Housing credit impulse fades some more

Credit growth eases

Credit growth in the Aussie economy slowed to 0.4 per cent in March, the slowest monthly growth in nearly a year, despite solid results for business and housing credit. 

Owner-occupier credit growth is now slowing, and is being replaced by investors seeking an inflation hedge. 

With the real cash rate deeply (!) in negative territory, investors will be looking for markets in which to deploy their excess savings, especially given the chronic shortage of rental properties leading to surging rents. 

Despite the return of investors, overall housing credit growth looks to be peaking out. 

And indeed the housing credit impulse shows that the peak of annual price growth has already long since passed for this cycle, with steadier results to be expected over the period ahead. 

Construction costs soar

In other news, the producer price index figures followed a similar trajectory to consumer prices, rising by 4.9 per cent over the year. 

As earlier implied by the ABS, there were some major increases in materials costs. 

Input construction costs for houses were up by more than 15 per cent over the year (17 per cent in Melbourne), driven by sharp increases in the price of timber and other metals. 

Output costs across all construction sectors increased at a double-digit pace for the first time since the data series began in 1996.

I recently discussed this dynamic with some developers at an event in Queensland.

Their view was that supply chains may well right themselves in time, but typically prices tend to be sticky and construction costs are unlikely to come back down by much, if at all. 

If they prove to be correct, this suggests further developer insolvencies ahead - and an undersupply of dwellings - with the cost of building a new home gapping irreversibly higher. 

Lucky Country

Export boom

Inflation is biting a bit, but take a look at Australia's export prices, up 47 per cent over the past year. 

Import prices were up 19 per cent, driven the sharp lift in by petroleum. 

Gas export prices were up 146 per cent over the year, and coal export prices were up by an unbelievable 243 per cent. 

Strewth.

Inflation lifts at last

And...inflation

Headline inflation jumped 2.1 per cent in the March quarter, taking the annual increase to 5.1 per cent.

Dwelling construction costs were up, and fuel prices were up a lot (+11 per cent). 

Construction costs saw the biggest jump since the introduction of the GST, due to a combination of a shortage of materials, ongoing elevated demand, and a reduction in government construction grants. 

The underlying inflation measures increased by 1 per cent (weighted median) and 1.4 per cent (trimmed mean) respectively, taking the analytical measures to above the target band for the first time in many a year. 

It's easy to forget that headline consumer prices initially fell during the Q2 2020 shutdown, but that seems like quite a while ago now. 

In any event, partly as a result of recent supply chain disruptions and warfare in Ukraine, as well as the successful fiscal stimulus, we now have some price inflation!

Fuel prices should hopefully revert a little lower next quarter, but there is an increasing clamour for the Reserve Bank to lift interest rates either in June, or even by a token 15 basis points as soon as next week. 

I'm blogging a bit on the hoof here at Sydney Airport - and there are more detailed thoughts to be considered here in terms of the potential impacts of all this - but in the meantime you can get the detailed rundown as always from James Foster here. 

Kent Lardner: How to pick outperforming suburbs

Property pod

This week on the pod, Kent Lardner from Suburb Trends explains how we analyses the housing market at the suburb level, and the key trends he has found.

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

You can also tune in at Apple podcasts, or Spotify, or elsewhere. 

And you can listen at Youtube here: 

Oil price now disinflationary

Inflation the highlight

There will be a lot of excitement about inflation readings over the week ahead.

As recently as October (!) there were ongoing calls to lower Australia's inflation target to 1 to 3 per cent, as policymakers have continually under shot the 2 to 3 per cent target range since 2014. 

Core inflation is expected to come in at around 1 per cent for the March quarter, which could take the year-on-year reading to around 3.2 per cent, or possibly even a notch higher.  

The energy sector has been a very happy hunting ground for value investors since early 2020, but the sliding oil price at today's levels is now disinflationary (i.e. slowing the pace of price inflation).  

Now, sure, if the oil price was to rally towards $150, then that could contribute to a renewed inflationary pulse. 

The iron ore price is also now crapping the bed, down 10 per cent today - while coal is down 5 per cent - with a huge portion of the Chinese population trapped in lockdown.

Australia's wage price index rose by only 2.3 per cent in 2021 - and the next wages release isn't until May 18 - perhaps accounting for most analysts believing that the Reserve Bank will sit pat until June, before deciding whether to deliver an interest rate hike. 

Could the great mortgage rate reset be a cliff for homeowners?

Rates on the rise

I had a yarn on ausbiz TV here (or click on the image below):

Cities exploding back to life

City revival

I took this photo of Elizabeth Street in Sydney - during working hours! - on Monday January 17.

Fast forward to today, 3 months on, and thankfully the city is roaring back to life. 

Pitt Street Mall this afternoon, absolutely chockers. 

Great to see. 

Rental trends

Rental vacancies ran extraordinarily high in some Sydney inner-city markets, but have normalised quite quickly this year. 

This is Pyrmont, for example (charts via SQM Research):

Source: SQM Research

The weekly rental listings figures suggest that national rental vacancies have continued to decline from 16-year lows through April month to date.

This is Erskineville, in Sydney's inner west. 

I've been to Melbourne over the past few weeks, and although Docklands was still showing some signs of tumbleweeds and empty cafes, the Melbourne CBD itself is by and large back to its former hustle and bustle, a few boarded up shops notwithstanding.

Even the Docklands rental vacancies appear to have normalised, in any case. 

South-east Queensland has benefited from the highest interstate migration on record, and indeed even inner-city suburbs are now experiencing tight rental markets.

New Farm and Teneriffe, by way of a prime example:

And this is before international students and tourism numbers get back to hitting their straps.

Interestingly on parts of the Sunshine Coast we're just starting to see the first signs of an increase in rental vacancies, possibly representing a nascent tenant pushback against the surge in asking rents (although the main strip of the Gold Coast remains extremely tight). 

Reports of the death of the Central Business District have been somewhat exaggerated...

Property Pod: Property investors going bush

Property Pod

This week on the Property Pod, Bushy Martin talks regional property investment trends.

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

You can also tune in at Apple podcasts, Spotify, and so on.

And indeed, Youtube here:

Builders face mounting challenges

Construction costs

Growing challenges in the construction sector, as we discussed here (or click on the image below):

Blunder Down Under

Week from hell

The Labor Party was at Winx odds of close to $1.20 going into the 2019 Federal Election, leading some of the bookies to pay out early. 

For a while it looked as though this year might play out to be a similar story, with the Leader of the Opposition keeping a low profile, while intermittently making derisory observations about the struggling Prime Minister to popular acclaim.

What a difference a week makes.

With the election date now called, the first week of the campaign was an unmitigated disaster for the pretender to the throne Albanese, with a series of unforced gaffes leading the media to smell blood. 

Shadow Treasurer Jim Chalmers continues to present very credibly, but the prevailing odds at Sportsbet, TAB, and now Betfair have all swung violently towards level pegging in the space of only the past week. 

Only one month ago the Coalition was out at $4 and now they're in to under $2 with Betfair, with the respective leaders yet to face off in their first live debate of the campaign. 

It could be a long five weeks ahead, with Morrison having delivered a near-flawless campaign last time around. 

Rental vacancies approaching zero

Tightening rentals market

Private new home sales increased moderately in March.

The Housing Industry Association (HIA) also notes the rapidly tightening rentals market, with vacancies at "close to zero". 

Sydney and Melbourne have been the two markets when rental vacancies haven't been so tight, but it seems that is now changing quite quickly too. 

Adelaide - and increasingly Brisbane - have very tight rental markets.

Source: SQM Research

As you can see in SQM's graphic above, the number of properties for rent in Brisbane has fallen by 40 per cent since January 9.

Tim Lawless from CoreLogic notes, meanwhile, that short-term fixed rates are have now moved comfortably higher than variable mortgage rates. 

Source: CoreLogic

Unemployment falls to 3.95pc

Unemployment with '3'...sort of

A solid labour force release saw full time employment increasing by 20,500, and total employment increasing by 17,900, to record high of 13,389,000.

The result was enough to push the unemployment rate down to the lowest levels since the 1970s, dropping from 4.04 per cent to 3.95 per cent.

But since the figures are rounded to one decimal places, this will be reported as a flat result at 4 per cent (nice and easy for Albo to remember!). 

The unemployment rate for women fell to 3.7 per cent, the lowest level since 1974.

The underemployment rate also fell to 6.3 per cent, and the underutilisation rate fell to 10.3 per cent - both new cycle lows and reflective of the tightest labour market since 2008 - so we should start to see some wages growth from here. 

The working age population is already beginning to pick up, so we may not see much lower unemployment figures than this in this cycle. 

Queensland has added nearly 100,000 to the state's total employed figures over the past year. 

The weakest part of the release was monthly hours worked, which declined over the month, to be lower than a year ago.

The twin reasons for this were flooding and the Omicron coronavirus variant, leading to more absences from the workplace in March. 

Overall, this was a pretty solid release, but may just be unspectacular enough to keep interest rates on hold until June, by which time we'll likely have a new government, and more information will have come to light on wage price growth and consumer price inflation. 

Housing starts in decline

Dwelling starts retrace

Dwelling commencements hit a record high 68,000 in the June 2021 quarter - as the HomeBuilder stimulus kick-started a detached house bonanza around most of inhabited Australia - but fell again in the last quarter of 2021, back down to 50,000. 

Despite this, the number of dwellings under construction remained high, at a total of around 230,000.

This included over 100,000 detached homes still under construction, spread far and wide around the country.

Some of these may not complete, given the sharp increase in materials and labour costs, but it's still quite a pipeline. 

Units under construction remained under 130,000, driven by some much-needed supply coming online in Queensland. 

There were still 31,000 dwellings approved, but not yet commenced, and I doubt this figure will decrease given the high cost of building right now. 

Overall, dwelling commencements were on the way down in Q4, and the first quarter of 2022 may well be to be lower as well due to COVID disruptions. 

Recent flooding has only added to the already high level of pressure on Australia's rental markets.

12-week program: limited access

New Level Wealth

We're reopening our 12-week money mastermind program for the next week.

You can apply to join us here (or click on the image below):

Australia enters rental crisis

Rental crisis

SQM Research reported that Australia entered a deep rental crisis, in March.

Last month the number of rental vacancies fell by another 7,000 from 43,844 to 36,868. 

There were some big drops recorded in Sydney and Melbourne as the return to the cities took hold.

Nevertheless, SQM reported that many regional centres are still running at near zero vacancies. 

Source: SQM Research

There are many reasons why this dynamic has taken hold, from record high employment to a desire for more space, with household formation increasing but the average household size decreasing. 

Many households have been using their spare room as an office, increasing demand for space. 

And foreign investors have also been forced out of the market, which hasn't helped the rental supply.

At the current rate of absorption, there will only be around 20,000 rental vacancies left by the time the new government takes office.

This would represent the lowest vacancy rate on record, so there will be some immediate policy challenges to take on.

SQM's media release is reporting some sharp increases in asking rents over the past year, especially in Brisbane and Sydney of late. 

This is how to prepare for higher rates

Rates hikes coming

This week on the Pod, Suvidh Arora from Cinch Home Loans discusses how to prepare for higher interest rates.

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

You can also tune in at Apple podcasts, Spotify, and all the rest.

Enjoy.

Oh, and I forgot there's now Youtube as well!