Homebuyer grants across the board

Housing stimulus coming

Video via Sky News:

Cameron Kusher of REA Group noted:

SQM's Asking Price Index shows an increase over the past quarter for houses (+1.6 per cent) and units (+0.6 per cent), so there's not been a great deal of change in initial vendor expectations.

Source: SQM Research

This is what will change after COVID-19

Lasting changes

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

US forward PEs highest since the tech bubble

Forward PEs soar

An interesting look at the S&P 500 forward PE, which now exceeds 24x for the first time since the tech bubble in 2000. 

The Russell 2000 is trading at a forward PE of more than 50x, which is pretty much akin to a bubble by any other name.

The counter-argument (Sumner et al) is that bubbles aren't a real thing and this more likely reflects a permanent fall in real interest rates. 

There might be something in that.

And 2021 earnings may rebound, which could put the S&P's PE ratio closer to the normal range. 

And perhaps the dominance of big tech firms is seeing a shift from labour to capital, which might see US stocks hold up better than expected. 

On the other hand don't forget Shiller's point about the CAPE ratio having a strong correlation with 10-year expected returns (which from this point offer a poor risk/reward ratio). 

This is why your MVP matters

Minimum viable product

This is why your MVP matters (or click on the image below):

Iron ore to the moon (Brazil pandemic)

Brazil pandemic

Alarming reports out of Brazil, with more than 26,000 new cases of COVID-19 reported in a single day.

These horrendous figures include a severe cluster down at Vale's Itabira project on Minas Gerais in Brazil. 

This means supply disruption for iron ore at a time when China is beginning to build up a storm.

Iron ore is soared above $100/tonne for the first time since the first week of August 2019.

This is big news for Fortescue Metals Group (ASX: FMG), and for Australia more broadly.

There's still even a slim or outside chance that Australia avoids a technical recession by reporting a flat result for Q1 GDP next week, in no small part thanks to the volume of iron ore exports. 

Weekend reads

Must see articles

This weekend at Property Update a look at the first home buyer stimulus and what's happening to property prices through COVID-19.

Click here to read (or on the image below):

You can access the free Yardney podcast here.

Podcast Episode #8 preview: The magic of rebalancing

The magic of rebalancing

A sneak preview of Episode #8 of of our Low Rates High Returns podcast series where we'll discuss the magic of rebalancing:

Episode #8 will be released on Monday morning.

You can listen to the earlier episodes here, or you can also tune in at Soundcloud, Stitcher, or Spotify.

Don't forget to leave us a nice review 😀

Have a great weekend! 

Why Buffett isn't buying America

Time to buy America?

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

A dearth of stock

Listings way down

Via Tim Boyle and CoreLogic, listings are now tracking some -26 per cent lower than a year earlier.

Sydney listings are down to just 19,132, while real estate selling agents in all of the capitals are facing a similar predicament: 

Source: Tim Boyle/CoreLogic

It's very hard for prices to fall meaningfully when there's so little stock to fight over. 

For example, 38 registered this week to participate at this online auction in Melbourne for a huge result, via Cate Bakos:

Source: Cate Bakos Property

CoreLogic has stopped reporting its daily housing price index 10 days or so ago as volumes are so low and thus volatility is higher. 

There may be some declines reported for Melbourne for the month of May, giving back some of the double-digit gains since last year's election surprise. 

But overall it's the cobweb effect all over again.

Learn the rules to win the game

Learn the rules

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Buyer demand up 88pc in England

Demand rips

The latest Hometrack report is here for April 2020, and it's reporting a spike of +88 per cent in homebuyer demand in England.

Demand now exceeds pre-lockdown levels, driven by the cities which opened earliest:

Source: Hometrack

Downed tools (construction/housing stimulus coming)

Stimulus package in the post

Construction is one sector which has continued to operate to some extent through the shutdown.

Even so, by the end of March apartment building work done was way down from the peaks, especially in Sydney and south-east Queensland. 

Activity in Melbourne peaked much later, driven forth by the state's monstrous population growth.

Activity for the building of attached dwellings was at the lowest level in 19 quarters in the March quarter, with further declines to come in Q2. 

Overall residential work done, including detached housing, fell very sharply by -13 per cent from a year earlier.

Engineering construction has also fallen by -5 per cent from a year earlier as the pipeline of public works has faded a little. 

Stimulus coming

The construction industry is one of Australia's largest employers but total construction work done had sagged in Q1 to $49 billion, from $56 billion only two years earlier (and $66 billion at the peak of the boom).

Construction was also going to decline, from bubble heights, as I discussed in a full report here.

But unless rescued the declines are going to be even more severe than expected. 

Expect the government to throw an enormous multi-billion-dollar stimulus package to encourage homebuyers to buy and build from H2 2020, while the push to open the borders will likely reach fever pitch before the end of the next quarter. 

Europe is pulling through

Social distancing

Signs of improvement in new cases of and deaths from COVID-19 across Europe after a brutal few months.

In the old mother country deaths are finally trending down towards low levels:

New cases en France:

...und in Deutschland.

Ireland:

Italia:

España...

Portugal:

Source: Worldometers

Heartening to see.

Borders are now reopening across Europe.

Confidence up for 8th consecutive week

Curve remains flat

Very few cases of COVID-19 in Australia, with a handful of cases returning from overseas and headed to quarantine. 

Recoveries continue to comfortably outstrip new cases.

And, importantly, we're consistently seeing zero deaths reported on a daily basis, with few serious cases even going as far as ICU. 

There are 5 cases remaining in ICU nationally, against the expanded capacity of 7,500 beds.

Confidence returning

Consumer confidence increased for an 8th consecutive week, up by +0.4 per cent to a reading of 92.7 points according to ANZ-Roy Morgan.

Future financial conditions gained by +3.2 per cent and is approaching its long term average reading.

Source: ANZ-Roy Morgan

Credit card usage data shows that Aussies are willing and able to spend again, but realistically travel restrictions needs to be eased before the economy can begin to fire up properly.

3 ways the rules of money just changed

New rules in 2020

Here's what's changed (or click on the image below):

People are out renting again

Renters return

There have been plenty of signs that folks are starting to search for places to rent and signing rental agreements again following the shutdown.

Rental searches online are now rising solidly again according the REA Group's figures.

Interestingly (for me anyway) I had an inner-west Sydney apartment due for lease renewal last week, and there was plenty of interest as soon as we listed it. 

We had two applications immediately and accepted one within a couple of days of listing. 

We did, however, agree to a $20/week rental reduction to get it rented for the next 12 months...just to get us across to 'the other side' of the COVID-19 crisis.

In the meantime, it's Aussie staycations ftw!

Rental listings in decline

SQM Research's Louis Christopher showed today that the number of rental listings is now in decline.

The peak number of rental listings was 105,517 as at May 1, which makes sense given how the timings of the COVID-19 restrictions have played out. 

Listings are still higher than we'd normally expect to see for the month of May; but now things have been trending lower again for the past four weeks.

At the beginning of May rental listings were 16 per cent higher than a year earlier.

But now the year-on-year gap has closed to just 9 per cent, and I expect the declines will now continue as confidence and market activity gradually returns. 

Source: SQM Research

Here are the same numbers plotted out by week on a graph:

I still believe there will be pain in the post for student lets, Airbnb rentals, and some commercial property types, especially office and retail, but the residential rentals markets is quietly rumbling back to life.

Podcast Episode #7: This is how you should think about diversification

Podcast episode #7

Check out Episode #7 of our Low Rates High Returns podcast series where we show why the traditional view of diversification is flawed. 

Tune in here to listen at Apple i-Tunes (or click on the image below):

You can also tune in at Soundcloud, Stitcher, or Spotify.

Don't forget to leave us a friendly online review to help us get the word out 😀

You can listen back to Episodes 1 to 5 here.