Auctions solid

Clearance Clarence

Preliminary auction clearance rates this weekend were a solid 77.35 per cent.

Source: Corelogic

The prior year figure was only 47 per cent.

The solid result was mainly driven by Sydney (82.31 per cent).

Transport & walkability

Connectivity

I've always believed that transport connections for the Central Business District and walkability will be two of the key determinants of property investment success as the capital cities become more mature. 

At the macro level factors in the economy, labour market, construction sector, and policy settings will drive median prices.

But at the micro level, a premium will be paid for the most desirable locations as the cities continue to densify rapidly. 

Here's another cautionary tale from Tarneit, where land has been released at a fearsome pace out on Melbourne's fringe, via the ABC:

Things are moving very quickly in this direction in Greater Melbourne and Sydney in particular. 

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The week ahead

There may be a positive start for the Aussie stock market this week on trade war hopes.

The main data dump this week will be the Labour Force figures for September 2019, due for release on Thursday morning. 

All of the leading indicators now appear to point to a slowdown in hiring.

In saying that, the outgoing sample this week month has a lower employment-to-population ratio than the sample overall, so there may well be an upside surprise for total employment driven by sample rotation. 

Better measures of labour market slack to consider may include the underemployment rate (which rose from 8.4 per cent to 8.6 per cent in August), and the unemployment rate (which was up from 5.2 per cent to 5.3 per cent in August). 

Epic contortionism

Recovery is solid

All manner of contortions from commentators trying to argue that the housing market hasn't bounced, despite the price indexes showing increases, which have gathered some speed since the election. 

In reality, mortgage sizes are increasing, lending volumes are increasing, mortgage rates are falling, and stock levels are tightening.

Some of the popular narratives over the past year have included record mortgage stress, a mad rush for the exits, and a swathe of forced sales due to the interest-only cliff.

There isn't much evidence of any of this in aggregate, though: Sydney listings, for example, are now down 21 per cent from a year earlier:

Source: Corelogic

Auction volumes this weekend were actually higher this year than a year earlier, for the first time (albeit much lower than in 2017), and clearance rates remained solid.

There's also a lot of cash on the sidelines, which presumably will find its way into equities or real estate in 2020.

Granted, it's up to you whether you believe all the bluster, but on the ground market conditions have moved on, and there's plenty more competition now in popular locations.

One thing I do agree with is the two-speed nature of the recovery, with the new apartment sector facing a world of bother and uncertainty, at least until there are stock shortages again in 2021. 

On finding gentrifying suburbs

Gentrification

A look at this popular topic here (or click on the image below):

Bank shorts ease back

Bank shorts

An orgy of short positions on the big 4 Aussie banks reached a crescendo in the first quarter of 2019.

At that time there were more than $7 billion in total dollars shorted as the financial services Royal Commission handed down its verdict. 

Since then, short positions have declined considerably, now down to under $3 billion in early October. 

Source: ShortMan

Generally speaking banks have rebounded solidly.

But that's been nothing compared to the bonanza for mortgage aggregators, as the threats to break up the broking industry have receded. 

Mortgage Choice (ASX: MOC) has recovered from 73 cents to $1.25, while AFR has soared from a low of 97 cents to a record $2.40 as quarterly lodgements broke their previous strongest result.

Weekend reads

Must see reads

This week a look at housing supply, the potential advent of 'QE', and why a perfect storm means that Sydney and Melbourne housing prices will be at fresh highs sooner than you think.

See here for more, or click the image below:

You can subscribe for the free podcast HERE!

Why trees don't grow to the sky

Reversion to the mean

Here's why (or click the image below):

Average loan size increases

Mortgag sizes up

The interaction between two interest rate cuts and changes to serviceability assessments increased the propensity of some individuals to borrow in August.

This adds some weight to Grattan's arguments, which admittedly I railed against a bit the other day.

Mea culpa.  

Excluding refinancing, the average loan size increased to $414,007 in August 2019, up from $399,898 a year earlier. 

When it comes to mortgages some of the commentariat seems to have lost its collective mind, in the mad charge to demonise debt.

In reality, though, economies need a flow of credit to thrive, interest serviceability has improved by more than a third, mortgage arrears are very low ex-Western Australia, and Australia's median household wealth is now the highest in the world. 

My good pal Stephen 'The Kouk' Koukoulas of Market Economics explored some of these ideas yesterday at Yahoo here. 

It's important to note that although mortgage sizes have increased a little, transaction volumes are still low.

Popular narratives this year have included a rush for the exits, or a swathe of forced property sales due to the interest-only reset.

But the truth is new listings have never previously been as low as they are today for this time of year (at least since accurate records began):

Source: CoreLogic

Detailed figures from SQM Research showed that there has been a dramatic fall in the stock on market in Sydney since peaking in October 2018.

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Edit:

Australian Finance Group (ASX: AFG) also released its latest mortgage index for the September 2019 quarter.

And it too recorded a leap in the average mortgage size over the most recent 3-month period.

The jump was driven by a surge in New South Wales, though record average mortgage sizes were actually recorded everywhere except for the Northern Territory.

AFG recorded only an 18 per cent market share for interest-only loans, with the rebound being driven by homebuyers, and only 26 per cent of loans going to investors.

First homebuyers saw their highest market share since 2013, while major banks captured their lowest market share since all the way back in 2007.

Overall, there were record lodgements totalling $15.7 billion over the September quarter, up 21 per cent from the prior quarter, and up 11 per cent from the same period a year earlier.