Conditions and confidence weaken
The Reserve Bank in Australia is getting plenty of heat at the moment.
While jawboning is part and parcel of the gig, the problem is that markets and casual observers alike increasingly don't appear to believe their upbeat assessments of unemployment falling all the way out until 2020, and inflation drifting back up towards the mid-point of the target.
The latest NAB business surveys showed that trading, profitability, and business conditions have all slipped badly, while consumer confidence readings have also taken a significant dive.
Total housing finance in January - in all fairness, relating to the period before the final Royal Commission report was released - was down more than 20 per cent from a year earlier - the biggest decline since the global financial crisis.
The RBA reckons that's largely due to new dwelling supply, although nobody seems to believe that either.
The investor finance figures are only being held up by a high number of apartment settlements, and the reality is that the supply of credit has been quite severely curtailed.
Markets and economists are increasingly becoming convinced that the cash rate will be cut twice, down to just 1 per cent, with little assistance coming from fiscal stimulus.
Residential construction - death throes
The RBA reckons that's largely due to new dwelling supply, although nobody seems to believe that either.
The investor finance figures are only being held up by a high number of apartment settlements, and the reality is that the supply of credit has been quite severely curtailed.
Markets and economists are increasingly becoming convinced that the cash rate will be cut twice, down to just 1 per cent, with little assistance coming from fiscal stimulus.
Residential construction - death throes
Part of the reason for the apparent disconnect is that construction activity and therefore employment for the time being is still running at high levels, and unemployment rates in Sydney and Melbourne are accordingly close to record lows.
Interesting modelling from the RBA this week showed how even the greatest ever residential building boom (green line) has by and large been comfortably absorbed by household formation, and rental vacancy rates have actually eased on a national basis (although there are some localised gluts).
Interesting modelling from the RBA this week showed how even the greatest ever residential building boom (green line) has by and large been comfortably absorbed by household formation, and rental vacancy rates have actually eased on a national basis (although there are some localised gluts).
Source: RBA
Looking forward, though, the apartment construction pipeline is shrinking at quite an alarming speed.
SQM Research released its February 2019 figures, which showed the national rental vacancy rate at 2.2 per cent, steady from a year earlier, despite record apartment completions.
Source: SQM Research
SQM reported Sydney rental vacancies steady month-on-month at about 22,400, or 3.2 per cent.
Sydney still has plenty of apartment completions to be chewed through this year, due to the record number of off-the-plan purchases through this cycle.
Elsewhere vacancies are generally tighter, and Perth is now swinging back into balance after a few years in the wilderness for landlords in WA.
Brisbane has diligently worked through the worst of its high-rise overbuilding, and is now steadily tightening.
Hobart remains extremely tight, and seasonal Melbourne looks likely to me to join Canberra and Adelaide in the 'tight' bracket relatively soon.
Brisbane has diligently worked through the worst of its high-rise overbuilding, and is now steadily tightening.
Hobart remains extremely tight, and seasonal Melbourne looks likely to me to join Canberra and Adelaide in the 'tight' bracket relatively soon.
Make no mistake, Labor's planned policies to install a two-tier system for the way new and established housing is taxed will be an unmitigated disaster, and will see the new supply of rentals crunched.
Who's going to buy a new apartment when it's instantly worth less than you paid for it at settlement?
Pass the popcorn.
