Interest rates to stay low for 15 years

Hammer time

Unless you know something financial markets do not, expect low interest rates to be around for the next decade-and-a-half.

Of course, the resident doom merchants will refer back to credit growth figures relating from July 2018 to July 2019 as 'evidence' of a looming housing market crunch.

But just as was the case in 2013, low housing credit growth reflects the historic data and buying decisions made often more than a year ago, as well as reflecting the changed composition of the now depleted stock of interest-only loans.

The better forward-looking indicators tend to include mortgage brokers reporting an increase in applications; and even the more balanced and conservative observers have called the bottom here.

Now there's no doubt that parts of the new apartment sector are facing down an ongoing shitshow (and how), which may well hold down median price indexes.

But in the established dwelling market respected industry experts down in Melbourne have consistently been reporting auctions punching 10 or 15 per cent over reserve prices.

I'm down to Melbourne today to present at a conference, so I thought I'd take a look for myself. 

A quick squiz at an auction or two suggested no signs of frenzied bidding or 'FOMO'.

But market sentiment is light years improved from where things were at in May, when Labor looked to be a shoo-in to win the election.

This one was a little 2-bedroom, 1 bathroom house, on a small lot with no off-street parking.

The location is about 6km from the Melbourne CBD, and there was a price guide of $1.14 to $1.19 million,

From what I can see comparables from the pre-election period were selling for about $1.2 million.

And here's what happened...

Sold for $1,312,000 (it was called on the market in the low $1.2s).

Looks like a recovery to me.

---

It looks as though the iron ore price party is well and truly over with the spot price down another 6.9 per cent on August 2 as Brazil's Vale ramps up supply again.

The implied yield curve seems to be endlessly carving out new lows, with markets now effectively pricing in more than two further rate cuts. 

Weekend reads

Weekend reading

The must read articles of the week summarised for you here at Property Update (or click on the image below). 

This week, even lower interest rates and the housing market finding its floor. 

You can subscribe for the free content here.

Don't forget you can also subscribe for the free podcast here, where I stop by myself as a contributor from time to time.

Have a great weekend!

US jobs growth decelerating

Slow-mentum

US nonfarm payrolls racked up a record 106th consecutive monthly gain in July, notching monthly growth of +164,000. 

However, the preceding two months were revised down by a combined -41,000, so this was a somewhat weaker result.

And it took the 3-month average jobs growth a notch below +140,000 (a year earlier 3-month average growth was running at well above +200,000). 

A deceleration, then, perhaps justifying this week's 25 basis points rate cut.

The unemployment rate held steady at 3.7 per cent, but seemingly hit the bottom of the cycle a few months ago, back in April. 

Earnings growth was a bit better than expected at 3.2 per cent, so this will bear watching.

The wrap

Overall, losing a bit of momentum, by the looks of it, which may not be unexpected given the sheer length of the cycle. 

Watch out for signs of nascent volatility in the US stock markets, with August to October often being a time of year wherein problems begin to surface. 

As noted here, there will almost certainly be a nasty correction in US stock markets from these levels.

It's just a matter of when. 

FREE BOOK: Your Next Level Wealth Plan in 2020

Going Next Level Wealth in 2020

Collect your free book here (or click on the image below).

Happy reading - and have an excellent weekend!

This is how to enjoy your retirement

Sequence of returns

See here or click the image below:

Retail recession woz 'ere

Retail slump

A slightly better month for retail turnover growth in June at 0.4 per cent, but this wasn't enough to stop annual growth slumping to 2.6 per cent in FY 2019, down further from just 2.8 per cent a year earlier. 

The trendline tells its own story!

The trend quarterly growth in volume terms was zero - nothing - with only the most slender of growth over the year to June.

And in per capita terms turnover in volume terms slumped across the entire financial year.

You can't really dress this up as anything other than dire: it's the weakest string of results since the early 1990s recession, and worse than we saw during the global financial crisis. 

Looking around the traps only Queensland saw decent year-on-year growth, albeit via a low base effect, at 5.7 per cent. 

Turnover in the Northern Territory has shrunk by 3½ per cent over the past 13 months, while New South Wales has seen no growth for ten months (perhaps partly due to internal migration north to Queensland). 

Online retail turnover continued to rise in the 2019 financial year, accounting for 6.1 per cent of the total, up from 5.7 per cent in FY 2018. 

This undoubtedly makes for a challenging environment at the department store sector, wherein turnover was down by -0.9 per cent over the financial year, in spite of a substantial increase in the capital city headcount. 

At least retail spend for eating out has held up pretty well versus the long run average!

The wrap

Overall, recessionary conditions for retail by any other name, and doesn't look too promising for Q2 GDP either. 

Dearth

Low listings

No wonder dwelling prices are rising again.

For all the hype about mortgage stress, there's very little sign of forced selling in the housing market.

In fact new listings are at decade lows, driven by very few listings in Sydney in particular. 

Source: CoreLogic

The spring selling season traditionally brings some relief in this regard, as you can see in CoreLogic's excellent chart above.

Lowest housing credit growth on record

Credit growth slumps

The credit squeeze has stymied the Aussie economy to the brink of a recession - at least in per capita terms - and that's in spite of booming commodity prices. 

There was zero business credit growth in May, and the measure turned negative in June.

This helped to take annual credit growth sharply down to just 3.28 per cent, a 69-month low and flirting with recessionary conditions. 

Personal credit growth slumped to -3½ per cent, perhaps in part reflecting behavioural changes, though it's surely no coincidence that David Jones management reports that we're now in a retail recession.

Housing credit growth was negative in June for investors as more mortgages snapped off interest-only terms, and total housing credit growth hit the lowest level since records began in 1976. 

The investor share of housing credit is now well below the 15-year average, after a preceding boom.

The one thing to say about all this is that being historic data it largely reflects pre-election fears, and at least housing market sentiment has improved markedly since then.

The housing credit impulse was already marginally better by the end of June. 

Meanwhile CoreLogic reported a second monthly gain in housing prices in July, with price increases recorded in Sydney, Melbourne, and Brisbane, and with units having outperformed houses for some time now. 

Some lenders have become too risk averse and it's hurting the economy, but at least the pendulum has begun to shift back in the other direction.

Also remember that housing credit growth is a backwards-looking indicator if ever there was one (recall the 'record low housing growth' which ran all the way until March 2013, long after it was clear as day that the Sydney market was firing up). 

---

Commodity prices shot up 16 per cent over the year to July.

In Aussie dollar terms, the index was up 21 per cent, with Australia's floating currency now sinking to levels helping to stimulate the economy.