Vacancy rates plummet to 16-year low

Vacancies heading to zero

Rental vacancies plunged from 58k to under 48k in January.

The national vacancy rate plummeted from 1.6 per cent to just 1.3 per cent in the month.

This is miles below the 2 per cent seen a year earlier, and the lowest national vacancy rate in 16 years. 

SQM reported that asking rents for capital cities rose 7.5 per cent over the year to January, and expects rents to rise at a double-digit pace shortly (potentially much more). 

Mind you, the cost of getting tradies out and maintenance done for landlords has increased by more like 50 per cent in many cases. 

Vacancies have actually continued to fall in February, according to SQM, notably in Sydney and Melbourne, with Central Business District vacancies now in decline as Aussies return to the office, and new arrivals come into the country. 

In fact, SQM reported that CBD vacancies are already below pre-pandemic levels, and well below pre-pandemic levels in Melbourne's case. 

Only Darwin has vacancies trending higher at this point. 

Rental crisis incoming

As the national borders reopen rental crisis stories seem increasingly inevitable.

It's often been absurdly difficult for landlords to get loans in recent years.

There must be countless examples of people like me who would have quite willingly provided additional rental stock, but have just given up due to the reams of paperwork and frequently pointless hurdles involved.

I have an LVR of about 25 per cent, but have spent the past six months signing stat decs, sworn affidavits, and practically signing away the in-laws just to try and access a tiny line of credit...alas, no dice! 

It's all just becoming way too hard for portfolio investors, as personal responsibility is no longer a thing in the present borrowing environment for investors. 

A few more months of plunging vacancies of this magnitude and we'll be at zero available rental stock. 

Sigh.

The Reserve Bank found in 2017 that immigration from overseas has little impact on the housing turnover rate because most new arrivals - especially international students - are renters initially. 

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CBDs reinvigorated as fear recedes

Omicron threat recedes

There have been more dramatic 20 to 30 percent declines in hospital, ICU, and ventilator COVID cases this week. 

I've spent a lot of time quietly observing all up and down the east coast over the past month, and it appears to me that mobility has suddenly surged back over the past week. 

A receding fear of the Omicron variant of the virus has almost certainly been a major factor. 

Unlike in previous waves - with over 2.9 million known COVID cases now recorded - almost everybody in Australia has either had the coronavirus, or knows someone who has. 

Thus, the fear of the unknown is no longer, except perhaps in locked-in Western Australia where borders have remained shut, except for sports star exemptions. 

And despite much fearmongering, ICU demand and ventilator cases are now tracking at only a fraction of the modelled estimates for reopening. 

It was from a universally popular move, but in the face of a hostile media Premier Perrotet held his nerve on the removal of restrictions and now people are getting about their business and back to normal. 

The traffic has actually been fairly congested in Sydney for some time, but this was partly a function of folks being reticent to use public transport. 

This weekend, however, it's suddenly becoming obvious that the fear factor is receding, and entertainment venues are now being frequented again. 

We actually got turned away from a full Italian restaurant last might, which is the first time I've been able to say anything like that for a long while, as the pandemic grinds its way tediously into a third year. 

The latest published mobility indexes had already rebounded to well above lockdown levels, but after the loosening of border restrictions in a week's time - and once employers start calling workers back into the office - mobility looks set to return to pre-COVID levels pretty quickly from here. 

Not long now until the CBDs are buzzing again. 

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Landscape shift

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Down come the border barriers

Borders to reopen

Well, it's not before time!

Near enough two years after the borders were first closed, finally international tourists and other visa holders will be able to travel to Australia from February 22. 

The Labor government in Western Australia has...well it's still shut, obviously, and businesses are packing their bags and leaving for Sydney, including Wesfarmers and others leading the 'executive exodus'. 

The Federal government has also recently launched an advertising campaign to bring backpackers back to Australia. 

This could see ¼ million or more backpackers and working holiday makers in Australia. 

Arrivals will need to be fully vaccinated. 

Thankfully, hospital numbers for virus cases are in freefall, falling by well over 1,000 over the past week.

The border reopening is likely to have some repercussions for rental markets, which are already tight - in many cases very tight - after several years of extremely tricky borrowing conditions for landlords. 

CoreLogic reported in late January that rents are climbing at the fastest pace in 15 years. 

US recovery surprises in January

Payrolls surge

There had been some conjecture about a negative payrolls print in the U.S., following on from comments made by White House press secretary Jen Psaki about widespread Omicron sickness in January.

Not so in the end, with employment rising by +467,000, and a monster upwards revision of +709,000 for the preceding two months. 

With over 1½ million added to employment over the past three months, total payrolls could return to the pre-pandemic peak by July at the current pace of progress. 

Average hourly earnings were up 5.7 per cent over the past year, to $31.63. 

Forward rates inverted

With the participation rate rising to 62.2 per cent, the unemployment rate ticked a notch higher to 4.0 per cent (although the trend remains down). 

The Federal Reserve thinks that the unemployment rate can fall to 3 per cent in this cycle, or perhaps even lower. 

Financial markets are becoming fairly excited about the prospect of multiple rate hikes in 2022, though it's worth noting that the implied Fed Funds rate is priced to peak at under 2 per cent in 2024, with markets pricing in rate cuts thereafter. 

Inflation breakeven curves tell a similar story - inflation is likely to run at around 3 per cent for a couple of years, before fading back towards 2 per cent. 

In Australia, the Reserve Bank released its Statement on Monetary Policy yesterday, with the economic outlook forecasting a similar scenario, with trimmed mean inflation expected to run above 3 per cent temporarily, before returning to around 2¾ per cent by the end of the forecast period.

Source: RBA

Imports begin to ramp up

Trade surplus narrows

After some surplus on a previous unthinkable scale, imports rebounded 5 per cent in December, driven by the import of transport equipment, following on from an increase of 8 per cent in November. 

Exports are still humming, thanks to the strength in coal and LNG prices, but services exports have naturally been clobbered over the past year. 

The FOB values for iron ore exports climbed to stratospheric levels in 2021, but have now rolled over and will inevitably decline from here. 

The tourism figures suggested that Aussies were just beginning to travel in December, albeit tentatively.

Western Australia recorded a lazy trade surplus of more than $200 billion in 2021. 

Overall, some signs of life in imports. while services exports are still hampered, with negative implications for GDP in the fourth quarter. 

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James Foster with the detailed analysis here.