How to be COVID-productive

Lockdown productivity

A few weekend thoughts here (or click on the image below):

Have a great weekend!

Dwelling approvals at 8-year low

Approvals slide continues

Private dwelling approvals continued to decline to the lowest level in 8 years at just 12,213 in seasonally adjusted terms in June. 

Unit approvals were down 31 per cent year-on-year at just 3,782 for the private sector, with what little strength there is remaining only in Greater Melbourne (itself now an oversupplied sub-sector). 

New houses are expected to see a bounce in the second half of 2020, driven by government stimulus, and Melbourne was leading the way here too. 

Unfortunately Melbourne saw a fresh high in new COVID-19 cases today, which will prolong the recession in the state of Victoria and stymie the recovery. 

Total building approvals across all sectors declined to the lowest level since the beginning of the last cycle, back in 2012. 

Annual building approvals have declined from a peak of 233,000 to around 170,000.

New supply will now largely be driven by stimulus packages, with first homebuyers stepping into the market. 

Screwball scramble

Deposit scheme scramble

As REA Group, correctly anticipated, first homeuyer numbers are getting set to rip higher.

The Australian reports today that well over 4,000 of the 10,000 places made available for the First Home Loan Deposit Scheme (FHLDS) effective 1 July have been reserved in less than four weeks. 

The federal government is therefore considering extending the scheme reports the article:

The FHLDS potentially allows thousands of first homebuyers to buy using only a 5 per cent deposit. 

With all of the other grants and stamp duty exemptions being thrown in around the country, it's no surprise that first homebuyers are taking advantage of the lowest mortgage rates in history to take the plunge. 

New houses have been particularly popular for FHLDS applicants...more so than apartments and townhomes.  

First homebuyer numbers had slowed in May, but now look set to retake decade highs.

Meanwhile the New South Wales government looks set to have another crack at Build to Rent by offering land tax discounts.

It's an overrated and misunderstood concept which rarely seems to work well, as I discussed here last year. 

Inflation turns negative

Deflation arrives

Yet another inflation target miss was recorded for the June quarter.

Nothing too earth-shattering there - the target has consistently been missed for years - but this one was a real corker, with headline inflation down by -1.9 per cent in the June 2020 quarter.

And now the annual inflation rate has also turned negative, which a true rarity.

Stated the ABS:

'Since 1949, this was only the third time annual inflation has been negative. 

The previous times were in 1962 and 1997-98.'

Underlying inflation was pretty flat for the quarter.

Grattan recently produced a fairly damning indexed chart showing how inflation would've tracked higher had the target been hit over the past five years versus the actuals, a period through which there's been a persistent output gap, weak wages growth, and oodles of spare labour force capacity. 

We're still getting no closer to the inflation target then. 

The main contributors to the weakness over the quarter included declining childcare and fuel prices.

The CBD rental markets were hit with a swathe of Airbnb and student rentals in the June quarter, and the rental price index also turned negative year-on-year...for the first time ever. 

There will be something of a bounce in Q3 in some categories, and truthfully there weren't too many surprises here, but overall there's a long way to go before things recover.

Detailed report as always from from James Foster here.

Caveat emptor for first homebuyers

First homebuyer blitz

All of the indicators suggest that there's going to be a huge surge in the purchase of vacant land, and new build house and land packages, spurred on by the various stimulus measures. 

I had a chat with Nadine Blayney and Scutty on ausbiz TV about the first homebuyer stimulus and how buyers need to take extra care and undertake thorough due diligence when buying new properties.

This is especially so since the extra purchasing power delivered by grants is often being passed through to higher prices by developers.

As such, we're rolling out a first homebuyer special buyer's agency service from August 1, at a very affordable price point, to guide first-timers through that maze.

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

Jobs recovery faltering

Payrolls slump

The new weekly payrolls data series tends see upwards revisions over time.

However, today's figures suggest that the bounce in jobs has been faltering.

Source: James Foster

Victoria bore the brunt of the decline following the state's lockdown.

But actually everywhere looks to have lost some momentum, with the possible exception of Western Australia, so the employment figures for July could well be flat or negative. 

Source: James Foster

Financial markets seem dubious about how well policy will bring the economy back up to speed.

And consumer confidence fell for a 5th consecutive week, declining by -1.9 per cent.

Source: ANZ

More support needed, by the looks of it.

As always, more terrific insights from James Foster you'll find in due course here (and on the Twitter @JFosterFM). 

Victoria stalls

Job downturn

A troubling chart below for Melbourne, as Victoria posted a daily high of a net 515 new cases of COVID-19 today, despite the state's ongoing lockdown.

While the rest of Australia is seeing a consistent rebound in economic activity and job postings, Victoria is now retracing.

Chart of job posting in Victoria and ex-Victoria via Callam Pickering, Chief Economist at Indeed:

New South Wales reported 17 new cases of a net basis, but 8 of these were returned travellers in quarantine, and only 2 confirmed cases of community transmission were found.

It was great to see donuts and zeroes everywhere else. 

Fingers crossed for better news out of Melbourne as the week rolls on. 

Epidemiologists believe that Melbourne's actual spread of the virus may have peaked, despite the higher daily figures. 

Let's seriously hope that they're right!

Funding costs at historical lows

Central bank blitz

Central banks across the globe have been expanding their balance sheets again, at speed this year:

An interesting graph from the Reserve Bank of Australia today shows funding costs at historical lows.

Banks have also benefited from an influx of low-cost deposits, and this should be reflected in some very attractive mortgage rates this year.

Stamp holiday

The NSW State Government today announced a stamp duty holiday for first homebuyers buying new property up to the value of $800,000.

There will also be an exemption on vacant land up to $400,000, which phases out at $500,000, while the existing grant remains in place.

The $10,000 first homebuyer grant remains available for purchases up to $600,000 for a new first home (or $750,000 for new house and land deals).

This announcement will support the Sydney and NSW housing markets from the bottom up.

---

The Victorian government is expected to announce more than 500 cases of COVID-19 in the state today for the first time.

While sales listings have largely behaved themselves, there are more than 3,300 properties listed as available for rent in Melbourne's CBD, and more than 800 in Melbourne's Docklands. 

  

AFIC revenue and profit down 40%

AFI reports

The AFIC Annual Report is worth a read.

Revenue and profit took a big knock, both falling by more than 40 per cent:

Source: ASX

And there was a stark warning about prevailing stock market valuations.

Source: ASX

AFIC will maintain its final dividend, at 14 cents per share.

Summary: perhaps a tad frothy since March.

Podcast Episode #16: What the luck?

Podcast Episode #16

Tune in to Episode #16 of our Low Rates High Returns podcast series here, where we discuss skill versus luck in investing.

Click here (or click on the image below). 

You can order a copy of our new book here, and download a free chapter here.

More early reviews of the book have shown that readers love taking the free personality assessment, for building a personalised investment map. 

You can check out our full podcast series at Apple podcasts, or you can tune in at Soundcloud, Stitcher, or Spotify.

Don't forget to leave us a friendly review, as it helps us to get the word out. 

Thanks kindly :o)

Podcast Episode #16 preview: Skill versus luck

Podcast preview

This week on the Low Rates High Returns podcast we discuss skill versus luck.

The episode will be released on Monday morning, but here's a sneak audiogram preview:

You can order a copy of our new book here, and download a free chapter here.

Early reviews of the book include that it is 'gripping'. 

You can check out our full podcast series at Apple podcasts, or you can tune in at Soundcloud, Stitcher, or Spotify.

Don't forget to leave us a friendly review, as it helps us to get the word out. 

Thanks a million! :-)

Trend in new cases to roll over

Cases to peak?

Australia has rattled through a thunderous 208,000 COVID-19 tests over the past 72 hours of reported data. 

With Melbourne firmly in lockdown hopefully the trend in new cases will roll over this week and begin to decline.

New South Wales is holding the line with just 15 cases today and only a handful of small clusters, while there are still few cases elsewhere. 

Australia has a total of 4,150 active cases of the Coronavirus, well over 90 per cent of which are located in Victoria.

Preliminary auction clearance rates in Melbourne were very subdued again this weekend at just 45 per cent and with only 196 properties reported as sold and tight social distancing rules making selling at auction logistically very challenging. 

Since April Melbourne's home values have declined by 3½ per cent according to a couple of the major data providers.

Chris Joye of Coolabah Capital forecasts that nationally prices will decline by no more than 5 per cent, before resuming a boom.

There's a recent update here at LiveWire markets.

Weekend reads...and podcast

Must see articles

This weekend at Property Update, a look at Melbourne's housing prices, which dropped 3½ per cent in the June quarter.

A continued such pace of decline will cruel any fading hope of a V-shaped recovery for the economy, so there may well be further incentives to transact in the post (a stamp duty reform or holiday being one of the more obvious routes). 

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

You can check out and subscribe for the free Yardney podcast here, where I was one of the guests this week.

Have a good one!

Yields continue to fall

Record low rates

Remember two years ago when steepling interest rates and funding costs were apparently going to crash the housing market?

Well, four weeks ago we saw the US 5 year bond yield touching a record low of 0.29 per cent.

And we've crashed through that level just now to fresh all-time lows. 

UK 5-year gilts have fallen into negative territory this year for the first time ever.

The RBA noted this week that the Aussie government can borrow for 5 years for 0.4 per cent, and for 10 years at 0.9 per cent.

Source: RBA

These are the lowest borrowing costs since Federation, Lowe noted.

1-handle for mortgage rates

Property Observer recently reported Australia's first fixed rate mortgage with a 1-handle at 1.99 per cent.

As ever, consumers need to be careful to watch our for the bait and switch shag-u-later fixed rate products (apologies for the course language, but I don't know what else people call them). 

Today the AFR reported the first variable rate mortgage of at 1.99 per cent, but also cautioned to be wary of comparison rates. 

The price of credit is not an issue, more so how much of it is being accessed and by whom.

The volume of mortgage refinancing has soared through the roof, but this has had the effect of rather clogging up the flow of credit to new buyers. 

New paradigm

Budget blowout

The mother of all Budget blowouts was confirmed by Treasury today, with a record expected deficit of $185 billion for 2021. 

The unemployment rate is expected to peak at around 9.25 per cent this year, before steadily recovering in 2021. 

Just in case anyone still believes that debt and deficits necessarily lead to higher yields, the UK public debt exceeded 100 per cent of GDP this year for the first time since 1963, yet the 5-year gilt actually turned negative in May for the first time ever. 

Britain's government sold its first bond with negative yields at auction. 

Why wouldn't the UK government borrow like crazy and build infrastructure (or even bridges to nowhere) when they've been able borrow at negative interest rates?

This paradigm is challenging much of what was previously thought to be understood about economics. 

Still, it's supply and demand as they say.

Australia borrowed for a decade at 0.83 per cent today, with a single investor hoovering up the full line. 

Source:  Austrlaian Treasury

In other news, there's been a rapid shift to deflation this year.

There are plenty of one-offs to account for, but it's still very weak momentum, with Westpac's Justin Smirk explaining a significantly negative result in Q2. 

Source: Justin Smirk, Westpac

Yet another inflation target miss...will the RBA drop the 3-year target yield down to 0.10 per cent?

Melbourne mobility poleaxed

Virus spreads

Today was Melbourne's darkest day, with 484 new cases of the Coronavirus recorded in Victoria.

Victoria now has more than 3,400 active cases, 40 of which are in ICU.

Thus the once-flat curve in Australia is no longer flat.

While the rest of the country is opening up, Melbourne is now shutting down, reflected in July's mobility data. 

Job ads were up 26 per cent in June to 118,3000 per the LMIP data series, albeit they were still down -31 per cent from a year earlier. 

Source: LMIP

At the state level, Western Australia is tracking well year-on-year, but the most heavily populated states are well down year-on-year, despite the rebound in June. 

Melbourne is now facing down a long stretch in lockdown, unfortunately, and this almost certainly means more disruption and more stimulus for longer.