More on the Census

Lots of questions posed on the Census demographics. 

Not enough space to answer them all here, but some additional points for consideration, excerpted from one of our market reports. 

Apartment approvals f-f-fade away...

Units dropping away

Seasonally adjusted building approvals dropped by 5.6 per cent in May to 16,448, which is nearly 20 per cent lower than a year ago. 

Attached dwelling approvals dropped by just over 12 per cent in the month to be 31.3 per cent lower than a year earlier. 

In rolling annual terms the total number of approvals continues to be driven back to earth, now down to ~219,000 from nearly 242,000 at the October 2015 peak. 

Capital city trends

At the capital city level annual house building permits in Perth have declined by some 39 per cent since the end of 2014, although they now appear to be getting somewhere close to finding a base. 

Looking at attached dwellings, there was a very sharp drop in the monthly number of approvals in Sydney, at less than half the level seen in the same month of last year. 

Meanwhile in annual terms attached dwelling approvals in sunny Brisbane are now 41 per cent lower than the February 2016 peak, and are still fading fast.

Dream over for high-rise boom

At the sectoral level, it's clear that approvals for tower blocks are dropping away hard.

But actually the decline in annual approvals is quite broad-based, with only semis/terraces, and flats of 1-2 storeys recording modest gains lately. 

The wrap

While not unexpected, these quite sharp declines are now setting in for building approvals, driven largely by fewer house approvals in Perth, and the glut of high-rise apartments in inner city Brisbane. 

The pipeline of residential construction remains substantial, of course, but the trend in permits doesn't augur particularly well for employment in the sector (or indeed for the associated multiplier effect) in 2019. 

CoreLogic reported earlier today that rents in Sydney are now rising at well over 2.5 times the underlying national rate of inflation, and not too far behind that pace in Melbourne.

This represents a marked shift from the moderate rental price growth reported in 2016, and may reflect tighter restrictions on investor credit and serviceability. 

ANZ job ads post "strong gain"

Jobs ads rise

Job advertisements were up again by a strong +2.7 per cent in June according to ANZ.

Ads are now a strong +10.5 per cent higher year-on-year, and seemingly accelerating.

AIG's Performance of Manufacturing Index (PMI) also posted another strong result, rising to 55.0, while NAB's Business Survey has been positive. 

Markets will have a field day on this, beginning to price in rate hikes late in 2018. 

Maybe premature on that front, but good to see an ongoing improvement nonetheless.  

Scorched earth

Home prices rise in June

Property prices zoomed +2.7 per cent higher in Melbourne in June, and +2.2 per cent higher in Sydney, according to CoreLogic. 

With serviceability constraints starting to bite in Sydney the monthly gains were largely driven by apartments, with units in the harbour (+4.5 per cent) recording a large jump. 

In reality this index produces a decline in May and then a rebound in June every year, so the quarterly results may be a better place to direct your attention.

Over the three months to June there were median price gains in Sydney (+0.8 per cent) and Melbourne (+1.5 per cent), while Brisbane notched the third strongest quarterly result (+0.5 per cent). 

The Sydney market has clearly pared back after blistering +5 per cent growth in the March quarter, echoing recent trends in auction clearance rates. 

A strongly monthly result saw the quarterly result move into the black there too. 

Source: CoreLogic

The Rest of State figures were flat over the three months to June, after a posting a negative result for the month.  

This now leaves Darwin as by far the worst performing capital city in line with a wide range of other indicators, with home prices some -7 per cent lower over the year to May at $480,000.

Rents on the way up

CoreLogic also found that stronger rental price growth has returned since the end of 2016.

Year-on-year extremely strong rental price growth has been recorded in Canberra (+8.4 per cent) and Hobart (+6.2 per cent), with Canberra experiencing considerably tighter vacancy rates following the controversial introduction of steeper taxes. 

And mirroring the findings of SQM Research and Domain, both Sydney (+4.5 per cent) and Melbourne (+4.1 per cent) are suddenly recording much faster rental price inflation as strong migration absorbs the available supply of rental stock. 

With energy costs also set to rise sharply, this dynamic may have important implications for monetary policy and interest rates, since it might begin to push inflation in towards the target control range. 

Find much more detailed analysis from CoreLogic in their media release. 

Iron ore bounces 22pc

Dirt rally

Something of an upside surprise given recently reported record high Chinese port inventory levels. 

Yet Australia's most valuable commodity has notched up a welcome 11 gains from the last 12 trading sessions, in doing so rising by nearly 22 per cent from its recent nadir.

The 62% Fines Fe benchmark iron ore spot price closed out the financial year a little under 17 per cent higher at US$64.71/tonne.

A recent speech by the Chinese Premier Li Keqiang may in part account for the magnitude of the rebound. 

The best explanatory commentary, as ever, can be found here at Business Insider. 

Leia's paradox

The Aussie dollar remains rather too high for comfort, trading at just under 77 US cents. 

But, then again, can that really be a surprise when ex-RBA Board Members are publicly anticipating a tightening cycle which could start soon and may be neither gentle nor gradual?

For the record, Bloomberg's recent survey of economists reported a median result of the cash rate staying flat at 1.50 per cent over the year to June 2018, with several forecasting houses still anticipating further cuts. 

Census hot takes

Hot takes

I thought I'd hold off from pooling my Census thoughts for a few days to let all of the usual ageing population pieces subside. 

With the median age now ticking over to 38, it was always going to be a popular take on the 2016 Census. 

By way of a typical example, Rick in The Australian noted back on June 27 that a middle-aged generation of Aussies is being sandwiched between an "ageing population" with "fewer young people coming after", and so on.

Demographic tsunami

I did my usual first cut of slicing and dicing of the figures by individual year of age, which as expected produced a markedly different shape to the population pyramid.

For me, by far the most striking news was - as I anticipated in a piece reported in The Australian itself on 8 September 2015 ("Waiting for housing's next spending wave") - the massive surge in the younger cohort aged from 25 to 32.

The legendary M. Pascoe did his usual excellent job of reporting my findings in what was a lead online story in The Sydney Morning Herald online, and in The Age:

"Wargent writes that it's necessary to drill down a level to get the really interesting demographic stuff. While the Census showed Australia overall is ageing, there's been a noticeable lift in the number of people aged between 25 to 32" reported M. Pascoe. 

And below you can again see my chart which showed by dicing up the population by age, there is what I coined a "demographic tsunami" on its way, which in turn will have material implications for housing market demand. 

This was a hugely popular article from M. Pascoe as evidenced by the scores of Tweets and social media shares. My key argument, as I explained in more detail here, was that:

"Australia's migration and visa programmes have become largely tilted towards the under 30s, and, more lately, to international students.

And to be clear it's immigration that's been driving the recent acceleration in population growth, not births.

Splitting out the Census figures by year of age thus reveals a significant demographic wave of the resident population about to move towards the typical homebuying age."

Feature article

Roll on to today, and Rick in The Australian was back, this time to announce a feature he wrote on...the boom in those aged 25 to their early thirties. 

The key points in the article this time around were that...there has been a big surge in the number of those aged from 25 to their early thirties, largely driven by immigration from Asia:

"Now is the awakening of the Millennial leviathan" says demographer Bernard Salt..."

Ha.

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If you thought last week was good, the coming week will be an absolute ripper, with more on the Census to come, and a raft of interesting news due out, kicking off with Building Approvals on Monday. Stay tuned!

Mortgage growth displays the strength of 10 men

Mortgage growth accelerates

One of the criticisms of macroprudential measures to cool lending (as opposed to the Reserve Bank lifting the cash rate) has been that they can't "get in all the cracks".

And those sneaky lenders have been up to their old tricks, with mortgage growth accelerating strongly in May, directly contradicting almost all market commentary.

It's hard to get a read on this.

With borrowing capacity increasingly constrained, it may imply higher volumes. 

APRA released its Monthly Banking Statistics yesterday which confirmed that banks expanded mortgage books by 0.6 per cent in May, with owner-occupier loans rising by 0.7 per cent. 

Respected banking analyst Martin North referred to the growth as "too strong", noting that "home prices will continue to rise", although this wasn't reported anywhere of note, at least as far I could see. 

Growth in investor loans also accelerated in May, up from 0.39 per cent to 0.42 per cent. 

For more detailed analysis of the individual components, including the speed at which the individual banks are growing their respective investment mortgage books, subscribe for our monthly reports. 

Housing credit picks up

It was a busy day indeed for credit-related statistics yesterday, with the Reserve Bank of Australia (RBA) also releasing its Financial Aggregates figures for the month of May. 

Credit growth expanded by 5 per cent of the year to May, while broad money growth remained somewhat stronger at 7.3 per cent. 

Drilling into the components of credit growth, housing credit had a stronger month, meaning that the annual rate of housing credit growth has continued to pick up speed from 6.32 per cent in November to 6.59 per cent in May. 

Investor credit grew by 7.5 per cent over the year, but the trajectory up growth looks to be calming as banks jack up investment loan rates to encourage more owner-occupier loans.

Despite being inherently 'riskier', at least on a historical basis, business credit growth is considered by many to be vital.

However, stock exchange (ASX) market data records three consecutive months of strong aggregates in initial and secondary capital raisings totalling more than $12.5 billion, showing that business lending is far from the be all and end all for investment.

Business surveys also saw conditions hit multi-year highs early in 2017, while job surveys point to a broad-based improvement in hiring. 

In other words, you can't just look at total outstanding business credit increasing by 3.1 per cent over the year and dismiss growth as weak. 

Since July 2015 the purpose of some $53 billion of loans has been switched from investment to owner-occupier, following the introduction of an interest rate differential. 

Thus, investor credit may be slowing, but the way the figures dovetail these days, the lines between what is an investment loan and what isn't seem to be increasingly blurred. 

In any event, reported as a total housing now accounts for a record 62 per cent of outstanding credit.

Finally, and not too surprisingly, through netting off the results we can see that non-bank lending has picked up some of the slack to grow by a faster pace in May. 

Total housing lending now sits at some $1.67 trillion.

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