What are the risks and opportunities in today's property market?

Risk & Opportunities

We discussed the latest property market Risks & Opportunities with Open Agent here (or click on the image below):

US inflation rises to 5pc

Inflation exceeds expectations (again)

US consumer price inflation was expected to come in at 4.7 per cent over the year due to the base effect.

But again, inflation exceeded expectations in rising to 5 per cent. 

The core measures came in at 3.8 per cent, versus 3.5 per cent expected. 

However, inflation expectations have been rolling over lately, and markets were unflustered. 

US Treasury yields fell after the inflation release to be down on the day, with the 10-year yield falling back to 1.489 per cent...2 per cent suddenly looks miles away again.

The Aussie 10-year is also well under 1½  per cent.

Passing through...?

The big question is whether the surge of inflation is transitory.

Markets are leaning towards 'yes'.

There is evidently an awful lot of fiscal and monetary stimulus in the U.S. economy right now.

Over the medium term, however, the deflationary forces such as higher levels of debt, demographics, and the globally increasing labour supply are expected to take hold again. 

There is some debate in Australia about whether the economy is rebounding so powerfully that the Reserve Bank could hike interest rates a couple of times before "2024 at the earliest".

Negative gearing losses the lowest we've seen

Negative gearing declines

The ATO recorded a total of 2¼ million rental properties in Australia for the 2019 tax year, but the number of landlords reporting a net rental loss declined to 1.3 million.

The proportion claiming a net rental losses therefore declined to under 60 per cent for the first time.

Over 90 per cent of landlords owned only one or two properties (and nearly 80 per cent only owned one).

Comparatively very few landlords ever go on to build anything resembling a property portfolio - just over 20,000 Aussies owned six or more rentals. 

Of course, the ALP's former Shadow Treasurer Bowen bungled the costings related to new builds so the proposed budget 'savings' from scrapping negative gearing were never real anyway.

But as it has transpired net rental income had already declined to negative $3 billion by FY2019 (and the dollar amount will be much narrower today as mortgage rates have since plunged). 

The average net rental loss is now so low that many more landlords will be in a cashflow positive position after tax. 

Overwhelmingly negatively geared landlords reported taxable income of under $100,000, with most earning under $80,000, so the negative gearing benefits don't only accrue to the wealthy.

The age spread of claimants was very wide, with the larger net rental losses (and profits) naturally tending to be reported by those in the 50 to 65 age cohorts.

With far fewer interest-loans outstanding these days and most landlords using the rental income to pay down their mortgage debt, overall landlords are in far better shape than they were in between 2008 and 2012.

Adelaide the 3rd most liveable city in the world

Radelaide soars

So reports the Economics Intelligence Unit, Adelaide has now eclipsed locked-down Melbourne as Australia's most liveable city.

Indeed, Adelaide now ranks as the third most liveable city in the world, thanks to its healthcare, education, and infrastructure. 

Perth is 6th in the world for similar reasons, Brisbane comes in at place number 10, while Melbourne has been relegated to joint 8th place as the city has been plunged repeatedly into a cycle of lockdowns.

Source: EIU

Look at how many of the top 10 cities are in Australia and New Zealand...the Anitpodes must be doing something right.

Rental markets in Adelaide are becoming very tight, to the extent that there are bidding wars happening for some properties.

That could prove to be a pre-cursor to a Hobart-style property boom. 

Podcast: Fun - Too much of a good thing can be wonderful

Podcast: fun

In the latest episode of our '4Fs model' mini-series we look at....fun!

Tune in here (or click on the image below):

You can listen to the whole podcast back-series on Apple here.

You can also tune in to the full podcast series at Soundcloud, Stitcher, or Spotify.

You can download our new e-book here.

Don't forget to leave us a friendly review, as it helps us to get the word out!

Job ads point to hiring boom

Job ads boom thunders on

Job advertisements powered another 7.9 per cent higher in May, to be some 220 per cent higher than a year earlier. 

Following a 12 monthly gain, at a seasonally adjusted 214,000, ads are at the highest level in nearly 13 years. 

ANZ doesn't believe that Victoria's 4th state lockdown will derail the recovery, thanks to the underlying strength of the jobs market.

ANZ now expects to see the unemployment rate at 4.8 per cent by the end of the year, and 4.4 per cent by the end of 2022. 

Wage rises should follow, if policy holds.

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2-3 year fixed mortgage rates are now nudging here, according to broker channels, following previous moves in 4-5 year fixed rates. 

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UK housing prices increased 9.5 per cent over the year to May, to a new high of £261,743, according to the Halifax.

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Zero deaths either with or from COVID were reported by NHS England today.

That's the first time since March 2020. 

3 things to know about the latest mortgage lending trends

Mortgage lending trends

I recorded this short video to discuss how and why mortgage rates are bottoming out - see here (or click on the image below):

Melbourne seizes up

Auctions disrupted

The Reserve Bank's Guy Debelle was grilled by the Senate Estimates on whether low interest rates and QE should be normalised to stop house prices from rising (that's the abridged version, anyway).

In short, no, for a number of reasons. 

Firstly, Debelle noted that the quickest way to reduce income inequality is to bring the unemployment rate down, and to get wages growing again. 

Unemployment has a first order effect on income inequality, and lifetime inequality, said Debelle.

And higher interest rates would mean higher unemployment, when the RBA is tasked with achieving full employment. 

Secondly, the household debt to disposable income ratio has been declining to below 1.8x, while mortgage serviceability is at its easiest level in about 45 years. 

Thirdly, as Debelle pointed out, although there is some very high capital growth being posted in regional Aussie housing markets, detached housing construction is also at the highest level on record. 

Unlike apartment developments, houses tend to be built quickly, and the new supply is being delivered right across the entire country, points out Debelle. 

At the current time, there is virtually no net immigration, so it's probably not a smart idea to tighten interest rates unnecessarily into such a dynamic, especially as the shift to the regions might well go into reverse next year as the capital cities and borders eventually reopen in full.

Fourthly, Debelle noted that rents have been falling in some markets, and very sharply in some cases, such as for units in inner-city Melbourne.

Even if it was the Reserve Bank's job to target housing prices - which it really isn't - outcomes have been greatly varied across sub-markets over recent years. 

As Debelle pointed out, tax can make a difference to housing market outcomes, but that's the government's responsibility.

And fifthly, there is a high volume of listings coming online for this time of year, which will also naturally cool the market. 

Melbourne was scheduled to have a huge 1,369 auctions this weekend, although 281 were withdrawn. 

Just 502 had been reported sold by 6pm on Saturday. 

Source: Domain

Sydney posted more solid results, and there is some evidence that unit prices are now following house prices higher.