Construction insolvencies heading off the charts

Yields calmed

After some media conniptions about resurgent inflation over the past fortnight, the crude oil price has tumbled back -12 per cent lower, taking bond yields back down with it. 

Panic over, at least for now, with Australia's 3-year bond yield trading with a 3-handle again by late on Friday afternoon.

Tourism has recovered

The ABS released the international trade figures this week, which were largely as expected, albeit with a slight surprise of an increase in exports. 

Tourism credits have surged all the way back to above $6 billion per month, seasonally adjusted, which is now a record high (though a part of the increase would relate to higher prices). 

For the time being, many Aussies are still travelling overseas, but it doesn't take away from the fact that the Aussie population is booming across all visa classes now. 

Developers in strife

There has been some debate about greedy property developers land-banking stock to create a housing shortage and bolster profits (at least, I think that's what people are suggesting), and the Victorian government is even misguidedly introducing a new vacancy tax in an attempt to force more construction activity. 

The problem is it takes a moment's research to see that developers are operating on narrow margins, using leverage, in an industry where costs have ballooned. 

The reality is that developers and building companies are going bust left, right, and centre, with a couple more going down this week in Victoria and South Australia.

Indeed, the industry share of construction insolvencies are - almost literally - heading off the charts, as summarised in a graph in today's FSR, as released by the Reserve Bank of Australia. 

The RBA showed that over a quarter of large builders now have negative cashflows, so there are almost certainly more insolvencies in the post. 

As such there isn't much realistic prospect of an increase in the pace of housing supply over the next few years, probably until unit prices have increased by 30 per cent or so. 

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Asking rents rose by +3.4 per cent over the past quarter, according to SQM Research.

Rask Raodshow in Sydney

Rask Roadshow

I attended the Rask Roadshow event in Sydney last night - always a great event - which you can watch back below.

My panel contribution on the property market outlook kicks in at (2:55:00):

Lending for new home construction at 15-year lows

Sydney rents to rise again

Housing lending has begun to recover, mainly for stablished housing.

Source: ABS

Overall, however, lending settings are extremely tight.

Loans for the purchase and construction of a new home have fallen to the lowest levels since 2008.

Source: HIA

Rental markets are tightening fast again now. 

Source: SQM Research

In particular rental listings are plunging in Sydney, portending another 20 per cent rise in rents in the New South Wales capital. 

I've been speaking to some people in Sydney about the state of the rental market down here, and it's not good. 

Building approvals plumb decade lows

Approvals dismal

Building approvals bounced slightly to 13,650 in August.

That's still a low figure when put in context, though.

Greater Brisbane and Perth might be looking to put in a bottom for detached house approvals, which is lucky given the respective housing shortages.

Unit approvals were still very low in Sydney, and in the other capital cities, despite a bounce to 1,900 in Greater Melbourne. 

This portends a shortage of units between now and the next cycle around 2027. 

Annual dwelling approvals slumped to 170,000, which is the lowest figure in over a decade. 

Overall, dismally low numbers, with lending policies too tight, and a significant housing shortage ahead. 

Crunch incoming

Something gotta give

Australia's average (mean) net worth per household increased to around $1.37 million in the 2023 financial year.

After a dip, this is now higher than $1.33 million at the end of June 2022. 

The average net worth per capita increased to around $570,000.

This has been a surprisingly strong rebound, but globally bond yields have jagged higher so quickly over recent weeks that it's almost inevitable that something will blow up significantly over the next few months. 

The latest ASIC data showed a further 650 building and construction insolvencies over the first 10 weeks of this financial year, an enormous increase over what we've seen in recent years, and making the target of 1.2 million new dwellings over 5 years an ever more distant pipe dream. 

ASX futures are down more than 100 points at around 6,950 this morning. 

On the plus side, it's the first time in a decade-and-a-half that fixed interest investors are being compensated nicely for their money!

City vacancy rates hit record lows

Monthly housing update

CoreLogic released their monthly housing market update for the month of September.

New properties listed for sale have normalised for this time of year, although total listings remain low. 

Source: CoreLogic

Rental vacancy rates in the capital cities have collapsed to record lows, so there is little respite ahead for renters as population growth continues apace. 

Source: CoreLogic

Home values rose 0.8 per cent in September, and 2.2 per cent over the quarter (to be 3.9 per cent higher year-on-year).

Source: CoreLogic

You can read the full update from CoreLogic here. 

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The Melbourne Institute inflation gauge came into at 0.0 per cent for the month of September...dead flat.

The annual rate fell from 6.1 per cent to 5.7 per cent. 

Book review

Top reads

I had half a day to kill at the airport yesterday (flight delays...hurrah). 

Here's a book review for you (or click on the image below):

2-Sense: Melbourne house prices to jump, but more granny flats are on the way for Victoria?

2-Sense

This week Chris Bates and I discussed the latest housing price forecasts from KPMG, and more policy changes (and a regime change!) for Victoria.

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

You can also watch at YouTube here: