Loan deferrals plunge in October

Loan deferrals normalising

As previously inferred by major bank disclosures, Housing loan deferrals fell from 7 per cent to 3.9 per cent in October, and overall deferrals are now well down from 10 per cent.

This suggests that by today at the end of November the figure will now be relatively much lower. 

Source: APRA

A further $100 billion of deferrals were exited or expired, with only $12 billion extended in October. 

There's still a bit of a way to go in the state of Victoria, and tourism operators will likely remain in strife until the international borders are reopened. 

But overall the systemic risk should largely have dissipated by the end of next quarter. 

Westpac's housing pulse showed the fastest rebound on record for New South Wales over the past three months. 

Source: Westpac

A remarkable effort, all things considered.

Credit growth in the doldrums

Money printer goes #Brr

Another fairly desperate month for credit growth, with zero increase recorded in the month of October. 

Business credit growth was negative (again), and so was personal credit growth (again).

Overall, annual credit growth in the Australian economy slowed to +1.8 per cent, a new 10-year low.

Broad money growth continued to rise to decade highs at +12.1 per cent over the year, as policy kicks into gear. 

The RBA has previously reported how additional savings and superannuation withdrawals have been used to bolster mortgage offset accounts and/or to pay down home loan principal directly.

New housing lending has been strong though, and despite the surge in repayments housing credit growth increased steadily to a 15-month high in October.

There's been a bit of poppycock talked about whether macroprudential policy should look to slow credit growth (from 1.8 per cent...lol), but the housing rebound is being driven by homebuyers not investors, and should ideally be allowed to run for as long as possible. 

The household debt to income ratio is now down to about 1.8x, and moreover mortgage offset accounts are awash with new balances, so there's no point driving around with one foot on the accelerator and the other on the brake when mortgage serviceability is at its most comfortable level in nearly 20 years.

Feeding the housing credit growth numbers into a credit impulse indicator suggests that the orderly housing price downturn ended about six weeks ago. 

Indeed housing prices increased +0.2 per cent in October and +0.6 per cent in November, to be higher than a year ago. 

That's not a stimulus...

European vaccine rollout

As Australia gets back to business I've been following the UK government's inept handling of the Coronavirus with increasingly wide-eyed incredulity.

The cost to date has now been estimated at a mind-boggling £284 billion according to the government's own spending review this week. 

If you were wondering what exactly has been achieved by this interplanetary level of spending (so far), then you wouldn't be Robinson Crusoe there.

With the Brits expected to announce approval of the rollout of a Biontech/Pfizer jab as early as this coming week then the UK's effective lockdown will likely continue through until the new year, accounting for thousands more blameless small businesses.

To add insult to injury the botched and inoperable test-and-trace system has alone cost an absurd £22 billion, single-handedly erasing years of pointless austerity measures.

Britain's public sector net debt will soon be well above 100 per cent of GDP and back to the highest level since the post-war years. 

Higher taxes will doubtless be back on the agenda soon enough to pay for it all, but this time around capital will likely up and leave. 

Just the Brexit debacle to finish off now before the incumbent PM gets ushered out of politics...

Money printer go #Brrr...

It's remarkable how quickly views have changed in respect of quantitative easing and related stimulus. 

Fears of inflationary spirals in the financial crisis aftermath have been replaced the money printers being embraced with joyful abandon. 

Grant Williams of RealVision and TTMYGH rustled up this belter of an infographic this week to compare the scale of the Covid-19 stimulus to that of the 2008 financial crisis. 

With interest rates mired at zero for the foreseeable future capital has been flowing into real estate, stocks, and cryptocurrencies. 

Lucky country

Numerous medical journal studies are now showing how Vitamin D can play an important role in reducing Covid-19 infection.

This might go some of the way to explaining Australia's near elimination of the virus, with zero deaths or cases in ICUs or on ventilators for a long time now. 

Whatever the reasons, it's looking increasingly likely that Australia has dodged another sizeable bullet and will become a remarkably sought-after destination once its international borders are reopened.

Data due to be released this week will show that the Aussie economy began to expand again with output growing by about 3-4 per cent in the third quarter of 2020, with another pumping current account surplus, and housing prices rising by +0.6 per cent in the month of November. 

Weekend reads (extremely high demand)

Must see articles

What a difference a few months make.

Australia could see extremely high demand for housing next year on the rebound...see this week's articles at Property Update here (or click on the image below):

You can subscribe for the free podcast here.

Q4 2020 Risks & Opportunities Report

Risks and Opportunities Q4 2020

Making this quarter's Risks and Opportunities Summary Report available for free here (or click on the image below):

Construction still slowing

Fewer new apartments

The construction work done on new attached dwellings continued to decline in each of the major states in the September 2020 quarter.

Since peaking in 2016 activity in new attached dwellings has now declined by 29 per cent.

Engineering construction also slowed in the September quarter, largely due to the Victorian economy being closed, while activity in New South Wales was also down. 

Notably mining activity in Western Australia finally bottomed out in 2019, and is now trending higher.

Overall construction work done dropped -2.6 per cent in the quarter to $51.2 billion, to be 4.2 per cent lower year-on-year.

There is, however, now a huge amount of property stimulus in the pipeline, so construction and renovations work will likely pick up strongly in 2021, especially for new houses.

More from data guru James Foster here. 

---

Deaths in Australia continue to run below historic minimums, despite the strong population growth seen over the past five years. 

Source: ABS

Deaths from respiratory diseases have been below historic minimums since June 9, according to the ABS. 

Real Estate Talk (negotiating in tight markets)

Negotiation tips

It's a tight market out there - great to be back on Real Estate Talk this week to discuss negotiation tips.

Check it out here (or click on the image below):

---

UK house price growth increased to a 3-year high.

Source: HomeTrack

There have also been solid gains for housing prices in New Zealand and the US, with Australia set to be the next cab off the rank. 

Oil up 33%; stocks ballooning

Oil recovery

The oil price is back to its highest level since March, rising another 4 per cent to $47.91/barrel (Brent crude) today amid lower inventories and further vaccine optimism. 

Energy, arguably the main sector of the US economy demonstrating some semblance of 'value', has been quietly powering higher over the past month. 

US stocks more generally have been absolutely pumped, with price to sales ratios now ascending to even higher levels than the tech bubble peak of 2000. 

That's right, the price to sales ratio (ex-financials) is now at the highest level in stock market history at above 2.7x. 

The Dow Jones index took out a record 30,000 today, to some acclaim and modest fanfare.

Meanwhile, some of the wilder tech stocks out there could drop by two-thirds without troubling too many of the traditional metrics of valuation. 

Yet the US economy will need to face down some serious challenges as there is a changeover of President, with the 7-day average for COVID-19 cases now surpassing 175,000 and, for now at least, still trending higher. 

What. A. Year!

Housing heating up

Leading indicators

Via Scutty on the Twitter.

Lending commitments on the up.

Actually, it's been easy enough to see the increase in activity on the ground and at open homes.

First homebuyers are especially active. 

CoreLogic has recorded a decline of 1 per cent for Sydney and 5 per cent for Melbourne from pre-pandemic levels. 

Source: CoreLogic

Get Invested podcast

Get Invested podcast

Great to be back on the Get Invested podcast with Bushy Martin.

Tune in here (or click on the image below):

The return of positive gearing

Positive gearing

A brief article on the surprising return of positive gearing - even in Australia's capital cities - click here to read (or on the image below):

NAB chucks a U-ey

Forecast U-turn

National Australia Bank was previously forecasting house price declines for five capital cities in 2020, and every capital city in 2021.

But stock levels are very low, and homebuyers are coming back to the market in droves. 

Nek minnit forecasts are for gains across every capital city except for Melbourne in 2020, and gains for every capital city in 2021, and more of the same with accelerating price gains in 2022.

Source: NAB

Huh, them pesky models...

Real Estate Talk: negotiation and more

Real Estate Talk

Great to be back on Real Estate Talk this week.

Tune in here (or click on the image below):

Weekend reads (perfect storm)

Storm brewing

This weekend at Property Update a look at the 'perfect storm' cooking for 2021.

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

You can also subscribe for the free podcast here. 

Have a great weekend! 

Investor webinar

Investor webinar

We ran a webinar last week for sophisticated investors interested in our capital raising.

Register and log in to access here (or click on the image below):

Employment stonks higher

Employment soars in October

Economists had expected employment to fall by 30,000 in October as Victoria's lockdown persisted.

Instead we got a rollicking increase of 178,800 or 1.4 per cent, most of which were full-time jobs.

There was a big leap in participation to 65.8 per cent (a huge beat - economist forecasts were for a flat result here), which is now returning close to record highs and only 0.1 pts lower than a year earlier.

Despite the leap in participation, the unemployment rate has nestled in at 7 per cent, which is far, far better than previously feared. 

How did economists land so far away from the target?

It's hard to say for sure, but the huge rebound in Victorian employment in the month - despite the lockdown persisting through October - was an interesting and totally unexpected result. 

Queensland has added back a stunning 206,000 jobs in only 5 months, to see total employment actually higher than a year ago.

But despite ostensibly adding 82,000 jobs in October, total employment in Victoria is still 124,000 lower than a year earlier.

The wrap

To date 648,000 of the 875,000 jobs lost have been recovered across only five months, so we are already 74 per cent of the way back to employment topping new highs at above 13 million.

Overall, this was a great result, which introduces the exciting possibility of a strong snap-back in the Aussie economy in 2021. 

Lest anyone becomes too excited at this early stage in the recovery, measures of underemployment remain understandably high, and monthly hours worked were still 3.4 per cent lower than a year earlier (largely due to a huge year-on-year decline in Victoria). 

In October the underemployment rate by 1.0 pts to 10.4 per cent, but that's still 1.9 pts higher than a year ago.

Loan deferrals down 70pc

Deferrals easing

At the peak of the pandemic, more than 900,000 of loans were deferred, according to the Australian Banking Association.

The ABA reported that the equivalent figure has now fallen to under 300,000, following further solid progress into the month of November. 

The value of loans deferred by the top seven banks has dropped from around $250 billion to $87 billion.

Source: ABA

That's a decline of about 70 per cent from the pandemic's Antipodean peak.

Borderline y-axis 'chart crimes' aside, this represents further decent move in the right direction. 

Home loan deferrals outstanding have declined by more than two-thirds from the peak, from 496,139 to 145,250, with the remainder somewhat skewed towards loans of Victorian origination. 

Commonwealth Bank's Matt Comyn reported that housing demand has picked up due to record low rates and the potential for positive gearing, while the speed of the economic recovery looks set to surprise pleasantly to the upside for CBA, with GDP forecasts being revised up accordingly. 

Jobs ads continue to rebound as Melbourne reopens

Job advertisement recovery

Job advertisements increased another 9,100 or 6 per cent in October, according to the Department of Employment, and now sit only 2 per cent lower than a year earlier.

Source: LMIP

This represents a serious recovery over the past six months.

New South Wales and Victoria have absorbed the brunt of the border closures when it comes to job advertisements.

Melbourne was especially hard hit by its lockdown, although Victoria started to record a rebound in job ads in October. 

Other states have fared relatively speaking much better, especially Western Australia where job vacancies are 25 per cent higher than a year earlier and at multi-year highs. 

Source: LMIP

There was effectively no wages increase in the September quarter, with the wage price index up just 0.1 per cent for the quarter and 1.4 per cent for the year. 

More on the wages figures from data king James Foster here.