What does the 2019 election mean for you?

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Total recall

Total returns

A bit of context on the recent stock market downturn in Australia.

The S&P/ASX 200 total return index adjusted for franking credits now shows 10-year annual returns in double-digit territory as the global financial crisis crunch recedes out of view.

On 21 October 2008 Aussie shares plunged more than 8 per cent for the weakest day's trade in 21 years - in fact it was the biggest day's drop in the history of the S&P/ASX 200 index - but these figures are now outside the 10-year benchmark. 

And, since that time, total returns have been very sound. 

Which just goes to show the importance of returns from dividends, especially where those dividends are franked. 

This franking credit adjusted index was first created by S&P in 2014, and back-tested accordingly.

Average mortgage size leaps in Queensland

Points north

The average mortgage size in Queensland in the final quarter of 2018 took a leap from $424,000 to above $450,000 according to AFG's latest mortgage index.

Evidently more southern state types are taking their borrowing capacity north to the Sunshine State. 

Overall lending volumes through AFG brokers were way down on a year earlier at a shade over $13 billion for the quarter.

The prior year comparative figure was $14.8 billion, some 12 per cent higher.

Major lenders continue to leak market share at under 58 per cent of lodgement volumes, down from 78 per cent in 2013. 

With the share of investors in the market well down - and the share of interest-only lending also at the lowest level across the data series - a natural consequence of this is borrowers redirecting their borrowing capacity at larger home loans. 

Thanks to Queensland borrowers the average loan size nationally hit a fresh high level in the fourth quarter of 2018 at $509,162, up from $499,193 a year earlier.

The ABS has noted it has discontinued its figures on implied average loan sizes due to loan-splitting potentially understating the results. 

According to Reserve Bank of Australia (RBA) research only around 1 in 10 borrowers use their maximum borrowing capacity or something close to it, helping to explain how the average loan size can now be at a record high. 

In the RBA's own words "tighter lending standards do not constrain most borrowers, but do affect some". 

Lowest NSW & VIC unemployment rates on record

Job gains continue

Employment growth continued to reflect elevated job vacancies in the two most populous states in December 2018, with seasonally adjusted employment up another +21,600 in the month.

And after a minor upwards revision to the preceding month's figures employment gains for the final quarter of calendar year 2018 were very solid at +87,000. 

Looking at the smoother trend figures, over the year employment grew +285,000 or +2.3 per cent, comfortably a strong enough level of growth to push down the unemployment rate, even if part-time employment was a fair chunk of the increase.

You can click to expand the 6 charts below. 

If you've been listening to many of the podcasts I've recorded lately and through 2018, you'd know that I was confident Melbourne would take pole position for jobs for the foreseeable future, largely thanks to its 'everything' construction boom. 

Right on cue the strongest quarterly growth in employment was seen in Victoria (+38,000), followed by Queensland (+30,000), and then New South Wales (+11,000). 

Over the year employment grew strongly in Victoria (+120,000), New South Wales (+94,000), and Queensland (+55,000).

You could just about throw a wet Captain Cook replica tarp over the rest, with Tasmania surprisingly recording negative employment growth over 2018, which I believe may prove in time to be an anomalous reading.

Unemployment falls below 5pc

Upbeat news, then, and enough to push the trend unemployment rate down to 5 per cent, the lowest level in the 91 months since May 2011. 

Indeed, zooming in the chart to a 5-year timeframe the seasonally adjusted unemployment rate actually printed at under 5 per cent (notionally 'full employment') at just 4.98 per cent for the first time in 6½ years. 

With an election coming right up come commentators appear keen to downplay the result, but a bit of credit here where it's due. 

The seasonally adjusted unemployment rate in New South Wales is now as low as we've ever seen - at least since comparable records began more than 40 years ago in the 1970s - at just 4.34 per cent.

And look at Victoria go with an unemployment rate of only 4.15 per cent (as anticipated on this blog, by the way). 

The smoother trend figures below confirm that more sprightly wages growth is in the post in Sydney and Melbourne. 

Finally, to temper some of the excitement, although hours worked grew reasonably solidly at the end of the year, across 2018 the trend growth was far more muted at 1½ per cent, and there's clearly still slack aplenty away from the big two states. 

Tightrope time

Another good result here, and the Reserve Bank almost appears to be on the cusp of pulling off an economic masterstroke when you look at the factors that will reduce debt to disposable income ratios henceforth. 

These factors include wages that are set to rise in Sydney and Melbourne, hundreds of billions of dollars of interest-only mortgages switched or switching to principal repayment, markedly reduced monthly mortgage lending flows since 2016, and forthcoming tax cuts to be announced by the Coalition (though, granted, Labor has some slightly different plans). 

That's about where the good news ends, though, since through over-regulation the Royal Commission has utterly crippled confidence in the banking, financial services, and real estate sectors, and most all of the forward-looking indicators are considerably more fragile than what's visible in the rear-view mirror. 

Westpac expects to see that inflation sunk to just 1½ per cent in Q4, meaning that the 'target' will have been missed on the downside for three years consecutively.

NAB also announced earlier today that it was hiking its mortgage rates out of cycle, while the window for central bank hikes is quickly being slammed shut (in Australia, and quite probably globally). 

The Royal Commission final report is due out a week from now, and the government will be desperately keen to manage the key messages as deftly as possible. 

Sign of the times

Tightening everywhere, man

Fewer homebuyers and more tenants...and fewer landlords. 

Expecting to see a lot more of this in Victoria over the next two or three months, with agents reporting multiple lease applications for investment grade properties. 

Not so likely for generic new apartments, though. 

Rental vacancy rates have historically tended to tighten sharply in Melbourne in the early months of the year, especially over the past eight years or so. 

Vacancy rates have tightened sharply in Geelong since 2015, while Geelong West had a vacancy rate of only 0.6 per cent, even in the seasonally quiet month of December. 

Vacancy rates have also already fallen to about 1 per cent or below before the onset of the busiest period of the year for leasing in Ballarat, Wodonga, Mildura, Warrnambool, Traralgon, Bacchus Marsh, Horsham, Wangaratta, Western Victoria...

In Hobart vacancies are practically as close to zero as you'll ever see for a December figure. 

Challenging times

1-year challenge

A painful blunder for the stock tippers today as last year's hot pick Challenger (ASX: CGF) crashed another 17.12 per cent during trade on market declines and lower performance fees. 

Source: ASX

A second profit warning for the month threatens to wipe out almost all of the profits for the half.

Still, I guess if you liked it at $14 you'd love it at $7.65.

How to multiply your income

How to increase income

If you can make incremental changes across a range of key metrics then your income doesn't go up in a linear fashion.

Instead, it can be multiplied.

I explain in the simplest terms how it can be done in this short video.

Highest UK wages growth since 2008

UK wages lift to decade high

Goodness knows the Brits could use some good news right now, with all the ongoing political wranglings and what-not. 

Total pay growth increased to the highest level in more than ten years at +3.4 per cent for the September to November 2018 period. 

Anecdotally I've heard of the reduced supply of EU labour leading to a spike in construction and trades remuneration. 

Total employment was up by some +328,000 from a year earlier (3m/YoY) to a record high of 32½ million.

The unemployment rate in the UK fell from 4.1 per cent to just 4 per cent, the lowest level since 1973. 

The 16-64 employment rate came in at 75.8 per cent, well up from 75.3 per cent a year earlier, to be at the highest since 1971.

Jolly nice surprise.  

Back to the Brexit stuff.