Weekend reads - must see articles of the week

Here they are, at Property Update.

I don't make many explicit recommendations on my blog.

But you should definitely join the free mailing list, for a wealth of market updates.

Have a great weekend (and come on England!)!

Mortgage arrears decline again

Arrears well down from 2017

Short and sharp and sticking strictly to the facts today.

S&P Global reported Prime SPIN 30+ day mortgage arrears at just 1.08 per cent.

That's well down from 1.21 per cent a year earlier, with Western Australia, the Northern Territory, and some parts of regional Queensland the only delinquency hotspots of any note. 

And it's certainly a long way below the 2011 and 2012 peaks at 1.6 per cent, when mortgage rates were considerably higher. 

This is broadly consistent with the HILDA surveys and analysis released by the Reserve Bank of Australia, which found that mortgage stress is not particularly high at the present time (while the labour market continues to improve steadily). 

It's also worth noting here that 90+ day Prime SPIN mortgage arrears of just 0.49 per cent were well down from 0.65 per cent a year earlier. 

As for those so-termed 'dodgy' non-confirming loans, arrears continued to plunge from 4.19 per cent in March 2018 to only 3.86 per cent in April 2018. 

That's the lowest level of non-confirming arrears across two decades of data. 

If I was to highlight one area of weakness, it would be the increase in 90+ day delinquencies on the books of the major banks.

But even here the increase was only to 0.65 per cent. 

Retail displays some bouncebackability

Retail bounces

Monthly retail turnover beat expectations in May 2018, rising by +0.4 per cent to a fresh high of $26.7 billion, seasonally adjusted, a rare second consecutive beat on market expectations.

The April result had been dampened by unusually warm weather, although the result for the prior month was revised up to +0.5 per cent. 

In any case, the impacted industries rebounded in May, particularly department stores (+3.9 per cent), and clothing and footwear (+2.2 per cent). 

The ABS reported significant turnover gains in New South Wales (0.5 per cent), Queensland (0.4 per cent), South Australia (1.1 per cent), Tasmania (1.5 per cent), and the Northern Territory (0.4 per cent), with the ACT flat.

Victoria has been a solid performer over the past year, with Western Australia languishing.

The wrap

There is still evidence of price discounting around, but a new GST on low value imported goods from July 1 may provide a little support to prices. 

On the other hand online retail turnover increased to 5.6 per cent of total retail turnover, up from just 3.9 per cent a year earlier.

With Amazon Prime set to cut further into retailer margins, there seems top be little prospect of significant consumer price pressures arising from the retail sector. 

Sydney chill

England!

As soon as I confirmed my Sydney flight booking this week it occurred to me that England's World Cup knockout game would inevitably drift on towards stoppage time drama, and then extra time, and then penalties.

And it did all of the above, of course, leaving me to watch the agonising penalty shootout in the salubrious surrounds of Brisbane Domestic. 

But past results are no guarantee of future performance, and against all expectations, the Three Lions actually survived!

Get that man a Milton mango!

Not a great performance, but we live to fight another day, and are now into the final 8.

Onwards to face Sweden in the quarter finals at the weekend.

Thin ice

It was positively Baltic when I finally made it down to Sydney yesterday (well, 22 anyway). 

But the local economy has been running pretty hot for some time, with Sydney employment soaring from 2½ million to 2¾ million since 2015. 

We're now entering a really interesting period for Sydney, with little consensus around what happens next. 

The unemployment rate in Sydney is down to just 4.2 per cent.

So that's very good.

And the services sector is catching fire - the latest available figures to the end of May 2018 revealed an extremely high number of jobs vacancies in New South Wales, at 77,300. 

That compares to only about 202,400 persons across the state - a now healthy ratio implying that the unemployment rate could soon even be sporting a tremendously appealing 3-handle.

Construction is still booming, but this sector could be the complicating factor.

At the end of 2017 there were more than 68,000 attached dwellings under construction across the state, a record high. 

How the housing market and developers cope with the absorption of all that supply over the next six months, I'm not sure, but some temporary indigestion seems likely. 

As far as I can tell a lot of those completions have now come online or are in the process of doing so, but there also seemed to be plenty under construction on the lower north shore still. 

One thing I am fairly certain of is that in time housing market renters will begin to congregate more around transport hubs.

With the CBD & SE light rail completion date still seemingly an age away, Anzac Parade and George Street remain partly out of action for road traffic, which is causing no end of headaches for drivers and commuters. 

---

For vegan readers that enjoy a sort of faux meat yum cha/Pan-Asian cuisine: highly recommend Bodhi at the Domain as a fine way to warm the old cockles!

Also can recommend sitting indoors, but. 

Back to the Queensland warmth now, thankfully! 

Annual exports close in on $400 billion, thanks to coal/LNG

Exports at record levels

Tremendous strength in Australian exports.

The international trade balance was another handy surplus of $827 million in May 2018, an increase from the revised $427 million reported for the preceding month of April. 

Strength in coal prices sees aggregated export values for all types of coal threatening to usurp iron ore as Australia's most valuable commodity. 

With LNG revenues also growing very strongly, May was the second highest month on record for total merchandise exports at $28.3 billion in original terms. 

Services exports also eked out a record high in May, albeit only just.

Indeed, the total annual value of exports from Australia has surged to nearly $400 billion, having temporarily slumped below $320 billion in 2016 in the face of severe downward bulk commodity price pressures.

Aig's Performance of Services Index (PSI) exploded to a reading of 63 when it was reported this morning, indicating that Australia's massive services sector is expanding at the fastest pace ever. 

On the one hand, the record high jobs vacancy figures reported last week validate this uber-bullish view of the services sector. 

Hopefully this does prove to play out domestically; and it would be wonderful if true.

On the other hand, the survey does bounce around a bit, and it may well retrace over the coming months.

Internationally, services exports did hit their highest ever level in May, driven by pharmaceuticals and ongoing strength in tourism and education, but there's no real indication of a boom in these figures. 

Aig's indices are designed to be leading indicators, though, so if they're right then it's brighter days ahead for the services economy, mainly benefiting the most populous capital cities. 

Approvals pointing to construction downturn

Approvals suggest weakening

Let's cut through the bear porn to unpick the May 2018 building approvals figures.

Unit approvals held up surprisingly well in the month, mainly supported by Melbourne.

House approvals were down by 8.6 per cent in seasonally adjusted approvals in the month. 

At the capital city level, not much was different from a year earlier, save for a slight decline in Perth and Brisbane. 

Interestingly the ABS found a few bonus approvals from preceding months in Hobart, which to the casual observer (i.e. me) seems more reflective of what's popping up on online listings. 

May was the second highest ever individual month for detached house approvals in Hobart, with the total annual approvals figure rising to a fresh-83 month high at close to 1,400.

Hobart is a small city of about 220,000 or so, and therefore a comparatively small upswing in construction can change the supply-demand dynamic, but with the statewide population growing at abut 5,000 per annum that outcome appears to be quite some way off that yet.

The wrap

A bit of a dichotomy here, with revisions to previously reported numbers taking the annual number of approvals higher, up to a very strong 229,433. 

Note in particular the spike in November, now revised up to 22,185, about 1,000 higher than initially reported.

That said, the trend across recent months is quite clearly down, with attached dwelling approvals shaping down towards 4-year lows in the face of macroprudential tightening and weaker capital city dwelling prices. 

The other question mark is whether approvals translate into actual commencements, with the total number of dwellings approved but not yet commenced hitting a fresh high at the end of 2017, driven by Sydney apartment projects. 

The total value of resi building approved over the year to May remains high, financiers permitting, while non-residential approvals are now paring back in New South Wales. 

The non-residential pipeline is solid, with Queen's Wharf in Brisbane and a raft of infrastructure projects in Melbourne the key drivers here. 

Overall, building approvals appear to remain solid enough, but it's increasingly difficult to see new apartment projects achieving enough pre-sales in the tighter financing environment.

Non-residential buyers have backed off in the face of stamp duty surcharges, and prospective resident off-the-plan buyers fear falling prices leading into settlement.

Therefore the downturn in apartment approvals likely does indeed presage a construction downturn. 

Household debt 1.9x disposable income

Debt 1.9x income

There was a flurry of excitement back in January when previously reported 2017 figures implied that Australia's household debt pile had temporarily nudged against twice disposable income. 

However, the headline number was subsequently revised down.

The latest ratios from the Reserve Bank of Australia (RBA) show household debt now sitting at at 1.9x disposable income.

Or 190.13 per cent as at March 2018, to use a bit of false precision, up from 183.51 per cent a year earlier. 

There's a lot of debate about what this debt ratio should or shouldn't be.

It will probably remain higher than was previously normal given the structure of Australia's population and immigration profile, with policy generally taking a keener regard of interest payments and serviceability. 

Although this is a revised series high, the rate of increase has slowed somewhat (while the gross figure also doesn't account for the record mortgage buffers and use of offset accounts racked up through this cycle).

Moreover, given the precipitous drop in both the stock and flow of interest-only mortgages the ratio is likely to peak relatively soon as income growth also moves beyond the nadir. 

Anecdotally lenders are making it very difficult for brokers and borrowers to see loans written at the present time, which I believe will see the seasonally adjusted monthly value of investment loans pushed down to around $10 billion by the middle of the year, from nearly $15 billion at the 2015 peak.

Money growth is now at its lowest level in 26 years, and investor credit growth is at a record low of just 2 per cent, even before accounting for headcount growth and inflation. 

Gloomy UBS forecast does not eventuate!

Multinational investment banking behemoth UBS ran a complex scenario analysis to forecast the winners of the 2018 World Cup.

Running some 10,000 simulations, UBS announced to the world that the winner of this year's global tournament would be...Germany!

Alas, to the wry amusement of economists everywhere, holders Germany were promptly dumped out of the event at the very first hurdle upon suffering a humiliating defeat at the hands of mighty South Korea. 

Now, it's all very well to sit on the sidelines and chirp, you might say, but what about my forecasts?

Well, apologies for the delay, but it's a difficult one this year with so many great sides in contention, including Brazil, Spain, France, and, erm, South Korea.

But having finally run a highly sophisticated Monte Carlo simulation model, my forecasts are finally in.

And here they are!

There will quite possibly be no daily blog on Wednesday due to the super-early kick off time.