Strong 2nd quarter for retail expected

Odds & ends

Towards the back end of last week, the ABS reported that export prices dipped by -5.7 per cent in the second quarter of 2017. 

Nevertheless, export prices remain some +22.5 per cent higher than a year ago. 

Moreover, there is potentially a solid rebound in the post for Q3, driven by the bulk commodities.

In other news, the ABS also confirmed minimal inflationary pressures in its producer prices index release.

There's no doubting that the Reserve Bank will leave rates on hold at its August meeting this week.

Week ahead

Attention will be diverted to some other news instead.

Real retail sales are expected by market forecasts to come in with a strong +1.2 per cent result for the June quarter, with possible risks to the upside on a weak deflator. 

There has been an improvement in retail momentum in recent months.

Thus, the economy is shaping up for a decent run in 2017.

The greater challenge will come in 2018 when residential construction slows.

Wednesday's building approvals figures are expected to throw out a solid result for the month of June, especially for the sectors that aren't high-rise apartments.

Even so, ongoing weakness in Perth and in apartments in Brisbane should be enough to keep the downtrend intact, with dwelling starts to slow over the year ahead. 

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Melbourne to overtake Sydney within a decade

10-years of population increase

Figures released by the ABS today showed that Australia's population increased by 18 per cent or 3.8 million over the decade to 30 June 2016. 

That's a hefty increase, and a rate at which the delivery of infrastructure will struggle to keep pace.

Victoria experienced by some margin the largest growth in terms of absolute numbers at 1.1 million persons, followed by New South Wales (+996,600), and then Queensland (+840,900).

Capitals suck in population

77 per cent of the total population growth was experienced in capital cities over the past decade.

However, the trend towards the capitals is accelerating, with some 84 per cent of population growth in FY2016 taking place in those cities. 

The trend was particularly stark in 2016, driven forward by the most populous capitals of Sydney and especially Melbourne. 

Melbourne to overtake Sydney

The population of Sydney grew by +773,607 to 5,029,768 over the ten year period, for an increase of 18.2 per cent (compared to 9 per cent growth for regional New South Wales). 

Melbourne's population increased by an even stronger +964,556 to 4,725,316, representing a 25.6 per cent increase. 

Over the same time period the population of regional Victoria increased by a comparatively sedate 153,427.

Greater Melbourne's population growth was incredibly strong in FY2016, at a gold-rush-like +126,175.

If current trends were to persist the city population could exceed that of Sydney within a decade.

A lot can change in ten years, of course, but if anything more people seem set to leave Sydney for south-east Queensland over the years ahead, which could prove to be the decisive factor.  

Sydney & its super-frothy house prices

Frothy Sydney prices

Sydney’s crazily high house prices seem to have become a staple topic at barbecues and sausage sizzles across the harbour city these days.

With prices seemingly at or close the peak of the market cycle, should you even try to buy today, assuming you can afford the high entry prices?

There’s no 'one size fits all' answer to that question, but here are a few important considerations...

Time horizon

With the jobs market more fluid than ever before, we are changing jobs, locations, and even careers far more frequently today than was the case for generations past.

With stamp duty levies on Sydney purchases now so high, it may only make sense to buy a home if you are reasonably confident that you will be in Sydney for at least a few years, and ideally longer.

The transaction costs of buying a property can sometimes be up to 5 to 6 per cent of the purchase price, and there are further costs to account for when you come to sell.

First homebuyer incentives

The New South Wales State Government has recognised this hurdle facing first homebuyers and from 1 July 2017 has abolished stamp duty on all homes bought by first homebuyers up to $650,000, while offering stamp duty relief for homes priced up to $800,000.

The NSW Government’s comprehensive package included other measures to promote affordability too (albeit they aren't really designed to lower prices).

Given the above, it may not be a bad time to purchase for first homebuyers, provided you have a reasonable time horizon.

At least historically, waiting for prices to crash in the most populous cities has not been a fruitful strategy for those aiming to get onto the housing ladder.

Record building boom

The above having been said, there are presently more than 82,000 new dwellings under construction across the state, the highest figure on record, so some areas are at a greater risk of falling prices than others.

These areas typically include the suburbs where most new dwellings are built, such as blocks of land on the city fringe, and high-rise apartments in some of the suburban construction hotspots.

‘Rentvesting’

With the uncertainty surrounding Sydney’s expensive housing market, more young aspiring homeowners are choosing to rent where they want to live, while buying an investment property elsewhere to get a toehold on the housing ladder.

If well planned and executed this can be an effective strategy. There’s even a new name for it: ‘rentvesting’.

What do you think? Keen to hear your thoughts!

Come to our Money for Life workshop on Saturday 7 October 2017, for straight-talking, no nonsense financial education (click image for details).

All points north

The chief of Stockland, Mark Steinert, has declared Brisbane's inner city apartment market oversupplied.

Uh-huh!

Though some of the building is commercial. 

There's a lot of stock to be absorbed, though fortunately there has been a ramp up in internal migration especially from Sydney.

Indeed 'A Current Affair' did a short piece yesterday on the great northern migration getting underway.

A well-covered topic on this blog, of course, including here: The big move north is underway.

Sydney labour market strengthens

Sydney leads

Australia's total annual employment growth has lifted to +2 per cent, taking the total number of employed persons up to 12.2 million, representing a material improvement in 2017.

After a remarkable 3-year run, Sydney hiring is off and running again, with total employment growth surging back towards +2.5 per cent, and employment +64,500 higher year-on-year. 

Despite the relatively high level of unemployment on the Central Coast, across Greater Sydney the unemployment rate has now fallen to just 4.36 per cent. 

The annual average unemployment rate for the harbour city is now at the lowest level since the financial crisis, helping to explain why mortgage arrears have been falling from already low levels to even lower levels. 

Perhaps small wonder that the Sydney housing market has held up so well looking at these numbers.

Brisbane has seen an big uplift in inbound internal migration, but appears to be struggling to absorb the intake with gainful employment as apartment construction slows.

Accordingly, the Brisbane unemployment rate has lifted somewhat.

"Gizza job!"

The median duration of job search across Australia has improved, if marginally, from 20 weeks a year ago to 19 weeks in June 2017. 

While Hobart has been improving on this measure, it now takes 22 weeks on average to find a job in Adelaide, which is a concern. 

Finally, a look at Townsville employment as a bellwether for the resources-influenced regions shows that total employment has rebounded from the lows of 2016. 

The wrap

Overall, the labour market seems to have turned a corner in 2017, albeit with the proverbial turning circle of the QE2.

And the results do remain quite unbalanced around the states. 

Sydney looks set to most enjoy the benefit of low interest rates for another couple of years, which may in turn result in the return of stronger wages growth. 

Job vacancies up by a quarter from 2013

Increase in 'quality' jobs

The recovery in the labour market has been slow, surreptitious, and shallow, so you'd easily be forgiven for having missed the bottom, but job vacancies do indicate a steadily improving immediate outlook.

After a solid result in the month of May, trend vacancies improved again by +0.9 per cent in June 2017.

Vacancies are now +23 per cent or +32,100 higher than at their October 2013 lows, and sit at their highest level in five years.

Notably Skill Level 1 jobs have seen a +25.3 per cent since increase since the lows of ~50,000 in August 2013. 

Skill Level 5 jobs have increased more modestly by +14.8 per cent since their 2015 low of 19,400. 

Trend job vacancies were on the up for all occupational groups in FY2017, but the strongest increases were for machinery operators and drivers - which were up by +21.5 per cent over the financial year, albeit from a small sample group - as well as technicians, and trades workers. 

State versus state

Naturally, the employment outlook for employment is always important for the respective city housing markets.

But this is doubly so in 2017.

Since there has been an unprecedented volume of apartments under construction the three most populous capital cities need to be able to sustain strong immigration rates in order to absorb the new stock, in addition to attracting international students. 

New South Wales appears reasonably well placed in this regard, with the Department of Employment reporting some 65,500 vacancies. 

The ABS survey has also previously recorded a super-strong 69,300 vacancies for NSW, an all-comers record high for any state on that measurement (this index was put on ice for a while during a period of budget cuts, accounting for the mysterious gaps in the chart). 

Following a recent surge, Victoria has now seen a +5.9 per cent trend uplift in vacancies over the financial year to a solid enough 45,100.

In many ways Queensland faces some of the greatest challenges, with thousands of new apartments coming online, yet employment having been held aloft by public sector hiring and, well, jobs related to apartment construction! 

There was some promising news in the Sunshine State with trend vacancies up by +7.9 per cent over the year to 31,600, making Queensland the second strongest year-on-year performer on this measure. 

South Australia has recently been the surprise package on this index, with a +13.3 per cent trend annual increase.

However, there were declines in Tasmania, the ACT, and a substantial double digit trend decline in the Northern Territory. 

Finally, having nosedived by -28.8 per cent over the two years to September 2016, trend job ads in Western Australia have recovered somewhat to be 9.6 per cent above their September 2016 nadir.

The wrap

Clearly it's a far cry from the heady days of the mining boom when you could sometimes get a pay rise or even a bonus just for turning up to work, such were the skill shortages in certain sectors.

Nevertheless it's good to see that vacancies have been rising solidly over the last five years, albeit with a couple of stumbles along the way. 

On this evidence, Sydney and Melbourne will continue to attract the bulk of immigrants, while Melbourne is also attracting workers from all over Australia, rendering its forecast apartment glut a big fat fizzer.

Weakest June quarter inflation in 14 years

Do the hawk...

Oops! Inflation was remarkably weak in the June quarter at just +0.18 per cent, the softest inflation result for the second quarter of the calendar year since 2003. 

Thus, not only is core inflation tracking below the target 2 to 3 per cent range, now headline inflation is too, at just +1.9 per cent. 

To be fair, though, here was another moderate annual increase in non-tradables inflation - a proxy for domestic price pressures - so the inflation pulse arguably still at least has a...erm, pulse.  

As widely expected, automotive fuel prices pulled the headline result down in the quarter. 

Looking more closely at the seasonally adjusted and analytical series, both of the core measures came in at +0.5 per cent for the quarter, although the weighted median was within a hair's breadth of being rounded up to a +0.6 per cent reading.

Over the past year both core measures came in at just +1.83 per cent and +1.84 per cent respectively.

Other soft spots for inflation included the intensely competitive clothing and retail sectors.

Rents weak...nationally

Many readers of this blog have a good deal of interest in the housing market, so let's have a quick shufty at what's happening to rents around the traps. 

Annual rental price growth remains weak at just +0.6 per cent as a weighted average of the eight capital cities, which is the equal lowest level in 23 years, a direct consequence of the building boom combined with record numbers of Mum and Dad landlords. 

There were some wild variations around the capital cities, however.

The headline result was impacted heavily by increasingly sharp year-on-year declines in Perth (-8.1 per cent), and another weak result for Darwin (-7.2 per cent). 

Brisbane rents were only flat over the past year as the impact of the inner city apartment oversupply threatens to ripple through to the wider apartment market. 

There was a much juicier +4.2 per cent annual increase in rents in the tight Hobart market down in resurgent Tassie. 

In Sydney, rents (+2.5 per cent) continue to comfortably outpace inflation, and indeed over the past decade rents in the harbour city (+54 per cent) have increased by exactly doubled the growth in the index for all groups CPI (+27 per cent). 

The wrap

Overall, it was a stunningly low inflation result for the headline inflation figure, which should keep the interest rate hawks in check for now. 

If you look more closely at the analytical series, though, you could arguably make the case that the weighted median inflation figure is gently drifting back towards the target range, while the annualised trimmed mean figure was essentially flat when you drill in to an extra decimal place. 

With several indicators of improvement in the economy, and with the Reserve Bank's own inflation forecasts suggesting that the middle of the target range will be hit sometime around the middle of the next decade, we could well be in for a loooong period of rates on hold.