2022 Investor Special Report (last chance)

Free investor report

Download our property investor special report for 2022 over the weekend, while it's still free.

You can get it for free for a few more days here (or click on the image below): 

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We discussed the top 15 suburbs poised for apartment price growth in Sydney at API magazine here.

Immigration reboot

Borders reopen

I discussed some of the potential housing market impacts of the reopening of the international border on ausbiz TV here (or click on the image below):

Mortgages points to price growth peak

Bond carnage

Lots of excitement in bond markets today, with speculators sensing that the Reserve Bank has abandoned its yield curve control (YCC) targets and sending yields soaring. 

This has garnered much international attention and plenty of speculation about whether the YCC regime is set to be ditched next week, with the Reserve Bank of Australia choosing not to step in and buy April 2024 bonds today. 

There hasn't been any formal communication from Martin Place, adding to the consternation, so we'll see what next week's meeting brings. 

Credit acceleration rolls over

Looking at the historic RBA data released today in relation to financial aggregates, housing credit growth picked up a bit further to 6½ per cent. 

Investor credit growth is now rising, albeit only to 2.4 per cent over the year, which is close to historic lows. 

Although housing credit growth is still picking up, the acceleration in mortgage credit has now peaked, suggesting that annual capital city price growth for housing will top out at around 20 per cent. 

Credit growth across the economy picked up to 5.3 per cent, as business credit growth has responded in rising to 4.6 per cent over the year. 

Tightening underway

Futures markets are pricing for multiple hikes in the cash rate by the first quarter of calendar year 2023, though I guess I'll only believe that when I see it. 

There's little doubt that we'll get a spike in inflation over the coming year, but all of the old deflationary forces have hardly gone away (technological shifts, outsourcing to Asia, declining union membership, the casualisation of the workforce, etc.), and wages growth is still stuck at record low levels.  

The prospect of interest rates rising sooner than previously expected will also give rise to the usual incorrect extrapolation about a swathe mortgage defaults, even though major bank data released recently suggests that households are well ahead on repayments and have never had so much buffer sitting in mortgage offset balances.

Rising mortgage rates may negate any moves to implement further macroprudential measures, but new mortgages will now be assessed with an enormous 3 per cent serviceability buffer built in, while there's also ample headroom for any stressed borrowers to shift to more comfortable interest-only terms should a release valve ever be required. 

ANZ reported this week that only 9 per cent of its home loan book is now on interest-only terms, which represents an extraordinary decline over recent years. 

Rising mortgage rates? Sure. Widespread mortgage defaults? It's a non-starter. 

Underlying inflation breaches 2 per cent

Inflation stirs

Inflation came in at 0.8 per cent for the September quarter.

The figure for headline inflation over the year fell on the base effect, broadly as expected, back down to 3 per cent. 

The underlying measures increased by 0.7 per cent for the quarter, with the 12-month pace picking up from 1.6 per cent to 2.1 per cent.

As such for the first time in years this means that the annual pace of underlying inflation has moved above 2 per cent. 

One swallow hardly makes a summer, though.

Inflation has languished below target for years, and annual wages growth hasn't even reached 2 per cent at this stage, let alone being sustained at 3 per cent.

Since 2013 and the end of the resources construction boom, Australia has persistently struggled with an output gap.

Inflation in rental markets may have turned positive, but there's still a two-speed dynamic at play, and more supply is now coming online.

The wrap

Overall, there was a surge in new dwelling prices, and fuel - with auto fuel prices now at record highs - as well as some inflation in motor vehicles and durable goods such as furnishings, but not much else to raise excitement at this stage.

A bit of jostling ensued in financial markets, and futures are tentatively pricing for an interest rate hike in the second half of next year. 

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More detail as ever from the data king James Foster here! 

Rental inflation highest in a dozen years

Rental prices up

Rents now lifting at the fastest pace in a dozen years, according to CoreLogic.

There is strong growth afoot in all capital cities, with Melbourne the only real laggard due to the market dynamics generated by lockdowns. 

Source: CoreLogic

While transitory, this will gradually feed into inflation figures over the next year.

Fuel prices have also increased recently as oil prices have come storming back. 

Core inflation is expected to lift this quarter, although it will still in all likelihood remain below the target range. 

There's also little sign of wages growth picking up towards the desired 3 per cent per annum at this stage. 

The consumer price index figures for the September quarter are due to be released late this morning, and will be eagerly scrutinised for signs of inflation picking up in Australia (after half a decade of below target results). 

‘The Kouk’ on the big Aussie reopening & outlook for property

Property Pod

I discussed with the Kouk on this weeks' Property Pod here (or click on the image below):

You can also listen on Apple podcasts here, at Spotify here, or wherever you normally get your podcast fix.

Don't forget to share and leave us a friendly review to help us get the word out. Thank you! 

The return of investment seminars...caveat emptor

Off the plan risks for investors

We discussed in this article here (or click on the image below):

Podcast: Meet the experts mini-series

Lessons so far

This week we ran a recap on the lessons we've learned from speaking to a cross-section of investment experts.

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!

Property investor special report 2022

Investor Special Report

Check out some of our free property data and research tools here, including our suburb risk reports, free valuation reports, and free regional analysis reports. 

You can also download our Property Investor Special Report for free here (or click on the image below):

Stay tuned, as we'll launch our proprietary Where to Buy report for free next week. 

RBA hammers yields lower

RBA hammers yields lower

Financial markets have been awash in recent weeks with commentators noting how the Reserve Bank of Australia can't do this, or shouldn't be doing that.

As it turned out, they could, and they did...for the time being at least.

For the first time since February, the RBA made $1 billion purchases in support of its 0.10 per cent 3-year yield target. 

Source: RBA

As explained by econo-king James Foster here, the cost of borrowing the April 2024 line was also lifted from 0.25 per cent to 1 per cent, making it considerably more expensive to short the bond and place upward pressure on its yield. 

Source: Bloomberg, via Anthony Doyle

Job done.

As the saying goes, never fight someone armed with a printing press.

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In other news, preliminary auction clearance rates were still strong in Sydney and Melbourne, but with final clearance rates likely to be in the low-to-mid 70s the requirement for further regulatory intervention appears to be lessening, as listings and auction volumes increase. 

Source: Domain

A big week ahead for markets, with inflation figures due out on Wednesday, and the trimmed mean inflation figure expected to lift closer towards 2 per cent as auto fuel prices have increased in the third quarter of the calendar year.

Headline inflation will likely pull back towards around 3 per cent, on the base effect. 

Sydney to benefit from reopening boost

Reopening boon

There has been some decent virus news in Sydney over recent weeks, with cases in hospital plunging.

While many uncertainties remain, todays job vacancies figures reported things on the up again for New South Wales as local businesses began to anticipate the reopening with more enthusiasm. 

Although we've possibly already seen the cyclical peak in job advertisements, the seasonally adjusted result of an increase to 229,000 in October was another strong result. 

Job advertisements increased by 10,400 in Sydney over the past month, to be 24 per cent higher than they were pre-COVID.

Queensland, South Australia, and Tassie all have job vacancies far and away higher than they were before the virus struck.

Victoria saw a modest setback only this month, despite yet another month spent in lockdown. 

Looked at graphically, the pre-COVID comparisons are particularly stark!

Source: David Scutt, on The Twitter

We explored the reopening dynamic for Sydney in a bit more detail here (or click on the image below):

Also keep an eye out for our Where to Buy reporting tool, due for launch imminently, as well as our Investor Special Report for 2021-2. 

Hiking of ze rates

Inflation pressures by 2023

There's been some very excitable talk about the recent moves in bond yields.

For some reason the prospect of higher interest rates always generates an adrenaline rush of social media excitement...even though the trend in interest rates has been down for several decades. 

Some fixed rate mortgage products have been nudged 10 basis points higher this week. 

And it's true that yields have been rising, while the target bond yields have not been so easy to come by lately...

The April 2024 bond eventually traded down at 0.125 per cent after the close, but evidently the pressures are there. 

Board Minutes

Some pausing for alternative thoughts, though.

The Reserve Bank of Australia released its latest Board Minutes today, and they suggested very little change to the proposed policy approach. 

The RBA still wants to see inflation sustainably back in the 2 to 3 per cent target band, but noted that to date there are few indications that wages growth is set to lift meaningfully or accelerate sharply in Australia over the period ahead. 

For this reason, no interest rate moves are to be expected before 2024, according to the latest Minutes. 

Source: RBA

Furthermore, no case is seen for less accommodative policy to slow housing prices or credit growth. 

The lack of punch from wages growth is before the international borders are reopened, fuelling the return of tens of thousands of international students, new migrants, and other temporary visa holders.

All of which could presumably depress the prospects for wages growth again.

For these reasons the bank will continue to target bond yields for the time being. 

Finally for some perspective, and looking further out, the 4-year bond yield is still trading under 1 per cent, and although the 5-year yield is off the lows, it's not exactly sky-high at 1.129 per cent. 

Overall, an interesting dynamic is forming, with competing forces pulling in different directions. 

Property podcast: Jonathan Giles

Pete's Property Pod

This week on Pete's Property Pod, I talk to AFL star Jonathan Giles about his footy career and journey in property. 

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

You can also listen on Apple podcasts here, at Spotify here, or wherever you normally get your podcast fix. 

Yields creeping higher

Inflation stirs

Faster inflation in New Zealand has led to earlier than expected rate hikes over the other side of the Tasman.

Over in Europe, meanwhile, the Bank of England is also guiding markets towards potential rate hikes over the year ahead.

And yields in the US are recovering towards the levels we were seeing before COVID-19 struck. 

In Australia the 3-year bond yield is now up and away like a meme stock, having been stuck at rock bottom levels until relatively recently. 

Around the world there have been signs of inflation stirring, and there's certainly been a surge in commodity prices, such as seen recently in thermal coal, oil, and gas. 

Reports of slower growth in China hasn't stopped Brent oil approaching $86/barrel - set to breach its 2018 price level - and over the past two months thermal coal prices have exploded off the charts, while there is also an awkward global gas shortage.  

Perhaps the biggest question facing markets over the next year or two is whether inflation is transitory, or if it proves to be more persistent. 

Despite the Reserve Bank of Australia's repeated insistence that rate hikes are off the table until 2024 at the earliest, financial markets are now pricing for an upwards move within the next 12 months. 

It's been over a decade since we last saw a hike in Australia, so it will be quite a novelty when that day does come!

Sydney reopens to the world

Sydney open for business

New South Wales has flown past its 80 per cent target for fully vaccinated adults. 

New Premier Perrotet has wasted no time at all in reopening travel into New South Wales, with no quarantine requirements henceforth. 

Reuniting families in time for Christmas.

Employment falls by 138,000

Employment dives again

Employment fell by another 138,000 in September to 12,844,600, which is a cumulative drop of 281,000 since the June peak. 

The decline was again driven by New South Wales, with another 37,000 decline.

Since May employment in New South Wales has crashed by 244,000, although this figure should rebound quite quickly on the reopening. 

The unemployment rate only increased marginally to 4.6 per cent, although this may be a somewhat artificial result. 

After all, the participation rate slumped sharply by 0.7 points to 64.5 per cent.

The wrap

It feels like there is a wide range of uncertainties about what might or might not happen next.

The labour market could suddenly become very tight as the economy reopens.

Indeed, the skilled labour market is already tight in Queensland - and some other parts of the country - with a pipeline of resources projects getting underway. 

But on the other hand there is talk of bringing in two million new immigrants over the next five years, which could obviously create a different dynamic over time.

Following data and news from around the world, including the UK, there are some very unusual and confusing charts and trends happening right now, and the picture will probably only become clearer next year. 

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You can get all the finer details from data king James Foster here.