Stock shortage driving prices higher

Investor exit

Housing credit growth was steady at 0.36 per cent in September, roughly in line with the same as we've seen all year. 

Similarly, investor credit growth remained very anemic at 0.25 per cent, essentially the same as we've seen throughout 2023.

There's little respite ahead for the rental market, then, as on a net basis more investors are still leaving the market than entering it, sending rental vacancies to all-time lows. 

The housing price rebound has also far outpaced what might've been expected, due to the chronic shortage of stock across most of the capital cities. 

For example, we've been seeing units in Brisbane selling quickly, and at rising prices of late. 

Overall, credit growth was solid in the month, but the annual growth continued to ease back to 25-month lows at 4.9 per cent. 

The wrap

There's been a surprisingly sharp rebound in housing prices - and an even sharper rebound in rents - but this hasn't much been driven by housing credit growth, which has been flat all year.

Instead, the capital cities are facing a significant shortage of dwellings, a dynamic which looks set to worsen, particularly given the threat of further interest rate increases.

Economists forecast a 7 per cent increase in housing prices across FY2024 - don't forget, though, that prices have already moved some way higher over the first 4 months of the financial year.  

The AFR reported that Commonwealth Bank's loan book shrank for three consecutive months for the first time in decades, suggesting that there will be some jostling for market share in 2024. 

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In other news, CoreLogic reported new record low vacancy rates across the capital cities, despite the relatively soft rental markets in Canberra, Darwin, and Hobart.

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P.S. Whenever you’re ready…here are 4 ways I can help you manage your own money and go next level wealth:

1. Boom or Bust in 2023 – 20 minute online workshop for investors

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2. Subscribe to our Top 10 Podcasts for Investors

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Rental crisis to worsen, again

Rental market mess

PropTrack's quarterly rental report showed rents rising +3.8 per cent over the third quarter, to be +14.6 per cent higher over the year.

Source: PropTrack

Those 'in the know' say that a further interest rate hike will be required in November to bring inflation down faster.

One of the problems with that is that a further hike in interest rates will send even more builders and developers broke, while knocking more property investors out of the rental market...in turn, ironically, increasing rental price inflation.

In Q3 2023, new rental listings crashed to their lowest level on record for this time of year (and that's ahead of the usual Xmas plunge). 

Source: PropTrack

Total listings are also at their lowest ever level for this time of year, and falling fast. 

Source: PropTrack

Sydney (-30 per cent) and Melbourne (-32 per cent) have each seen rental listings declining way below their 5-year average, and so too has Perth (-30 per cent), taking the vacancy rate for capital cities to an all-time low. 

PropTrack concludes, in short, that the rental market is, well, farked.

It's worth noting that there are still super-sized regulatory lending assessment buffers in place limiting the flow of credit for investors and those wishing to buy or construct new property. 

You can read the PropTrack rental report here.

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P.S. Whenever you’re ready…here are 4 ways I can help you manage your own money and go next level wealth:

1. Boom or Bust in 2023 – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan for 2023 - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

2. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is one of Australia's biggest business podcasts.

And our enormously popular Low Rates High Returns Show is also available on Spotify.

3. Subscribe for my free daily blog

Subscribe for my free daily blog with well over 3.4 million hits here. 

You can also catch up with me daily on Twitter here, where I'm active daily and have over 13,000 followers. 

4. Work with me privately

For a limited time you can book in a free diagnosis call with me here. 

Retail turnover rises 0.9pc

Retail jumps thanks to i-Phone

Retail turnover increased +0.9 per cent in September to a seasonally adjusted $35.9 billion.

This was a decent monthly increase, with the previous months also revised up a little.

I actually formed a part of this jump, upgrading to the new i-Phone 15 in Sydney in September, apparently alongside thousands of other Aussies!

You can expect the growth in turnover to ease back next month as this impact was a one-off, while the unseasonably warm spring weather may also have played a part in bringing forward spending on clothing and hardware, according to the ABS.

On a seasonally adjusted basis, this takes retail turnover back to where it was back in late 2022, when it also touched...$35.9 billion. 

Retail sales lifted +1.8 per cent over the quarter as a whole, with the September strength largely driven by New South Wales (+1.3 per cent). 

Source: ABS

Of course the Aussie population has grown at an unprecedented pace over the past year, and in any case after accounting for price increases retail volumes are likely to prove lacklustre at best.

Listed retailers are also suggesting that interest rate hikes are beginning to bite into consumer spending habits, so the outlook for consumption is quite muted now.

A further interest rate hike in November would naturally accentuate the downward pressure on consumer sentiment too, though retailers are naturally begging for respite!

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P.S. Whenever you’re ready…here are 4 ways I can help you manage your own money and go next level wealth:

1. Boom or Bust in 2023 – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan for 2023 - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

2. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is one of Australia's biggest business podcasts.

And our enormously popular Low Rates High Returns Show is also available on Spotify.

3. Subscribe for my free daily blog

Subscribe for my free daily blog with well over 3.4 million hits here. 

You can also catch up with me daily on Twitter here, where I'm active daily and have over 13,000 followers. 

4. Work with me privately

For a limited time you can book in a free diagnosis call with me here. 

2-Sense: Rate hike incoming

Australian Property Podcast

Batesy and I discussed the coming rate hike and what it means here (or click on the image below):

Visa surge overwhelms property downturn

Temporary visas surge again

A bit surprisingly, the number of temporary visas increased by a further +176,000 in the third quarter of 2023. 

Over the year temporary visa holders (the red line in the graph below) have ripped by a record +494,000 higher, to an all-time pinnacle of 2.64 million.

Excluding visitor visas (the blue line below) the increase was a record +425,000 over the year.

There tends to be a seasonal element to visa numbers, partly due to tourism, and more so to do with international student term times. 

Australia's estimated resident population increased by more than +180,000 in the first quarter of this calendar year - more than 2,000 persons per day - and it looks like we might see some more similar results reported ahead too, as we head into the warmer summer months.

The capital city housing downturn has been totally overwhelmed by the imbalance between slowing dwelling supply and rampant demand, even in the face of higher and rising borrowing costs. 

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The Bank of Canada kept interest rates on hold this week, with lower borrowing costs expected ahead.

Similarly, the ECB looks to be at or close to the top of the cycle with interest rate cuts likely next year.

The UK appears to be gradually easing its way down the other side of its steep interest rate mountain.

The Federal Reserve has seen the US economy stay stronger than expected for longer than expected, and potential interest cuts have been pushed far out into 2024.

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Had a fun time debating Andrew Page from Strawman at the Australian Shareholders Association Annual Summit yesterday, in a property versus shares debate.

Honourable draw, I think.

I made the case for investing in some property in the earlier part of your journey to grow your portfolio faster, to get a larger snowball compounding for you sooner, and to allow plenty of time for the mortgage debt to be inflated away. 

You can then beef up the share portfolio later in the journey (including, sometimes, with a line of credit). 

Inflation comes in at 1.2pc (expected: 1.1pc)

Inflation 1.2 per cent

Inflation came in at 1.2 per cent for the September quarter, a bit higher than the median market expectation of 1.1 per cent. 

The trimmed mean reading also came in at 1.2 per cent for the quarter, slightly above market expectations.

Over the year the inflation rate has slowed from 7.8 per cent to 5.4 per cent, and with another large print to drop off the annual reading next quarter we'll be down to about 4½ per cent or a bit below that by the end of 2023. 

Source: ABS

So, it's seemingly going to take a bit longer than previously hoped to see inflation falling back to the target range, and this led to many economists upgrading their calls to incorporate another interest rate hike on Melbourne Cup Day to a cash rate target of 4.35 per cent.

Others, including Deloitte Access Economics, Stephen Koukoulas of Market Economics, and Terry McCrann in The Australian, have argued strongly for no jumping at shadows, and for taking a more anguine approach of interest rates to stay on hold until next year. 

Until yesterday, Westpac saw the next move in interest rates as being down, but haven't yet updated their call. 

The inflation in the September quarter was largely driven by international pressures driving higher fuel prices, and domestically by housing costs (i.e. rents and new dwelling costs), and electricity prices. 

We do know that many developers are teetering on the precipice of extinction and that further tightening would almost certainly kill off another swathe of construction businesses.

This would arguably make the rental market pressures worse than they already are.

Indeed, capital city rental listings have declined to their lowest level on record this month,

The real elephant in the room here is that immigration is now running at an annualised pace of around 550,000 per annum, fueling population growth of around 2,000 per day in Australia. 

Source: Shane Oliver, AMP

New dwelling costs have been a huge contributor to inflation through this cycle and the HomeBuilder stimulus package, but thankfully cost pressures here are reportedly now easing in real time (despite the more modest increase of +1.3 per cent this quarter).

Source: ABS

Voters should justifiably be angry about electricity costs, which would be around 30 per cent higher over the year were it not for government subsidies. 

Lower energy prices were a key election pledge, and we can't so easily blame this surge in prices on external factors. 

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Market reaction

Overall, this was a stronger than expected inflation print, although the higher fuel prices were largely driven by international issues, and will themselves act as an effective 'hike' on households spending in due course.

The Aussie dollar initially kicked up a bit on the news, before later trading all the way back down from whence it came, to finish the day lower than where it started. 

Looking further out, Australia's 3-year bond yield is quietly retesting the highs seen back in early July.

What next?

What happens to housing if we get a further interest rate hike in November on Melbourne Cup day?

An ongoing rise in mortgage arrears, certainly, and more developers doubtless fall over as a result of worsening cashflows combined with a further hit to confidence. 

Dwelling prices in many regional parts of the country will likely also take a further step down towards reality.

Housing supply is already struggling to keep pace with population growth, and a further interest rate hike wouldn't help here. 

The rental crisis most likely worsens as a result, as well as leading more landlord owners to selling up. 

Borrowing capacities may also be set to take a further hit, pushing more buyers into lower price points, and in Sydney and Brisbane more buyers will be pushed from looking at houses into units. 

There's still a fair amount of monetary tightening in the pipeline, as fixed rate mortgages continue to reset.

Create A Life On Your Terms: A Recipe for Using Property Investments to Buy Back Your Life (Part 1)

Australian Property Show

I joined Tom Haigh from My Money Sorted on the Australian Property Show podcast, to talk property investment and buying your time back. 

Tune in here to listen at Apple podcasts (or click on the image below):

You can also listen at Spotify, Podtail, or anywhere else that you get your podcasts.

Part 2 coming soon.

House price expectations continue to rise

Red Book of truth reveals all

Consumer sentiment remained mired at very low levels in October, according to Westpac's 'red book', despite a small lift in the reading from 79.7 to 82.0.

Spending has held up, to some extent, as households run down their financial buffers, but a contraction in spending is expected ahead. 

House price expectations continued their relentless rise, however, as they have all year. 

The house price expectations index increased +7.4 per cent over the past three months to a new cycle high.

Source: Westpac: Red Book

All of the most populated states have house price expectations in positive territory, with Western Australia and Queensland now leading the way. 

Source: Westpac, Red Book

Looking further out, economists see confidence growth among the industry rising to 2-year highs.

This reflects record high population growth, with immigration already topping 500,000 this year, and housing supply not keeping pace. 

This week's developer insolvency was NPM Group, a building group with 45,000 projects completed, and this follows on from Dome Group last week.

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Container freight costs have now fallen by more than 90 per cent since their 2021 peak.

Let's hope this translates into lower inflation ahead too.

Property demand to soar to 2046 (PEXA)

ausbiz TV

Australia's population is set to soar to 35 million by 2026 according to PEXA, with immigration already having hit a record 500,000 this year. 

However, many developers are exiting the market.

I discussed with Danielle Ecuyer at ausbiz here (or click on the image below):

The oldest debate in Aussie finance...

Triggered!

I Tweeted out a few news articles today, as I usually do, one of which contained the below 'triggering' headline in the AFR.

Wow, so many thunderous replies!

There's basically two sides to this debate (if 'debate' is actually the right word - it's usually a slanging match of sorts). 

Yes, it's been a disappointing stretch for the Aussie stock market, especially if you were to account for the very large rise in the cost of living over the past 16 years.

On the other hand, the Aussie stock market tends to be a strong dividend payer, and the dividend streams are tax effective.

On an accumulation basis the chart looks somewhat different...

Moreover, it's always a bit misleading to cherry-pick start and end dates, since as far as I know nobody ever buys all of their stock portfolio at the market peak and then never invests again.

The 20-year ASX chart shows that despite the global financial crisis boom/bust period - which was fueled by the resources construction boom and the liberal use of margin loans - the index has still broadly doubled over the past two decades, even before accounting for the dividend streams.

Both sides of the story, as Phil Collins once said. 

Finally, as to whether the Aussie stock market has underperformed US stocks on an accumulation basis (i.e. including dividends)...well, yes that is true, but this has also been the case for most investments over the past three decades. 

Nice clickbait headline, though...that's definitely true!

2-Sense: Mortgage monster swallowing households

2-Sense

I discussed the mortgage topical monster monster with Chris Bates on the Australian Property Podcast.

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

You can also watch the video version here:

Insolvencies highest since 2015

Insolvencies soar

For the people wondering whether more interest rate hikes are needed to slow the economy...I think not.

ASIC's quarterly data showed insolvencies rising to the highest level since 2015 in the September quarter.

There was an alarming 783 construction insolvencies over the 3-month period,]

New South Wales alone saw 428 business entering external administration in Q3, which doesn't bode at all well for Sydney's housing shortage. 

Annual insolvencies in the sector accelerated to around 2,300.

The worrying thing is that most of this related to cost pressures, rather than the plummeting demand for new projects, most of which has yet to flow through. 

With the fixed rate mortgage cliff yet to flow through in full it's inevitable that construction insolvencies will continue to rise from here, adding further pressure to the dwelling shortage. 

Jobs figures slowly softening

Full-time jobs going

The labour force figures came in soft for September, with employment up only very modestly, by +6,700. 

This did come off the back of some volatile numbers in recent months - seasonal adjustments have been a bit thrown off by shifts in school holidays - so it's a bit easier to look at a 3-month average.

Overall, the quarterly gain in employment slowed to +23,000 per month, which is all the way back down to where things were tracking earlier in the year, and now a long way behind the speed of population growth (more on this in a moment). 

The Aussie dollar fell on the softer than expected report, largely because the number of reported full-time employed dropped by -40,000.

Full-time employment is now -53,000 lower over the past three months, which is an obvious indicator that conditions are softening. 

Unsurprisingly, hours worked are also in decline.

Unusually, there was a sharp monthly drop in the participation rate, from record highs in August at 67 per cent, to 66.7 per cent in September.

Source: ABS

For now, then, the unemployment rate remains steadfastly low at 3.6 per cent. 

Similarly, the recent uptrend in underemployment also saw a temporary blip.

The wrap

Overall, this was a softer than expected report which tends to suggest the economy is cooling.

Separately, ASIC reported the business insolvencies figures for the September quarter, which saw business failures rising to the highest level since, 2015 (and construction insolvencies continuing to soar).

Looking ahead, the economy is no longer strong enough to create enough jobs to fulfil the extremely high rate of population growth, and it's more or less inevitable that the unemployment and underemployment rates will trend higher.

The unemployment rate remains extremely low in the powerhouse New South Wales economy, at just 3.3 per cent. 

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James Foster took a deep-dive into the numbers here.