Some lights are on; anyone home?

Brisbane units

I recently wrote a short blog piece on the different ways in which the Brisbane apartment market is slowly adjusting to oversupply.

In 2015, it was typically far easier to get apartment approvals across the line, with Brisbane City Council and town planners generally more amenable to borderline applications.

Today code assessments are more stringent, and in any case developers are struggling to sell out existing projects, let alone get new projects off the ground. 

The Skyring at night

Officially reported vacancy rates are quite elevated in Brisbane, particularly in the construction hotspot inner suburbs. 

Vacancy rate figures may struggle to pick up multiple apartments available for let behind one advertisement, while another unknown is how many apartments are being deliberately left vacant by non-resident owners.

The 2016 Census figures showed that of the dwellings constructed over the past four years, 17 per cent were unoccupied.

You'd normally expect to see about one dwelling in ten vacant on Census night. 

There could be a number of other explanations for the higher number of unoccupied dwellings, including properties that are ready for demolition, due for repair, available to be let (whether through official web portals or elsewhere), or those that are only newly completed and not yet inhabited.

The simplest of all tests is simply to take a wander around the construction hotspots in the evening.

This is the Skyring at 9.30pm last night. 

You would be hard pressed to draw too many firm conclusions from this except to say that the units are clearly filling up, however gradually. 

A year ago the same photograph would have yielded only a great blackened void.

It's clear that some new blocks are more occupied than others. 

And some of the more upmarket developments on the waterfront seem to be reasonably well utilised, despite the higher price tags. 

Moreover, there does seem to be more activity in the area generally, with new department stores and schools opening, and a noticeable uplift in traffic and usage of the local parks.

Overall, it appears that renters are steadily filling up the new centrally located developments with high 'walkability' appeal in favour of Brisbane's dated middle ring rental stock (of which there is a great deal). 

More thoughts here.

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International trade figures are due out at 11.30am morning.

A resurgent trade surplus is forecast for the month of May driven by rising LNG exports after the April result was impacted by the Cyclone, although a sharp decline in the iron ore price will offset this.

Services sector expanding faster

Expansion territory

AIG's Performance of Services Index (PSI) rose by +3.3 points to 54.8 in June.

Source: AIG

In fact, all of the indices have moved strongly above the 50 level denoting expansion from services (54.8), to manufacturing (55.0), and construction (56.7).

All good signs for the economy here. 

More details here from David Scutt at Business Insider.

NSW stamp duty receipts approach $10 billion

The extraordinary windfall for New South Wales continues.

Volumes still way high too.

If well invested Sydney's unemployment rate could go below 4pc.

Hobart the tightest market

Listings up in June

Listings rose 3 per cent in June, driven mainly by a 7 per cent jump in Brisbane.

Higher listings in the month mirror recent softening auction trends, reported SQM Research. 

Over the year, listings are still 3.3 per cent lower, with Melbourne (-12.7 per cent) and Hobart (-14,8 per cent) recording excessive declines. 

Melbourne house prices have exploded

The Hobart market is very tight, with a total of only 2912 listings, sending rents and house prices higher. 

With the other exception of Melbourne, listings are generally higher this year than last.

Listings in Brisbane jumped by 7 per cent in June, as vendors struggle gamely to offload a glut of apartment stock. 

Meanwhile SQM reported that median asking prices in Melbourne have exploded, rising by 22 per cent over the year to June. 

Indeed, Melbourne asking prices for houses have increased by a massive 48 per cent over the past three years, now comfortably outstripping growth in all other capital cities, including house prices in Sydney at 39 per cent. 

Retail bounds back

Economy humming

Retail turnover followed up a strong +1 per cent gain in April, beating out expectations with another solid +0.6 gain in May 2017, to dispel concerns of a retail recession. 

Over the past year national retail turnover has risen at a solid lick, up by +3.8 per cent to a fresh high of $26.08 billion.

Big states lead

Retail turnover has stalled in weather-impacted Queensland over the past quarter.

In the month of May, however, New South Wales (+1.3 per cent), Victoria (+1.2 per cent), Tasmania (+1.2 per cent), ACT (+1 per cent), South Australia (+0.8 per cent), and Western Australia (+0.3 per cent) all recorded solid gains.

The two most populous states have seen renewed increases, with the Census showing that population growth in Sydney and particularly Melbourne has quickened.  

Over the past year the ACT (+5.7 per cent) and Victoria (+5.2 per cent) have been leading the way in terms of retail turnover growth, with South Australia (+4.9 per cent) not all that far behind. 

Industry trends

The monthly increase was driven by household goods (+2.2 per cent) and clothing and footwear (+1.3 per cent), but department stores had another stinker of a month with turnover declining by -0.7 per cent. 

The combination of strong household goods sales and outperformance in New South Wales implies some replacement of flood-damaged items, a point well identified by Scutty at Business Insider. 

Cafes, restaurants, and takeaway food services (+0.6 per cent) recorded yet another solid gain, continuing a multi-decade trend. 

The wrap

It's another tick in the box for a domestic economy that is steadily gathering a bit of momentum.

The Reserve Bank of Australia (RBA) was stone dead neutral in its monetary policy decision in leaving the cash rate on hold at 1.50 per cent, in doing so wiping away a lot of extremely premature extrapolation about a looming rate hike. 

Markets read this one quite badly wrong, and the Aussie dollar dropped sharply. 

Out of interest

Debt & repayments

Household debt is now at record highs according the RBA's tables, and as reported in the headlines.

Here's the household P&L side of the equation: interest payable to income ratios.

The housing interest payments to income ratio is 36 per cent below the peak. 

Remember that lenders began tweaking interest-only mortgage rates higher in Q2 2017, so this will begin to show up in the figures from next quarter. 

Rental price inflation returns

From CoreLogic, the upswing the last 9 months has been immense.

Investors are finding it harder to finance purchases of rentals, and rising rents is what follows...

Source: CoreLogic

Building boom rumbles on

Midas touch?

It was only a couple of months ago that the Reserve Bank of Australia (RBA) seemed to be somewhat painted into a corner. 

Since then, there has been a general improvement in reported data and a number of business surveys, to the extent that markets are beginning to price an interest rate hike late next calendar year. 

Most importantly, full time employment has reportedly snapped 124,000 higher since September, with notable strength reported across the last five months, at about 20,000 per month. 

Engineering construction, having declined by 43 per cent since the peak of the resources construction boom in 2012, is also now rising again. 

Challenges remain, of course. 

The Holden closure and the shuttering of the auto assembly industry is still cited by some as the potential cause of a recession, even though this has been known about for years.

A challenge on a far greater scale given that a total of nearly 1.1 million Aussies are directly employed in construction is likely to be the headwinds created by the eventual downturn in residential building.

Building approvals remain elevated

Yesterday's building approvals figures recorded quite a sharp year-on-year decline in the number of dwellings approved, as broadly expected, and as I looked at in more detail here.

Some more welcome news for the RBA was that the value of non-residential construction approved over the past year has increased to $42 billion. 

This figure represents a very strong 17 per cent year-on-year increase.

Although not inflation-adjusted this series for non-residential work approved now exceeds the peaks reached in 2010 following the Rudd stimulus packages, which were designed to promote increased activity in schools and education, health and hospitals, infrastructure (as well as white goods and slabs of VB). 

New South Wales has seen a number of major projects approved in recent years - you can actually see the recent spike driven by James Packer's casino and hotel development at Barangaroo - with the annual value of total non-residential building approved in the state tracking at $13.5 billion. 

Victoria isn't too far behind at $11.7 billion, while there was a strong lift in Queensland in the month of May to an annual total of $7.9 billion. 

Adding in the total value of residential building approved brings up a total of $115 billion.

There is a salient risk that some residential projects never make it to the construction phase - indeed, I can see a few such candidates from right where I'm sitting - but for now at least the total value of approvals remains only marginally below the peak of $117 billion hit in September 2016.