Travel ban pushes global property cycle

Auckland locks down again

Auckland went back into a lockdown for seven days today, after a single positive test for Coronavirus.

Sounds totally proportionate...

Disclosure: I bought some Auckland International Airport (AIA) stock last year, so yes, this is annoying, although travel stocks are mostly looking through this sort of stuff now given the increasingly tremendous results from vaccine trials. 

With international travel - and frequently even internal travel banned - Aussies are looking for places to spend their proverbial stimmy cheques.

And just as we've seen everywhere from North Island to New York to Nottingham, that place is mostly real estate.

You can now add the Northern Beaches, North Melbourne, and New Farm to that list, because Australian housing markets are also flying at the moment, as evidenced in this weekend's preliminary auction results:

Source: Domain

In a forthcoming webinar in a fortnight's time, I'll be interviewing former senior economic advisor to the PM Stephen Koukoulas on why we don't think the buying frenzy will last too long (stay tuned for registration details).

Most often what happens is that more willing sellers come to the market as the year progresses, and things calm down a bit as the buyers are dispersed. 

This too shall pass.

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The UK budget looks set to include an extension to the stamp duty holiday and further support for first homebuyers.

The measures themselves do make a clear difference to market behaviour and at the margin.

But more importantly the government's message is very clear: there will be no declines in housing prices for as long as the travel restrictions continue. 

Credit impulse turns north

Lending lifts

Housing credit growth lifted to +3.6 per cent in January, the strongest level since the last federal election in May 2019. 

The credit impulse turned decisively positive in October last year, and has continued to be a decent indicator of turning points.

The impulse indicator may somewhat understate price growth potential due to the distortion of stimulus payments, early superannuation release, and a massive switch across to principal and interest mortgage products which has pushed down credit growth as loans are repaid.

Investor credit growth once upon a time could run at 25-30 per cent, but for the past 18 months has been negative for the first time in history. 

If you use a magnifying glass you can call it positive in January 2021. 

The little credit growth there is has been driven by construction loans, first homebuyers, and upgraders, so there's no benefit in calling for changes to lending standards - markets will begin to sort themselves out in any case as listings begin to increase. 

The latest wages growth figures will show nominal wages growth at all-time lows, so it's hard to see core inflation sustainably getting back to target for a year or three yet. 

Brisbane guns for Olympics bid!

Internal migration to QLD

The latest construction figures from the ABS showed residential construction picking up, but overall construction activity declined by -1.4 per cent over 2020, with commercial and non-residential construction declining over the year by -4.5 per cent. 

In the residential space higher-density development has weighed heavy, though both approvals and actual construction now appear to have bottomed out in south-east Queensland, where vacancy rates have been tightening as the state benefits from hefty internal migration out of the southern states. 

Olympics hot seat

Yesterday, Brisbane was officially confirmed as the preferred candidate for a 2032 Olympics bid, which would represent a significant boost to south-east Queensland, following on from a somewhat lacklustre Commonwealth Games (most of the events I went to were only sparsely attended).

There are some proverbial hurdles to be cleared yet, but the decision by the IOC's executive board appeared to put Brisbane in pole position.

It remains to be seen if Doha or Budapest launch serious bids to host the 2032 Olympics, but at this stage Queensland looks like a hot favourite. 

Upgrading venues

If the bid was to prove successful then Queensland has plenty of stadia which could be used and/or upgraded, such as Metricon/Carrara (which is only a 25,000-seater), the tired Gabba (42,000 capacity), and my favourite venue Suncorp Stadium at Lang Park (52,500 capacity). 

The obvious choice for a new venue would be a 50,000-seater revamp of the moribund Albion Park Raceway, which would be of benefit to popular adjacent suburbs such as Ascot. 

Nearby Hamilton North Shore would be another obvious beneficiary of funding, while the QEII stadium - the old Queensland Sports and Athletic Centre - in the southern suburbs of the city, could yet see a revival.

One of my earliest television sporting memories was watching the 1982 Commonwealth Games, the winking 'Matilda' kangaroo, and the map logo without Tasmania included, and it would be great to see Brisbane snag the bid.

The state would need to consider significant road and rail upgrades, since Gold Coast and Sunshine Coast would presumably be used as village camps. 

South-east Queensland is already emerging as a leader out of the coronavirus recession, with huge internal migration and housing prices rising, and a successful Olympics bid would secure further confidence and development. 

These are the 6 key financing questions property investors must answer

6 financing questions

With mortgage supremo Stuart Wemyss - tune in here (or click on the image below):

Majors' loan deferrals down 91pc

Repayments resume

Some handy stats via the ABA relating to Australia's 4 major lenders:

And as a graph:

Source: ABA

These figures only run to 31 January, so I expect we'd be well below $20 billion today, based on recent trends. 

Still a way to go, of course, but good progress.

Tips for taking action

5 useful concepts

People aren't very good at sitting still and doing nothing.

We like to keep doing stuff. 

But how do we make taking decisive action work best for us?

For more see here (or click on the image below):

Westpac updates housing forecasts

Housing outlook

20 per cent price gains are forecast for Sydney, Brisbane, and Perth out to 2022, with the other capital cities pretty close behind:

Source: Westpac

This broadly aligns with the forecasts in our recent Risks and Opportunities Report.

Podcast Episode #34: MMT

MMT explained

A controversial subject this week, for something a bit different - MMT.

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

You can listen to the whole podcast series here.

You can tune in to the full podcast series at Soundcloud, Stitcher, or Spotify.

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

You can also order a copy of our book here, and download a free e-book here.

Buffett Indicator moons

Buffett Indicator at 228% of GDP

This is worth a read here (or click on the image below) below and does a pretty good job of articulating why I mostly just can't get excited about stocks right now (thanks to Lord Stuart Wemyss for the Twitter share). 

At 228% of GDP that's way out there, and far above the wildest valuations of the pre-tech wreck mania. 

Sure, things can always moon higher, and recent momentum suggests they will, but it's hard to see anything approaching compelling 10-year returns from here. 

In fact, I ended up buying an investment property last year, as I figured using some leverage will see me probably getting better returns over a 10-year timeframe. 

I could potentially get a bit more interested in global stocks if the S&P 500 falls 30 per cent, though even that would only bring the CAPE ratio back to ~25, which itself is hardly cheap. 

Pass.

Podcast Episode #34: Preview (MMT!)

Podcast preview on MMT

A preview of tomorrow's podcast episode where we discuss MMT:

You can listen to the whole podcast series here.

You can tune in to the full podcast series at Soundcloud, Stitcher, or Spotify.

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

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

The outlook for 2021 and beyond

Markets outlook

I discussed the brightening outlook with Michael Yardney here (or click on the image below):

I've noticed in the Land Registry data that a huge number of Aussies took the opportunity to kill their mortgages outright in 2020, and mortgage serviceability has become so easy, on average, that a boom period for property is a near-certainty.

Shane Oliver showed this week that interest serviceability for households is at the lowest level in about 35 years.

Source: Dr Shane Oliver, AMP

The business case for Airbnb

Airbnb

Today, a look at investing in Airbnb properties here (or click on the image below)

More property markets news here!

Full-time employment booms back

Employment surge continues

Full-time employed surged +59,000 in January, and total employed jumped to 12.94 million.

93 per cent of the jobs lost have now been recovered, and job ads suggest that a record high of 13 million could happen as soon as the first quarter of this year. 

The unemployment rate dropped sharply again to 6.35 per cent. 

Hours worked dropped sharply in January as more Aussies took a well-deserved holiday, but the recovery continues apace!

Here's the detailed analysis with James Foster...right here.

UK house prices rise 8.5pc in 2020 (Brisbane next off the rank)

UK price rise

The stamp duty holiday and ongoing low mortgage rates saw UK house prices rise +8.5 per cent in 2020. 

The average house price moved up to ₤252,000.

Source: ONS

This was the strongest increase in six years. 

Of course mortgage rates were already ultra-cheap in the UK and could barely go any lower than they already were. 

It's a totally different story in Australia, where mortgage rates have plunged at a time when most households are unable to travel overseas, and as such are awash with cash.

This is what leads Dr. Cameron Murray and others to forecast Brisbane housing prices to rise by up to 45 per cent through this cycle.

As I've noted here before, assuming mortgage rates stay low for some time prices could rise by a third without troubling mortgage interest serviceability ratios (though paying back the principle might be a different proposition for some new borrowers). 

With so little interest-only borrowing in Australia now debt to income ratios have been declining lately, setting us up for the next property bull. 

Buffett takes $4bn stake in Chevron, $9bn in Verizon

Buffett backs energy

The energy has sector has had a dismal past six years, and got absolutely monstered in early 2020 as the global recession and the associated drop in demand saw a global oversupply and commodity prices cratering. 

As a result the sector became very cheap (with the US-listed energy ETF plummeting - here is NYSE: XLE crashing from close to $100 in 2014 to just $25 last year), thus offering strong income and growth prospects over the coming decade. 

It came to light today via Berkshire Hathaway filings that Buffett (or possibly the money managers Ted and Todd) took a thumping US$4.1 billion stake in Chevron in late 2020, with a forward dividend yield of above 5 per cent and the oil price now already having partly recovered.

Berkshire also took a massive US$8.6 billion stake in the somewhat beleaguered telco Verizon, following Buffett's traditional model of buying cheap businesses which will compound powerfully over time while the income streams increase.

It's one part of the way in which he compounded returns at 20 per cent per annum from the early 1970s. 

As we've covered in our podcast, for Buffett it's more about the mispricing that chasing growth for its own sake. 

Buffett has said in recent times that you can bet on America, but you need to very careful about how you place those bets. 

This is the antithesis of what most are doing at the moment with everything from crypto to real estate to effectively worthless alternative meat companies being bid up to the moon and traded like Panini stickers. 

Buffett's inference appeared to be that despite the fall last year, many markets weren't necessarily all that cheap, and prices could do almost anything, so bet with caution. 

And markets have seldom been as wild as they are right now, but many fund managers are feeling compelled to chase the gains into gaming companies, Bitcoin, and beyond. 

To say that it's going to be an interesting few years ahead awaiting who comes out on top is an understatement!

Last man standing

Doing a Bradbury

19 years ago today in Salt Lake City...let us all take a short moment to saviour the greatest Australian Olympic achievement of all time:

The version without music is probably been better, I'll never forget the crowd's furious booing.

Never give up! 

Melbourne exodus hit rentals

Melbourne rental market

As previously discussed Sydney rental vacancies have now peaked as international arrivals are now set to increase to 3,000 per week into New South Wales, as confirmed by SQM Research's latest figures.

The Sydney vacancy rate dropped from 3.6 per cent to 3.2 per cent in January. 

In Melbourne, on the other hand, international arrivals have been halted, and another lockdown risks a further CBD exodus.

Melbourne vacancies were still very high at 4.4 per cent, compared to just 2.1 per cent a year ago. 

Elsewhere vacancy rates are tight, especially in Adelaide, which tightened to just 0.7 per cent, and Perth at only 0.8 per cent.

Brisbane's vacancy rate continues to trend lower, down to 1.7 per cent from 2.4 per cent a year ago. 

Melbourne halts arrivals (NSW/QLD increase intake)

Arrivals go to Sydney & QLD

International arrivals into New South Wales and Queensland will double effective today, as New South Wales prepares to accept more than 3,000 arrivals per week.

This should see vacancy rates in Sydney CBD dropping back below 5 per cent. 

All of the above charts are calculated by SQM Research:

Median asking rents have already bounced in Sydney CBD, so perhaps the bottom is already in here. 

Victoria, on the other hand, has gone back into another lockdown.

In Melbourne all international arrivals have been halted, and anecdotally the renewed lockdowns have seen some residents feeling upstate or quickly heading interstate, while many prospective visitors to Melbourne have simply stopped bothering booking flights. 

Vacancy rates did appear to have peaked, but now the lockdown may stall things again.

As noted the other day, CBD rents have already fallen 33 per cent in Melbourne, so there's probably more to come here yet.

Fingers crossed that Melbourne ends its lockdowns soon, though two new coronavirus cases were reported today (only one of which was locally acquired).

Podcast Episode #33: Behavioural or rational?

Podcast: Behavioural economics

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

You can tune in to the full podcast series at Soundcloud, Stitcher, or Spotify.

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

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

Residential Risks & Opportunities Report - February 2021

Risks & Opportunities February 2021

A few surprises in the latest quarterly report - download it for free here (or click on the image below):