4 per cent).

Rents were negative in the December quarter in Brisbane, while in Perth rents are some 16 per cent below their peak. 

Sydney rents (+52 per cent) have doubled the of inflation (+27 per cent) over the past decade.

The wrap

The Reserve Bank's models already seemed to suggest that underlying inflation wouldn't get back to the mid-point of the target range at 2.5 per cent for years to come (possibly about 4 years!). 

And now this result has missed market expectations too, for the fifth consecutive quarter. 

The main takeaway is all the talk of imminent rate hikes was little more than wishful thinking.

Indeed, given the Reserve Bank's stated mandate, logically either the next move in rates should be down or the economy should returning to full employment.

Either way, there was little to fear in these numbers for mortgagees and housing market fanatics.

Insolvencies rise, in WA

Insolvencies rise

The Aussie government (ASFA) released its latest insolvency statistics for the December 2017 quarter.

The figures showed an increase over the year to 31,288, up from 29,687 in 2016.

Since 2015, the increase has mainly been driven by Western Australia.

Looking at insolvencies per 1,000 persons, there are some signs of stress in Western Australia and the Northern Territory.

Not much elsewhere, truth be told, although there was a bit of an increase in Tasmania.

Bankruptcies easing

There were 16,378 Part IV & Part XI bankruptcies in 2017, which was down from 16,842 in 2016.

Not really much to see here, except a similar increase since 2015 in WA.

The wrap

Some stress in WA and the Northern Territory.

Not really much showing up elsewhere.

Inflation squib?

Another fizzer?

It's been a quiet week or three for economy and housing market news, as you've no doubt noticed.

But that's all about to change on Wednesday morning with the release of the final quarter's inflation figures for 2017. 

This is possibly one of the most significant data releases of the entire year, because, supposedly at least, it might reveal signs of inflation returning, signalling...eek...an imminent hike in interest rates! 

Well, I'm not buying it, but one way or another, the figures for the fourth quarter should set the tone.

There are so many moving parts to an inflation release that it's impossible to forecast the result (part of the reason it's so interesting, I guess), but let's take a look a the nuts and bolts anyway...

Petrol, puffs, & peppers

A sift trolley dash through the CPI basket suggests that the main positive contributions to inflation will come from the rising price of fuel, higher taxes on tobacco, and possibly a strong rebound in vegetable prices due to the extreme heat, including for cauliflowers, avocados, and capsicums! 

So that could push the headline rate of inflation back up to ~2 per cent, maybe, although there's not exactly much here being driven by rampant demand. 

What we're most interested in is the core rate of inflation, which is expected to come in at ~0.5 per cent for the quarter.

That could see the 6-month annualised rate of core inflation slowing to ~1.8 per cent, though I guess people will try to argue then that "the bottom is in". 

Quelle surprise?

Australia is not alone in experiencing persistently low rates of inflation, which may be driven by technology and the increased global labour supply.

Any possible surprises or outliers this quarter? 

Housing costs could feasibly move higher, given what's been happening in the sector, particularly with regards to record construction and use of materials. 

But then you might also look at all the 'soft signals' from retailers, with so much downward pressure on household goods, clothing & footwear, communication prices, and food (with the Amazon/Aldi/Others effect still to take hold in full).

Curiously, to me at least, there's a view that a rate hike could eventuate in case wages growth picks up some time in the future.

Well, good luck with that view, but forgive me for not trading it! 

No doubt the economy and employment growth has been picking up momentum, but I'll eat my hat if this release suddenly reveals a surge in price pressures.

Meanwhile the Aussie dollar has been levitating around 3-year highs. 

Interestingly, New Zealand's inflation release was out in the past week, and it spiked horribly to the downside...merely a flesh wound, a coincidental blip I'm sure.

Anyway, hold onto your hats! 

Do what you do best; outsource the rest

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Turning of the tide

Tide turning...follow the sun

Since the peak of the resources construction boom, it’s been a long, slow period for Queensland’s economy.

But things have been looking up.

Tens of thousands of Australians are now relocating to Queensland for its considerably cheaper and warmer climes, particularly from New South Wales. 

Immigration to Queensland is also picking up from overseas.

Population growth in the state has suddenly roared back from below 60,000 to above 80,000...and rising.

With cheap entry prices for property investors, and tens of billions of dollars of equity in the most populous states looking for a home, opportunities abound in south-east Queensland.

Unfortunately many interstate investors will get caught out as they did in the last cycle buying the wrong type of property, especially in the new apartment space.

Beginning with the end in mind

What's your mission (click to read)?

A 30-minute podcast for this weekend

Do you have rich habits?

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How about you?

The importance of getting started

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Australia in 2018 (Crocodile Dundee grows up)

Walkabout Creek

With a bit of scuttlebutt this week about a forthcoming new Crocodile Dundee movie (fake news, no doubt) let's take a quick look at how Mick Dundee would assess the changes in Australia since 1986, assuming he'd been walkabout Stateside for a few decades...

5 million people in one place

On arrival in Manhattan, Dundee famously exclaimed: "That's incredible. Imagine 7 million people all wanting to live together. Yeah, New York must be the friendliest place on earth!". 

Since 1986, Australia's population has increased very strongly from around 16 million to nearly 25 million. Mick would be surprised to discover Sydney itself taking on more of a Manhattan feel, with well over 5 million residents, from fewer than 3½ million back then. 

The population of the Territory remains fairly sparse, however, at under ¼ million in total, with population growth in the Top End now having almost totally stagnated after the recent resources boom.

'A sheila like you?

Mick might also be surprised to find that working women like Sue Charlton are increasingly a force to be reckoned with Down Under.

The female participation rate was under 62 per cent in 1986 but had soared to its highest level towards the end of 2017 at 65.7 per cent - this year will likely see Australia's highest labour force participation rate as a result. 

However, the newspaper industry once dominated by people like Sue's father has undergone a few changes in recent years too - her prized role as a feature writer might well be a casualised position today. 

'I was married once...'

In the original Crocodile Dundee movie we learned that Mick was once married, but his wife ended their relationship after he 'went walkabout' for a short while (OK, for 18 months). 

The crude marriage rate has declined since then, and Australians are living together before marriage more and divorcing less than they were even 20 years ago.

However, perhaps there was hope after all for Mick's fledgling relationship with Sue from the Big Apple. For while marriages between to Australian-born persons have dropped from 72.9 per cent of 54.5 per cent of the total over the past two decades, marriages of people born in different countries accounted for some 31.6 per cent of the total by 2016.

2017 was the year that will be remembered for Australians at last being asked for their views on marriage equality, and for Australia voting a resounding 'YES' to same sex marriage.

'I remember television from way back...'

Mick Dundee was no fan of television, and he'd be heartened to discover that Aussies are increasingly shunning traditional television (free-to-air viewing is down from half a decade ago...albeit to just under 3 hours per day!), even if households overwhelmingly still have at least one working TV set.

He'd be less enthused by the massive growth in internet use, however! Australian households now have an average of more than 6 screens per household, with multi-tasking TV sets now accounting for 31 hours per Australian per month. Strewth!

That's a knife...

The man who was the inspiration for Crocodile Dundee was sadly killed in police shootout in 1999.

Mick Dundee always knew how to take of himself, of course, but in fact Australia's homicide rate was already low in the 1980s at under 2 per 100,000 persons, at it's even lower today at under 1 per 100,000 (there were 227 murders in 2016). 

Thankfully, firearm holdings and deaths from both murders and suicides fell sharply in Australia after the enactment of firearm controls in 1996/7.

In a welcome move away from American attitudes to gun control, the National Firearms Agreement followed shortly after the Port Arthur massacre of 1996, with the gun buy-back scheme running from October 1996 to September 1997 and nearly 650,000 guns being prohibited.

In Australia today a knife is by far a more common weapon than guns in murders, attempted murders, and robberies. 

On a far more uplifting note, today both Melbourne (#5) and Sydney (#7) are comfortably ranked among the world's top ten safest cities in which to live, and long may that remain the case.

Coastal, metro people (mostly)

Australia is a considerably wealthier country today than it was three decades ago - in fact, we have the second wealthiest households in the world after Switzerland - built on mineral wealth and more than a quarter of a century without a recession.

But buying a home costs more today too, with inequality and how our unprecedented wealth is distributed set to become a key election issue over the year ahead.

People are older on average, with the median age rising to 37, and we're typically doing most things later in life than we used to (though not worshipping so much, we've lost a bit of interest in that). 

A greater share of Aussies today were born overseas than at any time over the last 120 years at nearly 30 per cent. We've become far more diverse, more worldly, and more tolerant, and over the next year some sensitive debate about the appropriate date for celebrating Australia Day will take place.

For many, 2017 will always be the year in which Australians were finally asked whether they supported same sex marriage, and overwhelmingly took pride in responding "get it done".

For all the ongoing challenges, and to be momentarily parochial, Australia remains by far the best country in the world in which to live.

Happy Australia Day.

Sydney unemployment rate lowest since 2008

Sydney on fire

The ABS released its Detailed Labour Force figures for the month of December 2017.

Greater Sydney created a massive +101,000 extra jobs in 2017.

That took total employment in Sydney to a record high 2,714,700. 

And with job vacancies across the state soaring to their highest ever level, that's set to continue in 2018.

The annual average unemployment rate for Sydney fell to just 4.6 per cent.

That's the lowest level since December 2008. 

In fact, things generally improved around the traps in 2017.

The improvement in the southern states has also been marked, with Adelaide's unemployment rate falling quite sharply now, and Hobart recording an annual average unemployment rate of just 5.6 per cent in 2017. 

What else was news last year?

Elsewhere, it was a big year for employment growth in Queensland, with the mining sector turning around after a prolonged slump. 

Employment growth was experienced both in Brisbane and in many of the state's regional markets.

In the bellwether resources regions things have been looking up too.

Townsville's annual average unemployment rate declined from 11.6 per cent in early 2017 to 8.5 per cent by the end of the year. 

Employment in Townsville remains well below 2010 levels, but is now trending up again.

More of the same in 2018 would be nice. 

Government boosts Victoria market

A new government scheme that will add to demand in markets such as Frankston, and Geelong, and Mildura.

From the Housing Industry Association (HIA): 

Don't just do something; stand there

My latest blog post here.

Mortgage stress dissipates

Economy picking up

2017 was Australia's greatest ever calendar year for employment growth in absolute terms, with the economy adding +403,700 jobs. 

Sydney in particular has been adding jobs for fun. 

And with skilled vacancies rising for 14 consecutive months for the first time since March 2011, there's even a chance that 2018 could be even stronger again. 

Skilled vacancies were +8.1 per cent higher over the year according to the Department of Employment, and +27.8 per cent higher (+38,700 vacancies) than at the October 2013 nadir. 

There were some nice improvements in Western Australia and South Australia, while Sydney is just outright flying.

In this context, it's not a surprise to hear that mortgage arrears have been in freefall throughout 2017. 

Prime RMBS 31-60 day arrears fell to just 0.26 per cent in November 2017 according to S&P, which is the lowest level in more than 21 years of figures. 

With arrears declining in every state and territory, at the national level arrears declined again to 1 per cent.
  

Not surprisingly, the lowest arrears were in New South Wales (0.74 per cent) and the ACT (0.56 per cent), while Western Australia saw arrears decline from 2.12 per cent to 2 per cent. 

Good to see, with the major banks seeing arrears rates fall quite sharply. 

S&P does not expect to see much change in arrears rates going forward from the presently low levels.

Possibly the biggest threat is a sharp slowdown in construction employment.

Cashflow is critical

See here for why (or click the image below).

Middle-ring vacancies in Sydney

Vacancies jump in middle-ring hotspots

The Real Estate Institute of New South Wales (REINSW) reported that vacancy rates in middle ring Sydney ticked down to 2 per cent in inner ring Sydney in December, roughly in line with last year.

December and the early part of the new year is normally a soft patch for the rentals market and we expect to see vacancies rise.

All those new apartments are beginning to show in middle-ring vacancy rates though, with the middle ring recording a vacancy rate of 2.6 per cent in December.

It's normal to see temporary spikes when projects are completed, so we'll have to wait to see whether this proves to be anything more sustained. 

Here are the figures smoothed on a 4mMA basis to take out some of the noise. 

There are plenty of new apartment vacancies in the Hills District, Parramatta region, and Canterbury Bankstown. 

There was also a bit of an increase in outer Sydney vacancies to 2.3 per cent according to the REINSW. 

If visuals are more your thing, take a look here where I roamed the suburb of Canterbury to take a look at what a construction boom actually looks like in practice.

See also, Parramatta, Campsie, and Blacktown.

The REINSW figures mirror similar results found by SQM Research which I looked at here.

Sydney apartment rents still increased by 3 per cent last year according to CoreLogic data. 

Remember that there are now tens of thousands of international students in the major capitals these days, potentially making the vacancy rate more seasonal.

The acid test for the Sydney rental market will come in the March figures. 

Jaws off the floor

A better balance

After a record surge in apartment construction, by the end of September the number of attached dwellings commenced in Queensland was into an 18-month decline. 

This has been Queensland's largest ever apartment construction boom, surpassing even the post-recession surge of the 1990s. 

Housing starts have now clearly switched over to detached houses in the Sunshine State, as shown in the latest available figures released last week. 

At the peak of the construction boom Queensland was commencing a new dwelling for every extra 1.2 persons in the state, as population growth slowed after the resources boom.

On an annual basis that ratio has now returned to a more sustainable 2:1. 

Population growth is now accelerating in Queensland, and indeed the population figures lag the reality somewhat, as I looked at in a bit more detail as it relates to the new apartment sector here. 

How to beat negativity bias

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Business borrow again as economy picks up

Lending up

There was a tidy +9.5 per cent rise in Lending Finance in November 2017 to $74.3 billion. 

This was the biggest monthly gain in several years, and a 12-month high for total lending. 

Businesses are borrowing again, which is good to see, with a +14.7 per cent monthly increase in commercial finance commitments. 

Personal lending has been trending moderately higher for the past 7 months.

Meanwhile, there's clearly been a shift from investors to owner-occupiers in the housing market.

And finally, loans to buy blocks of land soared to a record high of more than $8 billion in the month of November.

Victoria's population surge is clearly in evidence here.

The wrap

This is the latest in what is now proving to become a steady stream of stronger data releases.

Just look at what we've seen in only the past few weeks alone:

-record employment growth in 2017 of +404,000 (& a surge in the participation rate)

-record high jobs vacancies of 210,800 - easily the highest ever figure 

-record high value of building approved - a massive pipeline of commercial, infrastructure, and residential building in the pipeline

-strong housing finance - with a +60 per cent surge in first homebuyers since July, and a swing away from investors 

-a surprise surge in retail trade to the highest monthly result to date in terms of retail turnover (I'm not bullish on the retail sector generally, however)

-consumer confidence soaring to the highest level since 2013 - with strength on more than one survey now in evidence 

-record household wealth of nearly $10 trillion making Australia the world's second wealthiest households

-the end of the resources capex downturn after half a decade of drag

-a projected fall in the Budget deficit, not before time

-record high immigration into Sydney & Melbourne - granted not everyone is keen on this, but it does show just how sold jobs growth has been in the two major capital cities

-a record year for new motor vehicle sales (though the closure of auto production in Australia)

-a record high for land sales

-falling mortgage arrears

-tourism and education exports booming

And that's just for starters, with other surveys clearly pointing to the economy having turned a corner, which is a relief after a sparse few years. 

Strangely, some commentators are trying to systematically talk down every single one of the recent improvements in economic data.

This normally happens when people are trying to shoehorn the narrative to fit or justify an earlier forecast (much better to admit it when news surprises and move on), or to flog you something.

Either way, it's been a happy new year for the government and Reserve Bank. Next stop, wages growth, but probably not until late in the year!

Free podcast

Wow, weren't podcasts a growth industry in 2017?

Here's one worth listening to - in fact it's already become one of the most popular podcasts out there - Michael Yardney shares decades of wisdom on money, investing, and wealth.

Nice to hear a bit from Louise Bedford as well, I've watched her speak for the past three years in a row and always learn something new. 

Better still it comes with free resources and links (click on the image below).

Great stuff! Sign up for the free Property Update newsletter while you're there as well. 

NSW jobs growth on steroids

Records blown up

Wow, another big beat for employment, increasing +37,700 to a fresh high of 12,440,800. 

That makes 2017 the biggest year on record for employment growth at +403,700, with the survey recording 15 consecutive monthly gains for the first time in four decades. 

Better still, ¾ of the growth was in full-time jobs. 

Annual employment growth was the biggest ever for a calendar year, then, while in percentage terms the growth rate just rounded down to +3.3 per cent, absolutely miles above the 20-year average of +1.9 per cent. 

Female participation rose to the highest level on record, while the participation rate snapped higher to 65.7 per cent, the highest since March 2011. 

The trend unemployment rate was 5.44 per cent, the lowest since January 2013.

A terrific set of numbers, it must be said, with the Coalition now having overseen employment growth of +956,500 since coming into office. 

NSW on steroids

Queensland may see its monster employment growth rate of +4.6 per cent ease back in the coming months as a strong print or two washes through the annual data. 

Meanwhile, New South Wales employment growth has followed jobs vacancies as anticipated to create a stunning +139,700 jobs in a year, including an outrageous +150,600 since February alone!

It's pleasing to see Western Australia creating jobs again too. 

The trend unemployment rate in New South Wales continues to drop towards record lows, now at just 4.67 per cent. 

Note how things are quietly improving in South Australia too, with the unemployment rate now below 6 per cent. 

Last but not least, the trend in hours worked notched +3.6 per cent growth over the calendar year. 

The wrap

Overall, this was another great result, especially for New South Wales. 

Wages growth will start to pick up eventually, but experience overseas suggests that could take a while yet. 

5 steps to tackling loss aversion

Fear of loss is rational to a point, but it can also outweigh the will to win.

See my article here for how you can overcome it (or click the image below).

The dwelling supply (in 3 short parts)

Part 1- Starts & completions

One of the most misunderstood of all data releases is that of building activity, so let's see if I can shed at least a shard of light upon it, in three short parts. 

Firstly, then, the number of housing starts held firm at just under 55,000 in the September quarter.

There are still attached dwellings being kicked off aplenty, but there's been a quietly subtle shift towards more townhomes and fewer high-rise apartments lately, which is a positive move.

By the end of September the feared glut of completions still hadn't really arrived in full, and in fact the number of completions had been gently sliding for several quarters.

The obvious reason for this is the huge number of units in the pipeline, for on average apartment or multi-unit projects take longer to build than houses. 

Part 2 - Record pipeline

At the end of September 2017, there were still just under 220,000 dwellings under construction, including around 152,000 attached dwellings, which is still extremely high. 

A glut of completions likely began to hit the Sydney market in the final quarter of the year, so a spike in vacancies might be expected. Elsewhere, developers are steadily chewing their way through the pipeline. 

Sydney is seeing fewer houses built this cycle, but even so across the state there were more than 87,000 dwellings under construction at the end of September, comfortably the highest on record for any state. 

Including all commercial construction the building pipeline in Australia has never been higher, approaching a thunderous $90 billion! 

Part 3 - Brisbane units rebalancing

Finally the Brisbane apartment market continues to rebalance itself, with new starts slowing to a crawl. 

The trend figures present in a somewhat generous fashion here, with the original data series confirming that new starts would be a rarity by the end of the calendar year. 

Queensland also had a record high 5,678 dwellings in purgatory - being approved but not yet commenced - with quite a number of inner city apartment projects evidently stalled or mothballed. 

The wrap

Overall, expect to see Brisbane's apartment market swinging back towards equilibrium in 2018 as migration picks up from interstate and overseas. 

In Sydney, apartment completions will be running extremely high in 2018, so opportunities will present themselves for renters to snare a few bargains.

Finally, construction employment looks set to hold at or around record highs this year, both in absolute terms, and as a percentage of the workforce, with the building pipeline tracking at phenomenally high levels.