Building approvals also peaking

Approvals peaking

Strong building approvals in August, at 18,716 approved.

Melbourne saw more than 3,000 homes approved in the month, which was a phenomenal result, all things considered.

Approvals for houses are likely to fall from here, however, as the HomeBuilder stimulus is worked off. 

Melbourne also saw a bounce in unit approvals in August, but the trend is clearly lower. 

Overall, a solid result again.

But construction will become a headwind the economy next year, after very successful stimulus packages for new houses and renovations. 

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Detail from the data king James Foster here. 

Mortgage growth peaks

Mortgages topping out

Housing credit growth picked up to 6.2 per cent in August,

However, housing price growth is typically driven by the acceleration - the rate of change - in mortgage credit, and this all but peaked out in August.

Expect capital city annual house price growth to peak at 19 per cent this month. 

There could be some near-term distortions from low stock levels, but new listings are set to rise from here. 

Business credit growth was healthier at 3.4 per cent over the year, taking total credit growth to 4.1 per cent for the year to August. 

Unfortunately Victoria's Covid outbreak seems to be out of control with 1,438 cases reported today from a lower level of testing than New South Wales, so the reopening of the economy could be delayed.

Macroprudential curbs inch closer

DTI caps coming?

More talk of the potential for debt to income caps on mortgage lending, possibly to be in place by next year. 

Via the CFR:

Got a couple of pieces out next week on this, including the likely impact on borrowing capacity, and the 10 most impacted suburbs. 

Household wealth hits record highs

Wealth up 20pc

Split between the 'haves' and the 'have nots' to some degree.

Read about the latest ABS figures here (or click on the image below):

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New South Wales through 10 million vaccine doses administered, this morning, with 87 per cent of those aged over 16 having received a first dose (63 per cent have had a second dose).

Good news, and it's having an impact with positive test results declining to 0.65 per cent. 

Victoria is about three weeks behind on the vaccine rollout for 2nd doses, and the positive test rate is correspondingly far higher, at above 1.75 per cent, with over 1,000 cases yesterday.

Vaccines seem to work! 

Melbourne auctions all but halted

Nuclear winter

Almost no auction sales were reported at all in Melbourne this weekend, as the state government continues to apply incredibly tough lockdown measures, now approaching 250 days, the most of any city in the world. 

The sample size for units was too small to determine a median sales price for Melbourne. 

Basically a null result. 

Source: Domain

Ghost town...hopefully they can plot a way out of it soon. 

Sydney is till recording solid auction results, on reasonable volumes. 

The Big Picture podcast

The Big Picture

I caught up with Michael Yardney for the September version of the Big Picture podcast.

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

Don't forget to subscribe for the free podcast series.

Household wealth rises 20pc

Record wealth

Household wealth rose 5.8 per cent or $735 billion in the June 2021 quarter to a record high of $13.4 trillion.

And that's a time when population growth has stagnated.

AS a result, the average net worth per capita has jumped by 20 per cent over the past year to $522,000. 

The average wealth per household is now around $1¼ million.

The stock market rebound and superannuation balances have played their part. 

And with the dwelling stock now valued at nearly $9 trillion, after accounting for nearly $2 trillion in mortgage debt, housing comprises more than half of Australian household net worth. 

Households own most of the rental stock in Australia, and as such the share of total housing credit going to the housing sector is now above 60 per cent, up from about 40 per cent a quarter of a century ago.

Since many small businesses also secure business loans using their home as collateral, the housing market is highly financialised, and as such the asset class has become too big to be allowed to fail.

The good news is that gearing ratios have moderated in sympathy with rising prices, and mortgage repayments have eased in the lower mortgage rate environment. 

Meanwhile CBA economists estimate that during lockdowns households have socked away some $230 billion in excess savings, leading to a massive war chest of cash and deposits. 

Six years ago American economist Scott Sumner predicted that the 21st century would be characterised by an unprecedented number of 'bubble' claims, due to a misunderstanding of the impact of low real interest rates on asset valuations. 

And that's certainly been the case in housing, with headline-grabbing bubble calls ranging from the U.S. to Canada, to Australia, New Zealand, Germany, the United Kingdom, and a range of other countries besides, none of which have burst.  

Curb your exuberance

RBA on financial stability

The RBA's Michele Bullock spoke on financial stability and housing today, with a rising clamour to stop expensive housing markets (mainly in Sydney).

It's worth noting that even Sydney doesn't make the top 200 most expensive housing markets in the world from a property price to income perspective.  

There weren't too many surprises in the speech. 

As noted here previously investor and interest-only lending aren't likely to get much looked at because IO loans are essentially a non-issue these days, and with rental vacancies are near record lows the market needs property investors.

So that leaves higher debt-to-income lending (6x), which may be clamped down upon next year if the market is still rising then.

This would likely impact new housing estates and the first homebuyer segments of the market, but experiences overseas have suggested mixed results, including a corresponding increase in joint income borrowers, and more lending at exactly the DTI cap or just below.

In the UK we saw a sharp drop in first homebuyer activity as a result of debt to income caps, for example, but there was an increase in joint income applicants and higher earning upgraders. 

Household debt is generally higher in Australia than in many countries, partly because households (rather than the government or corporations) own most of the rental stock.

Even so, credit to income ratios have barely changed since 2006-7, when mortgage rates were way higher than they are today...almost on a different planet. 

Household balance sheets have been bolstered by the stimulus too, with households sitting on about  $1½  trillion of cash and deposits. 

If anything, financial stability risks from household debt have decreased sharply over the past 15 years.

Mortgage repayments are pretty comfortable overall at the moment, with mortgage rates having fallen by more than 100 basis points over the past couple of years. 

In summary: watch this space. 

No cooling measures are likely any time soon, but they could come into play next year if property price growth accelerates. 

End of the tunnel

Second wind

It may feel right now as though the lockdown and border closures pains will never end, but the good news is that Australia's vaccine rollout is gathering pace again.

2,034,000 doses have been administered over the past week, taking the total to date to well beyond 25 million doses in real time. 

And the pace is picking up to an impressive rate...

New South Wales is now at 9.2 million doses administered, with 84 per cent of adults (those aged 16 plus) having received a first dose. 

At the current pace 80 per cent will be double-dosed in New South Wales within a month, by around October 18.

Victoria is still about seven weeks away from that milestone, but the pace has suddenly picked up there too. 

The supply issue has now been pretty much righted, so the pace of the vaccine rollout is unlikely to slow down from here until hesitancy kicks in. 

The future of property buying

SPI show

I joined the great Phil Tarrant on the SPI podcast here to discuss property trends and the future of property buying (or click on the image below):

You can find out more about BuyersBuyers here. 

Podcast: Small caps investing with Alan Edmunds

Small cap investing

This week on the podcast we talk about small cap stock market investing.

There are many nuggets of wisdom in here from Alan about how to find your own way towards investing in a style that fits your personality. 

Small caps aren't for everyone, but as Alan points out, if you want to make outstanding returns, you have to do something different from the crowd. 

Note how Alan discusses how his personal situation - stable relationship, mortgage free home in Sydney, and super fund managed by someone else - have allowed him to direct his energy into a more focussed small cap portfolio (which have delivered superb returns, as recorded in Alan's newsletters). 

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

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You can listen to the whole podcast back-series on Apple here.

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

You can download our new e-book here.

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

SEQ is booming

SEQ boom

No doubt there will be a reopening wave in Victoria.

But for now, south-east Queensland is booming.

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

RBA lower for longer

Lower for longer

I discussed with Annette Beacher at RBA here (or click on the image below):

Hat tip to Ricardian Ambivalence for neatly summarising Governor Lowe's shifting views in a far more succint manner than I ever could, in this blog post here.

Where are today's housing market risks & opportunities?

Risks & Opportunities

We discussed with Open Agent here (or click on the image below):

Vale Victoria

Lockdown pain

The exodus from Victoria continued, as Melbourne now approaches a cumulative 250 days in lockdown. 

Southeast Queensland has been the obvious beneficiary. 

Employment plunges in August

Employment crash

Employment crashed 146,300 lower in August, driven by a massive 172,800 or -4.2 per cent drop in New South Wales. 

Queensland's lockdown also saw employment fall by -29,800 in the month.

Hours worked also crashed in sympathy, and the participation rate plunged to 65.2 per cent.

As an artefact of this the unemployment rate remained low at 4.5 per cent.

But there's nothing to be celebrated in these numbers, and the figures will be much worse for September and October too.

Melbourne has been in lockdown for a cumulative total of 228 days, so far - with practically no respite in sight - so it's delusional to think that this will have anything other than a catastrophic effect on many small and medium-sized businesses.

If it weren't illegal to do so, a drive through the south-east of the city would show many empty retail units and for lease signs everywhere. 

Hopefully some better news soon.

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More detailed analysis from James Foster here. 

Meet the experts: Liam Shorte (SMSF Coach)

Managing your super

This week we speak to Liam Shorte, SMSF Coach. 

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

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You can listen to the whole podcast back-series on Apple here.

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

You can download our new e-book here.

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

What does $1m buy these days?

$1m budget

What does $1 million buy these days?

I took at look at Property Buyer here (or click on the image below):

The race for space

Race for space

Remote working is likely to persist beyond the pandemic for many businesses.

We discussed how we know this and some of the implications here (or click on the image below):

Property prices rise; vacancies fall again

Prices lift

Housing prices across all 8 capital cities in Q2, before the lockdowns struck, with Sydney and Canberra recording price index gains of more than 8 per cent for the quarter. 

It was a record high result, in part because the gains were recorded across the board in response to lower mortgage rates. 

The strongest performing market since 2003 has been Hobart, followed by a very consistent Melbourne.

The move in Q2 was more marked for detached houses, although there are now signs of attached dwelling prices rising, as affordability constraints bite, especially in Sydney.

The mean dwelling price lifted by $146,300 over the financial year, driven by sharp increases in New South Wales, while the ACT saw a huge lift. 

The total value of the dwelling stock increased to $8.9 trillion - up from $6.7 trillion at the 2019 election nadir - which should create a serious wealth effect, given how comfortably debt is now being managed.

Vacancies tighten again

In other news vacancies continued to decline in August, except in the CBDs, down to a total of just 58,856 vacancies (well down from 69,976 a year earlier). 

The national vacancy rate declined to 1.6 per cent, well down from 2 per cent a year earlier. 

Adelaide now looks especially tight at just 0.6 per cent, while there is little sign of respite for renters in Hobart.

SQM expects to see further rental price increases as a result.

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You can get a more detailed view on the housing price trends with James Foster here.