New home sales...dire

Home sales falling

A somewhat woeful 18.1 per cent lower than a year earlier for February 2019 as new housing supply dries up. 

Source: HIA

Home values down 0.6pc in March

Home price falls lose steam

CoreLogic reported that dwelling price declines moderated in March 2019, falling by 0.6 per cent, the smallest monthly decline since October last year (albeit, still a decline, while the downturn spread geographically into most 'rest of state' regions as homebuyers now go on strike too).

The few sub-regions to have avoided a downturn included certain parts of Hobart, Brisbane, Adelaide, and Canberra. 

Some parts of regional Victoria have also held up well. 

Since peaking in 2017 prices are down in Sydney by 13.9 per cent, and in Melbourne by 10.3 per cent.

Prices are also well below their peak in Darwin (-27.5 per cent), Perth (-18.1 per cent), and regional Western Australia (-31.6 per cent), among other locations.

Source: CoreLogic

The biggest declines over the past year were seen in Melbourne's inner east (-16.1 per cent), Ryde in Sydney (-14.7 per cent), and Sydney's inner south west (-14.1 per cent). 

I actually had to look up which suburbs come under the banner of Sydney's inner south-west, being the Hurstvilles, the Carltons, the Kingsgroves, and the Rockdales. 

Perhaps there's rather less buoyancy in Chinese capital this year. 

There were also substantial falls in Sydney's Sutherland (-12.4 per cent) and in the South West (-11.6 per cent). 

The ABS found that detached houses have generally experienced sharper declines than attached dwellings and units, and this trend is broadly mirrored in CoreLogic's figures. 

Premium markets have also experienced sharper falls than the middle or bottom quartiles, according to CoreLogic's analysis. 

Yields up

Gross yields in the capital cities have now bounced to 3.8 per cent, from under 3½ per cent at the nadir, despite softness in the major rental markets. 

Although mortgage rates are close to record lows there may be some way to go here yet (especially given Labor's proposed changes).  

Nationally gross yields are up to 4.1 per cent, from 3.8 per cent a year earlier. 

Source: CoreLogic

Auctions mixed

Tim Lawless of CoreLogic noted that there were tentative signs that the downturn has begun to lose steam, while mortgage rates may now ease (cf. ING Australia, Macquarie Bank, Suncorp Australia etc.), though the weekend auction results in Melbourne weren't too hot. 

The best auction results in Sydney were again seen on the north shore.

Analyst Arek Drozda has been charting the downturn in monthly median auction prices in Sydney, after they went totally ballistic for a brief period until March 2017, and since that heady time there's been quite some correction for house auction prices. 

Source: Arek Drozda

Monthly median auction prices for units are are tracking at about $90,000 below their peak, although they haven't made any fresh lows now since all the way back in September 2018. 

Source: Arek Drozda

Labor sets drop dead date for negative gearing changes (FREE online workshop)

Negative gearing rules to change

Labor has announced, if elected, when it plans to change negative rules and the capital gains tax discount, being effective for assets acquired after 1 January 2020. 

Make sure you find the time to watch this free online workshop, as these are big changes and they could be very important for you. 

Charge of the white shoe brigade

This is a flawed policy, overall, intended to encourage young investors (the ones with the borrowing capacity) into buying off-the-plan apartments in the assured knowledge that they'll lose money on the cashflow, and then lokely lose more money when they come to sell. 

From 1 January 2020 we might thus expect to see the re-emergence of the white shoe brigade: the slick salesmen with the glossy brochures, and the bogus promises of endless capital growth on low-grade apartment stock. 

And since the issue was never adequately tackled, some 'white knight' professionals and other middlemen will recommend that their clients buy new apartments for the tax incentives, while quietly trousering commissions from developers. 

Thus one opportunity for young Mum and Dad investors to invest for their own retirement is set to be wound back, while power appears likely to be handed to big institutions and union-dominated industry funds. 

The daft thing is that I'm precisely the sort of centrist voter that should see my vote swing from the shambolic Coalition - with its leadership team apparently stuck on high rotation - to the ALP.

But while the Coalition has used its scalpel to tackle the excesses through a combination of tax changes and macroprudential measures, there's no way I can vote for Labor's proposals. 

Treasurer Frydenberg will deliver his 2019 Budget speech on Tuesday night, and with receipts tracking miles ahead of MYEFO forecasts thanks to commodity prices strength, stand by for tax cuts and big spending plans. 

Looking for skin in the game

'SITG'

A few simple observations today on the thought-provoking works of Nassim Nicholas Taleb.

Watch my short video here (or click on the image below).

Labour market still tightening, BUT...

More work, please

Rather a lot gets said about elevated underemployment in Australia, but it rarely gets analysed in much more detail than that. 

For example, I might ideally want more work, but if I only want an extra hour or two per week... frankly, who cares?

On the other hand, if I want an extra twenty hours of work, well, that's meaningful, especially if there are a lot of other people in the same boat.

While they receive little or no attention, the tables within the ABS detailed quarterly labour force surveys attempt to look into this in a little more detail. 

The numbers are quite seasonal as there are more hours and workers around at certain times of year, and less so at others.

But year-on-year the numbers have still been gradually improving. 

The underemployment rate in volume measures terms was 2.9 per cent for the February quarter, down from 3.1 per cent a year earlier.

And the underutilisation rate in volume measures terms was 7.2 per cent, down from 7.9 per cent a year earlier, and it's been a fair ongoing improvement over the past few years. 

It should be said, though, that while New South Wales has improved significantly on these measures - with Victoria not too far behind - mostly the other states are lagging quite significantly. 

Construction rolls over

Some decent progress has clearly been made since 2014, and there has even been something of a mini-boom in employment for public administrators, and safety and compliance officers. 

Unfortunately, there are much bigger issues now at play, namely that construction employment is falling fast, dropping away sharply by 49,200 over the year to February. 

I briefly discussed a handful of the risks associated with a rapid construction downturn at Livewire markets here last year. 

Tax change risks

Given that about ¾ of construction employees are directly employed in the residential sector, this is unquestionably the worst possible time for the Labor party to be meddling with housing tax policies.

After accounting for the strong multiplier effect of residential building, on these numbers there's little doubt to my mind that an Aussie recession could be on the cards if the ALP's proposals are pushed through effective 1 January 2020. 

Labor's simple big idea is to incentivise Mum and Dad investors into buying off-the-plan apartments, which statistically speaking is a risky enough venture for investors at the best of times.

Unfortunately when they come to sell, however, they'll discover that their asset has dropped in value because the property is no longer new, and because the same incentives will not be made available to the next buyer. 

Another of Labor's schemes is to fund election promises through hiking the rate of capital gains tax, though such policies appear more likely to generate capital losses for these unsuspecting investors. 

I worry about a period of construction industry carnage, followed by an inevitable medley of compensating counter-measures.  

But, I've been repeatedly assured that I'm wrong, and it's all good.

Pass the popcorn...

Weekend reads

Must see articles of the week

Right here at Property Update.

And you can subscribe for the free daily content here.

Wage bargains

Doh...

Oops, another blow, with enterprise bargaining wage agreements slowing in the December quarter for the public sector by -0.6 per cent.

Not a huge chunk of the market, but just another drag to add to a lengthening list.

It's not been the best few months, really.

Negative gearing in decline, per ATO stats

Negative gearing decline

The Australian Taxation Office (ATO) released its 2016-17 Taxation Statistics today, which showed that there are still fewer negative gearers than there were all the way back in 2011-12, despite a ~3 million population increase in Australia over that time. 

Note that these are tax return statistics after accounting for Division 40 and 43 deductions, so some of those claiming net rental losses will, of course, be in a cashflow positive position. 

It's not that hard a concept to grasp, though apparently it is for some! 

The average net rental loss claimed in dollar terms hasn't really moved a lot since 2013-14, having previously fallen dramatically lower since 2008. 

Of course, these figures are always set to be seized upon and tortured relentlessly by politicians of all stripes to prove whatever point they're trying to make on any given day. 

See below Exhibit A: this bizarrely cherry-picked interpretation from Shadow Treasurer Bowen:

The share of landlords with an interest in 1 or 2 properties is still the same as it's been for years, at 90 per cent.

And naturally it's very hard for there to be a significant percentage increase in the 1½ million investors plus that had an interest solely one rental.

For the record here are the stats charted out by tax year. 

The number of investors with half a dozen or more properties - called out as a key target by ALP Leader Shorten - has actually barely changed over the past half decade (up by a couple of thousand) and certainly not as a share of the population. 

This is compared to an increase of nearly 150,000 landlords with only 1 or 2 properties over the same time period.

All in the marketing, huh.

The wrap

I'll spare you my posting of the full chart deck as I've done that for the past few years and the results are always similar.

But suffice to say most negatively geared investors earn a pretty decent income, though mostly they are everyday salary-earning individuals rather than rich-listers or oligarchs. 

Landlords also hail from right across the age spectrum, arcing smoothly and broadly from around the ages of 30 to 70. 

Note that the number of negative gearers will naturally decline further going forward since the Coalition has already made substantial changes to plant and equipment deductions under Division 40, while travel expenses have further been disallowed.

Meanwhile rental yields are now rising, as fixed mortgage rates ease.

Drawing a long Bowen

Late edit: Shadow Treasurer Bowen further noted that investors buying their 7th property get more help than a first-time buyer.

This might have been true once, but certainly it's the case no longer.

In fact, first home owners grants and stamp exemptions actively promote the former, but APG 223 serviceability rules and debt-to-income caps now virtually preclude the latter.

Of course the full impact of recent changes won't be evident in the ATO's 2016/17 taxation statistics, and will only be seen over the fullness of time.

Sorry to butt in with a few facts, but, it's an election year and all that...