Consumers clear personal debts

Paying off debt

Personal credit growth was extremely low over the year to March 2021, at -11.7 per cent, as consumers took advantage of stimulus payments and record low interest rates to clear debts.

Credit growth across the economy slumped to an extremely low level at just 1 per cent year-on-year. 

Annual credit growth has only been lower than that once since the early 1990s recession, during the financial crisis in November 2009. 

There was, however, further confirmation that first homebuyers and upgraders are taking advantage of record low mortgage rates to buy property, as monthly housing credit growth increased to 0.54 per cent in March, the highest level since June 2017. 

Annual housing credit growth thus increased from 3.8 per cent to 4.1 per cent.

There was a lot of permabear analysis of daily home values when prices were falling, but that seems to have dried up now.

The bigger picture is that the pulse of housing credit suggests that annual housing price growth will likely accelerate to double-digit levels by around the middle of the year, before probably calming down in the second half of the year as supply responds. 

Investors are now returning to the market, but the growth in investor credit remains near record lows as more interest-only loans continue to reset and the stock of IO loans continues to diminish. 

Overall, very, very low credit growth across the economy at just 1 per cent, but in my opinion a strong three years likely lies ahead for housing prices. 

Lowflation continues again, again...

Inflation slumps again

No need to agonise too much over these figures.

All the warnings of a spike in inflation in the March quarter pretty much came to nought.

Headline inflation came in at just 1.1 per cent over the year to March, well below market expectations.

Trimmed mean inflation slowed to record low at just 1.09 per cent, and the weighted median CPI also slowed slightly to just 1.29 per cent.

Underlying inflation has been running under the 2-3 per cent target since all the way back in 2015.

Non-tradables inflation, a proxy for domestic inflationary price pressures, came in at an underwhelming 0.2 per cent for the quarter. 

And rental price growth was at a record low -1.4 per cent over the year to March.

The wrap

Overall there was a bit of inflation from petrol prices and Medicare in the March quarter, and alcohol and tobacco recorded relatively high inflation over the year...but there was not a whole lot else to speak of. 

There will presumably be some stimulus-related spikes and some base effects over the next couple of quarters, but overall there are few inflationary pressures in evidence here. 

In fact core measures of inflation are still running at record lows, so there's nothing here to suggest that interest rates won't be on hold until 2024. 

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More detailed analysis from James Foster here.

Rental increases at 14-year high

Rents now rising fast

CoreLogic reported rental price growth increasing to a 14-year high in the first quarter of 2020.

Despite the relative softness in Sydney and Melbourne, rents have increased strongly across most markets over the past quarter and year.

There have been some significant increases in rents in markets such as Darwin, Perth, and Hobart, as well as many regional markets (Noosa has certainly been going a bit crazy, and I imagine other coastal markets such as some parts of the Mornington Peninsula would be the same).

More from Recon Daily here (or click on the image below):

Source: CoreLogic

There are some implications here for the inflation outlook, although overall inflation over the year is still expected to be soft and well below the target range. 

Beautiful one day, chockers the next

The place to be...

Over the year to June 2020, Brisbane saw a net gain from internal migration of 13,780 people.

With the lockdowns in Victoria and elsewhere this has most likely accelerated in FY 2021, as is evident is plunging rental vacancies and worsening traffic queues.

Sydney has always lost residents interstate to south-east Queensland, but it's notable that Melbourne is now longer drawing in residents from interstate (as it was for a while). 

Source: Australian Bureau of Statistics

The other major gainers included Gold Coast (+6,700), Sunshine Coast (+6,200), Moreton Bay (+3,800), and Ipswich (+3,600) were the other major gainers in FY 2020, and there's no doubt in mind that this trend picked up momentum in the second half of 2020, as more people opted for lifestyle and remote work. 

From Noosa to the Tweed, south-east Queensland is a hot place to be at the moment, and the rental markets have been tightening apace. 

Also popular for internal migrants looking to move away from density, was the coastal Victorian city of Geelong (+5,000). 

Warren Buffett mini-series #7: What can we learn from Warren Buffett?

Buffett series: final episode

In the final episode of our podcast mini-series, we discuss whether we can all be more like Buffett.

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

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You can download our new e-book here.

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.  

Off the boil a little

Auctions calming

Auction markets are still running strong.

But perhaps now with a bit less vim and vigour than in the first quarter of the year, as more properties are listed.

Preliminary results are below via Domain, and these clearance rates will be revised down later.

This is the first time I've seen units at above $1m for Sydney.

Source: Domain

Brisbane's rental vacancies fell to the lowest level since 2012 last month as more wise folks take the south-east Queensland option.

Another snap lockdown for Western Australia will do little to hurt that trend. 

Property boom now calming

Cooling off

Interesting update from Tim Lawless of CoreLogic confirming that the property boom is calming down.

Prices are still rising, but at a less furious pace now, across all of the main capital cities. 

There are also now finally more listings coming on to the market.

Furthermore, there's a detached housing building boom underway, at a time when there's very low population growth. 

The immutable laws of supply and demand are doing their thing.

Analysts also expect the housing booms in the U.S. and the UK to slow in H2 2021. 

Ripper stuff from Tim L as always.

The mathematical power of gearing

Low fixed rates

Stuart Wemyss of ProSolution looks at the low fixed mortgage rates on offer and what investors might look to do with this unique situation.

Investors can lock in fixed mortgage rates from 2.69 per cent on interest-only terms.

Read the article here (or click on the image below):

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More listings are now coming onto the housing market.

However, total listings remain 18 per cent below their 5-year average, according to Tim Lawless of CoreLogic Australia.

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UK house prices recorded +8.6 per cent growth over the year to March 2021, the fastest appreciation since 2014, according to the ONS. 

RBA sees no change until 2024 at the earliest

RBA remains dovish

Market pricing sees a possibility of a 50 basis points increase to interest rates by the end of 2023, as Australia's economic recovery storms ahead.

But the Reserve Bank Minutes remain dovish, and the Board expects to see no change to interest rates until 2024.

Source: Reserve Bank of Australia

They'll probably be quite pleased to see property buyers being dispersed a little, and the peak of the frenzies buying conditions having passed over recent weeks. 

To be sure, property is still hot, but not everywhere - it's mainly been detached housing in outer suburban locations, the Minutes noted - and new supply is increasing now. 

The apartment market in Sydney and Melbourne has been considerably softer, noted the RBA, due to the absence of immigration. 

The next inflation figures are due for release next week - inflation has been below the target band for half a decade, so the Board will be keen to rectify this. 

ausbiz: The Call

The Call

Another strong data point today with private new house sales reportedly leaping 90 per cent in March (though admittedly I didn't understand this story...were monthly sales up 90 per cent? Or lower than the previous highs? Not sure...). 

With the HomeBuilder stimulus to be extended for 12 months it's clear that the supply response in the hot detached house market will be by far the biggest on record, reconfirming the lack of need to tinker with lending rules (again).

The looming election in 2022 will also soon hove into view as another factor to cool investor demand. 

I discussed this and more on ausbiz TV's The Call show with Annette Beacher from 16 minutes in...tune in here (or click on the image below): 

Buffett: The Kelly Investor podcast

The Kelly Investor

The penultimate episode in our Warren Buffett mini-series.

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

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You can listen to the whole podcast series here.

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

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Podcast preview: The Kelly Investor

Kelly criterion investing

In the penultimate part of our Warren Buffett mini-series, we'll discuss Buffett as a 'Kelly' investor.

Preview here:

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You can download our new e-book here.

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.  

Auctions

Auction results

Strong auction results and median prices for Sydney this weekend, after holiday distractions.

Melbourne's final auction clearance rate last week slipped to under 70 per cent, suggesting that the inner-city unit market is still lagging behind, even though the market for houses is hot. 

Source: Domain

Brisbane and Adelaide were also strong, with another preliminary clearance rate weekend of above 80 per cent. 

Jobs recover ahead of JobKeeper wind-back

Another beat!

Employment surged another 71,000 to a record high of 13.08 million in March.

The economy has added a thumping 189,000 jobs in the first quarter of 2021. 

What a stunning recovery it has been, with total employment up by almost 1 million from the mid-2020 lows. 

The participation rate jumped again to a record high of 66.3 per cent, 0.4ppts higher than a year earlier.

Even still the unemployment rate fell back further, from 5.83 per cent to 5.62 per cent in March. 

The horror forecasts of double digit unemployment are but a distant memory now. 

Over the first quarter of the surge in employment was driven by Victoria (+76,000) and New South Wales (+55,000). 

But those two states are only recovering their jobs lost and have felt the lack of immigration quite keenly over the past year. 

The real big winners have been Queensland (+63,000 over the year to March) and Western Australia (+28,000), where the unemployment rate has fallen to under 5 per cent. 

South Australia's recovery has lagged a little bit, and employment is modestly lower over the year to March (-11,000).

New South Wales now has an unemployment rate of 5.4 per cent, but Victoria still has a way to go from 6.1 per cent.

Overall, this was another tremendous result, though there is still a long way to go before full employment hoves into view.

Meanwhile the end of the JobKeeper payment program could cost an estimated 100,000 to 150,000 jobs, so there will be a speed-bump of some sort from that to navigate. 

Onwards and upwards...

'This is an extraordinary result' (Bill Evans)

Westpac lovin' it

Westpac sees consumer sentiment scorching to the highest level in 11 years.

Consumers just don't get much more upbeat or sprightly than this in Australia. 

Full report from Westpac is here (or click on the image below):

The house price expectations index increased 135 per cent from a year ago, which is fairly self-explanatory.

The time to buy a dwelling index has already begun to decline, however, and now sits below the long run average...so that's another indicator suggesting that the frenzy is passing. 

Source: Westpac

Australia's ASX 200 stock market index has now all but completed a most magnificent round trip in travelling from 7,140 to under 5,000, and now back up to 7,000.

Clearly the economic outlook for Australia is buzzing, and this is well reflected in the above above.

Concern about going 'all-in' on stocks at this stage is more related to US markets which are still, as measured by most indicators, bordering on extreme valuations. 

Source: Shiller PE

Policy settings are expected to remain stimulatory in Australia. 

Enjoy the full report from Westpac's Bill Evans here. 

Vacancies still trending higher in Melbourne

Docklands doom

SQM Research reported national vacancy rate increasing from 2 per cent to 2.1 per cent in March.

It's unusual for rental vacancies to rise in March, the result reflecting the increasing pace of new building and stymied immigration. 

It seems that the rush to the regions has now reversed, and a return to the capital cities is underway.

Of the capital cities, Melbourne has by far the highest vacancy rate at 4.4 per cent. 

SQM provided an interesting case study to show how asking rents have fallen by nearly 30 per cent in Melbourne's Docklands over the past year.

SQM did report that the worst has passed for CBD landlords with Melbourne and Sydney CBD vacancy rates declining to 8.3 per cent and 6.2 per cent respectively, well down from their peaks. 

On the other hand, Brisbane, Adelaide, and Darwin all saw sharp increases in asking rents over the month to April 12, as supply is considerably tighter in those cities. 

The best ever business conditions

Surveys boom

What a pleasant change to see policy settings driving the economy forth!

Roy Morgan reported consumer confidence jumping 5.9 per cent to 114.1 yesterday, as Brisbane's lockdown unsurprisingly proved to be a nothing burger.

Meanwhile the NAB survey - the most timely indicator of conditions that we have - boomed to record highs.

Everything is looking tremendously strong on this survey (and take a look at the changes in net balances since January!). 

Business conditions are now the best we have ever seen (in at least 25 years), and even better than the resources boom years. 

And business confidence isn't far behind. 

The ABS payrolls figures suggested a relative stalling in employment growth for the most recent fortnightly data, while wages decreased 0.4 per cent, so there is clearly no room for complacency.

Overall, though, very promising for the Aussie economy.