Podcast: Taxes for property buyers

Inflation set to ease

The US saw a big drop in its Producer Price Index overnight, suggesting that inflation in the pipeline is ebbing away.

US headline inflation will be back to around 3.5 per cent by June, suggesting perhaps one more rate hike from the Federal Reserve and then done.

Podcasting time

Today on the Australian Property Podcast, Chris Bates and I discuss taxes and tax settings for Australian property and buyers in the market.

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

You can also tune in at Apple podcasts, Spotify, and other podcasting outlets. 

We'll throw the video up on the YouTube channel later as well.

Underemployment rate just starting to rise

Robust labour force figures

Nothing too much wrong with the labour force figures for March, with the economy adding another +53,000 jobs, taking employment to a record high of 13.88 million.

The unemployment rate held steady at 3.52 per cent. 

Of course, immigration is now picking up apace, and the labour force won't stay so tight for too much longer.

Indeed, the ABS reported today that 142,580 international students arrived in the month of February alone. 

This will mean that wages growth has peaked, and slack will begin to show up in the labour force in due course.

Indeed although the underemployment rate is still tight, it rose from 5.84 per cent to a 13-month high of 6.22 per cent in March. 

Monthly hours worked also decreased, but these were resilient numbers which point towards a more likely soft landing ahead. 

Meanwhile, the labour supply is increasing rapidly.

Not a bad set of figures, overall, but people need to remember that the unemployment rate is a lagging indicator.

And with many builder and developer firms collapsing of late, and engineering and financial services layoffs beginning, the only way is up from here for unemployment. 

---

Detailed analysis from James Foster here. 

---

With over 142,500 international students arriving in February - and more to follow in March - this was the queue outside Bank of China in Melbourne at 8.30am this morning, with a huge conga line of students waiting to open bank accounts.

That's your leading indicator: labour supply will be plentiful in due course. 

Investing 18-24 months ahead

Inflation weakens

Late last night the latest US inflation figures dropped, coming in at just 0.1 per cent for the month.

Core inflation was a bit stickier, as expected at 0.4 per cent.

There's all the usual debate about decimal points, and whether a further rate hike may eventuate.

But as the great Stanley Druckenmiller once said, you should invest for the way the world is going to be 18 to 24 months from now, rather than the way it is today.

Headline inflation has dropped from 9 per cent to 5 per cent so far, and markets suggest that inflation will continue to fall ahead, followed by interest rates. 

Dwelling starts sink towards decade low

Dwelling starts towards decade lows

The number of dwelling starts fell to around 41,000 in the December quarter, close to decade lows.

In particular attached dwelling starts are now very low, declining to around 12,000, a drop of -34 per cent from a year earlier. 

There has been a very long tail on this construction cycle but the number of units under construction is now declining. 

Still plenty of detached homes under construction around the country. 

The unit supply pipeline is now shrinking across each of the major cities. 

Overall, there were only 43,000 completions and just 41,000 commencements in the last quarter of 2022, which is way under the required level.

It's worth noting that with developers going bust left, right, and centre, many of the approved dwellings will never be built. 

Very slow dwelling starts numbers, which only lead me to believe that interest rates will be falling again by next year.  

Rental vacancy rates lift a little

Rental vacancies tick higher

Rental vacancy rates ticked up a notch to 1.1 per cent in March according to SQM Research, with the trend higher in Hobart, Canberra, and Darwin. 

Hobart has definitely turned a corner now, and after years of chronic shortages finally has a few rental vacancies on the market. 

Markets remain tight in most capital cities, however, and this lift wasn't enough to stop more enormous increases in asking rents, which rose +2.1 per cent over the month.

Sydney asking rents for units were up by more than +30 per cent over the past year, with Melbourne and Brisbane not far behind. 

---

Fixed mortgage rates are falling, reports Mozo:

Source: Mozo

Shares versus property

Shares or property? Or both?

Tune in to the Australian Property Podcast here, where we discuss the pros and cons of investing in shares or property (or click on the image below):

You can also tune in at Apple podcasts, Spotify, and other podcasting outlets. 

Housing prices now set to rise

Housing prices to rise

With housing price expectations now rising, this usually (well, always) portends rising prices ahead.

Dr. Alex Joiner of IFM maps the historical relationship from Westpac's consumer survey:

Separately, CoreLogic reported a reacceleration of rents over Q1 2023, with combined capital city vacancy rates falling to their lowest ever level at just 0.9 per cent. 

This isn't going to get better any time soon, with student visa arrivals just one component of immigration which is exploding to record highs.

Chart via MacroBusiness:

Interestingly this corresponds exactly with what Chris Bates discussed on this week's 2-Sense property segment on the Australian Property Podcast - that the best buying conditions were in October/November last year.

Expectations for prices have rocketed since then with the index up +43 per cent. 

Household confidence booster

Confidence booster

Consumer confidence bounced by +9.4 per cent in April, as interest rates were paused. 

The time to buy a dwelling index also jumped by +8.2 per cent, with house price expectations rising again by some +16.6 per cent. 

House price expectations readings have rocketed +43 per cent higher since November, and are now broadly back to where they were when the interest rate tightening cycle began a year ago.

Source: Westpac

In Sydney this has already played out a couple of months ago, with asking prices for dwellings now higher than they were this time last year (and significantly so for units). 

This makes obvious sense, as these two cities aren't building nearly enough housing, and immigration is running at all-time highs.

It's worth considering, though, that these measures are heavily weighted towards Sydney and Melbourne, and may not be reflective of what is playing out across parts of regional Australia. 

In other news, NAB's Business Survey for March showed prices and cost pressures easing across the board:

Source: NAB

Policy settings are working as they should - good to see.