Property listings fall sharply

Tight stock

The housing market is a real mixed bag at the moment, with some brutal price declines in some of the popular pandemic regional hotspots, but a dearth of stock on the market in some of the city areas.

New listings fell -20 per cent in seasonally quiet January - driven by very large declines in Sydney and Melbourne - and were -14 per cent lower than 2022 figures.

Total listings on the market declined by -7 per cent to around 215,000.

January 2022 saw the tail-end of the Omicron lockdowns impacting activity, but the year-on-year changes in listings were fairly muted.

Only Hobart saw listings jump, almost doubling from a year ago as some vendors look to cash in on spectacular gains. 

Overall, taking a bigger picture view, quality stock is hard to come by, and total stock levels were tight in January at around 215k *a far cry from 350k back in January 2012, for example). 

Source: SQM Research

SQM noted that there are few forced sellers, and very few distressed listings, with most vendors looking to wait for the market recovery.

Rates increase

The Reserve Bank increased the cash rate target to 3.35 per cent as expected and flagged a likely further increase ahead, with market pricing suggesting that a hike in March is somewhat more likely than not. 

Bonds sold off a little with the 3-year yield increasing back towards 3¼ per cent.

That is some way lower than the 3¾ per cent we saw in mid-2022, and competitive variable mortgage rates and some fixed rates have sharpened up a little over the past couple of months.

Still there looks to be some further pain to come for those with mortgage debt...and for renters with around 200,000 international students heading to Australia forthwith.

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Some reactions to today's hawkish message from the central bank.

Dwelling starts into the dunny

Housing shortage looms large

Master Builders Australia forecasts housing starts to drop to under 175,000 in the next financial year.

After accounting for demolitions this will represent a woefully inadequate addition to the dwelling stock of about 1¼ per cent per annum. 

Housing starts aren't expected to rebound to 200,000 until the 2027 financial year, according to the MBA forecasts. 

With interest rates expected to be increased today and population growth running at an all-time high of around 500,000 per annum, Australia is going to struggle with a shortage of housing. 

Retail volumes fell in Q4

Retail slumps

Retail turnover fell by -3.9 per cent in December on a seasonally adjusted basis, while retail volumes were negative over the quarter at -0.2 per cent.

And this was is in spite of a blisteringly high rate of population growth over the quarter.

This will be a drag on GDP for the final quarter of 2022. 

Source: ABS

The retail report would have been considerably worse if it hadn't been propped up by a strong quarterly boost to food retail volumes as travel tourism ramped up. 

Department store and clothing sales were walloped towards the end of the last calendar year, and it looks as though as Australia is following the same downward trajectory as other advanced economies for its retail outlook. 

Demand for durable and other household goods, clothing, and footwear etc. is all falling away, which in turn means that price pressures should ease in due course (if not already underway). 

Econo-whizz James Foster noted:

"The retail price deflator saw its slowest quarterly rise in a year (1.1%) reflecting the effects of Black Friday discounting and falls in fruit and vegetable prices".

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Other figures from the ABS showed total wages paid dropping back over the most recent month, and a meagre 3.6 per cent lift over the year. 

Source: ABS

Estimates from Westpac show how total population growth in Australia is now running at record highs, and looks as though growth may well top +500,000 per annum (including the natural growth in the population, being births minus deaths). 

Source: Westpac

There's no way the increasingly sluggish economy can or will create enough jobs to match this record high growth in the working age population, and the unemployment rate will begin to rise in 2023.

This will in turn help with the inflation battle, with little risk of wages growth rising much above 4 per cent, before excess labour supply puts downward pressure on wages again. 

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You can read Westpac's population report here.

You can also read James Foster's retail report here.

MOAR interest rate hikes!

Further hike(s) before pause

Almost all surveyed economists are expecting the Reserve Bank of Australia to lift interest rates by 25 basis points this week. 

Core inflation looks to have peaked at around the 3rd quarter of 2022.

But the although it wasn't really low interest rates which cause the inflation spike so much as it was extended lockdowns, international border closures, and chronic supply chain disruptions, the surprisingly broad-based nature of inflation through the December quarter will keep the pressure on the RBA to continue hiking.

Gareth Aird of CBA produces a few excellent and illuminating charts:

Source: CBA

Business surveys also suggest that inflation pressures moved beyond their peak in the second half of 2022, while there is still a lot of tightening "in the post" as hundreds of thousands of fixed rate mortgages are due to reset to much higher variable rates over the coming months.

Source: CBA

Wage price growth is expected to peak at a bit under 4 per cent, which over time is thought to be consistent with hitting the inflation target of 2 to 3 per cent. 

This has already been the most brutal rate hiking cycle in living memory.

Nevertheless, the RBA is set to hike 25 basis points in February, with scope for a further 25 basis points hike in March. 

Loans to build new homes dry up

Supply drying up

Via Greg Jericho:

Rental supply set to dry up further

Rental crunch

It's a kind of morbid fascination with which one observes current housing market policies, and the looming rental market hyperinflation.

With the government apparently committing to growing the population at around 500,000 per annum, APRA stating that the 3 percentage points lending assessment buffer for landlords must remain in place (not sure why), and economists barking at the Reserve Bank to jack up interest rates further, it feels like something will have to give as inbound migration into Australia ramps up to record highs.

It's a trifecta of policy settings which must surely lead to a catastrophe in the rental market (actually, it already has around where we live, with the local noticeboards now almost entirely populated by requests for a room to share, or a place to pitch a tent).

The December lending indicators figures from the ABS showed lending to landlords down -28.3 per cent over the year, and lending for new housing crumpling to -62.4 per cent lower than January 2021 levels.

The Housing Industry Association reported:

Source: HIA

January is normally a quieter month for the rental market - before the international students flood back into the country for the February term - yet Domain reported that rental vacancy rates fell from 1.1 per cent to an all-time low of just 0.8 per cent over the past month.

Rental vacancies declined further in 7 of the 8 capital cities, as well as across regional Australia.

House rents in the capital cities were up around +15 per cent over the year to January, while for capital city units rents jumped +18 per cent, according to Domain.

Source: Domain

PropTrack reported that it expects to see rents accelerating again in 2023, which after the first month of the year appears to be correct.

Source: PropTrack

The strongest growth in rents is now being driven by inner city markets, with tens of thousands of international students set to enter the country this month, including from China again.

CoreLogic's Tim Lawless reported that no new supply is currently being added to the rental market, due to a range of disincentives for landlords. 

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The US nonfarm payrolls figures for the month of January are always tricky to interpret due to population adjustments, but at first glance appeared to be very strong, with the unemployment rate coming in at just 3.4 per cent...the lowest level since 1969.

Perhaps just as significantly, average hourly earnings increased only modestly by +0.3 per cent over the month, and +4.4 per cent over the year.

That's well down from recent highs of around 6 per cent, with no signs of inflationary pressures in evidence in these numbers. 

We'll have to sit back and see what analysts make of the extremely strong headline jobs figures...

Building approvals at a 24-month low

Unit approvals bottoming?

House approvals continued to sink in December, with only 7,728 approvals over the seasonally quiet month, with Sydney, Melbourne, and Perth leading the declines over the year. 

On the other hand, there was a bit of a monthly rebound in high-rise unit approvals in Sydney and Melbourne in December.

House approvals likely still have some way to fall from here, though it's possible that attached dwelling approvals may have bottomed in the larger capital cities, as supply shortages loom.

It's easy to get lost in the noise on these types of figures.

The big picture is that building approvals declined -4.3 per cent over the December quarter, and annual approvals fell to a 24-month low of 188,765.

Stock listings also look to have dropped back in January, so the overall theme is...shortage.

KPMG estimates that Australia's population grew by a thumping 440,000 in 2022, with more to come in 2023. 

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The FOMC lifted US interest rates by 25 basis points yesterday, but markets are looking ahead for rate cuts as disinflation becomes the order of the day.

The Aussie dollar has levitated all the way back up to mid-2022 levels at 71.6 US cents. 

Home values -8.9pc from their highs

Home values easing

Home values declined by a further -1.0 per cent in January, according to CoreLogic.

The pace of decline has moderated a little, but still 1 per cent is a fair monthly decline.

All capital cities now have prices off their highs, including Adelaide and Perth (albeit only just in these cases). 

There are some signs that in Sydney that the lower end of the market has begun to recover in 2023, but reduced borrowing capacities are still pushing down valuations at the higher price points. 

Overall, Aussie home prices are now down -8.9 per cent from their highs, following the surprise boost of +28.6 per cent through the pandemic period. 

Source: CoreLogic

Rents accelerated again in January, adding +0.7 per cent for the month, and +2.1 per cent over the quarter, with rental price growth now being driven by the inner-cities.

Source: CoreLogic

A dramatically tightening rental market is effectively now a deliberate policy setting, with large and paternalistic lending assessment buffers for landlords remaining in place despite all-time high levels of immigration. 

Until that changes, expect further tightening in the rental markets. 

Rental price growth is accelerating for units in particular.

Source: CoreLogic

New listings and total listings continue to track at low levels, stock listings being -24 per cent below their 5-year average (a period which itself incorporated some long lockdown periods). 

You can download the full CoreLogic monthly report here.

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The Aussie ASX 200 stocks index is off to a bit of a flier this year, recapturing the 7,500 level.