Who got the moolah (game-changing housing market implications!)

Pay packets

The ABS released its biennial figures for employee earnings today.

As well documented here and elsewhere, it's been a slow period for earnings growth since the end of Australia's resources construction boom. 

Still, full time total cash earnings were up by about 5 per cent over the two years to May 2018, and part time total cash earnings were also up by about 5 per cent.

Steady. Unspectacular. 

Source: ABS

The highest earners tend to be in the 45 to 54 cohort, followed by the 35 to 44 cohort.

Source: ABS

Mining remains the highest paid industry, of course, while many energy and waste, financial, insurance, IT, tech, and telco roles tend to be relatively well paid. 

Source: ABS

Pay disparity

The top quarter of earners in Australia received more than $1,686 per week, while the lowest earning quarter received less than $682 per week, according to the ABS report. 

The lowest paid states continued to be the southern states of Tasmania and South Australia.

The ABS noted that as at May 2018 managers and professionals had the highest average hourly earnings, at $60.40 and $54.00 per hour respectively. 

Only 23 per cent of employees were paid according to an award, with collective and individual arrangements now far more commonplace. 

Major housing market implications

Many of the pre-existing trends and implications for housing markets remain much the same, then. 

But could there be any game-changing trends ahead?

Indeed there could. 

One forthcoming seismic shift, and a fine exclusive reported by Ingrid Fuary-Wagner the AFR this week, is the rising influence of the so-termed 'FAANGs' - the behemoth global technology and media businesses set to take on massive commercial leases in Australia.

Commonwealth Bank had already announced that it would relocate some 10,000 of its staff away from Parramatta to Mirvac's billion-dollar Australian Technology Park at inner-city Eveleigh, which represented a landmark pendulum shift back towards central Sydney's A-grade commercial stock.

Source: Mirvac

But even such a huge move as this is set to be dwarfed by the great tech trends in the years ahead. 

FAANGs set to bite

The AFR reported that Amazon Australia is expected to muscle into new headquarters at 2 Market Street close to Darling Harbour in the city of Sydney, in doing so doubling its total floor space in Sydney to some 40,000 square metres. 

Google, meanwhile, is set to create an even greater Sydney footprint still, with a massive 50,000 square metres of space across several buildings across the drink at inner-city Pyrmont, effectively transforming the suburb into a Google playground. 

Apple has already established itself on George Street, representing a third tech giant to take on space close to our office at Martin Place - four if you count Tesla, I suppose - while Apple also has a store on Queen Street in the CBD of Brisbane. 

The world's largest and most highly valued technology giants are evidently committed to Sydney's A-grade locations and commercial space, then.

All of which suggests to me that suburbs with the strongest walkability or connectivity to these hubs will see increasing demand for housing from the higher income-earning professionals of tomorrow: Pyrmont itself, Glebe, Alexandria/Erskineville, Darlinghurst, Surry Hills, Paddington, Bondi Junction, Randwick and a select handful of key connection suburbs on the lower north shore. 

Sydney has experienced tremendous employment growth of late, while much of the multi-unit supply through this cycle has been delivered in LGAs such as Blacktown, Parramatta, the Hills District, Liverpool, Camden, Penrith, Hornsby, and Bankstown. 

The aforementioned AFR piece noted that in Palo Alto, where several tech giants shifted their offices in Silicon Valley, median property prices steepled by almost 150 per cent since 2012...to about A$4.5 million.

What's ahead for property in 2019?

Property podcast - what lies in store in 2019

Housing market podcast with Michael Yardney and Ahmad Imam...tune in here.

In short, some pain ahead, yet not everywhere.

Hitting the buffers

A few weeks ago I wrote here about mortgage interest rate floors, and, paradoxically, how tougher lending criteria have seen financial markets increasingly pricing in the chance of further easing from the Reserve Bank by the middle of 2020.

"The more you tighten your grip, Tarkin..." as Princess Leia once observed. 

I've no idea whether there's anything in it, but Macquarie Bank cited a possible rethink on minimum assessment rates here at the Sydney Morning Herald yesterday. 

Ditto Trent Wiltshire at Domain the other day here. 

Ditto Richard Yetsenga of ANZ in the Fin Review today here. 

One factor which could assist a housing market rebalancing this year is the return of Chinese buyers, attracted by a weaker Aussie dollar and more attractive housing prices. 

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On a related note, a neat infographic from Commsec showing booming wine exports to China.

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3 simple principles for getting ahead

Getting ahead

A short video on 3 simple principles for getting ahead - watch here (or click the image below).

Credit shrinks

Credit slowed in 2018

Reticent lending patterns continued through November 2018, with reduced flows across most sectors: commercial finance, personal finance, home loans, and lease finance, while lending for major renovations work was essentially flat after half a year of declines. 

Commercial finance has slowed over the year, both for fixed loans and revolving credit. 

Total lending was 7 per cent lower than a year earlier in November, representing an increasingly marked contraction. 

Even the once-simple process of financing blocks of land to build homes has slowed demonstrably. 

The slowdown has been less marked in Victoria, but then again it would want to be so given population growth across the state tracking at about 140,000 per annum. 

The total value of residential blocks of land purchases financed hit the lowest level in 17 months in November. 

Annual lending finance to buy both new and used vehicles also slumped to multi-year lows.

Housing markets that were already in a downturn haven't been spared. 

In Darwin home prices are now down by about a quarter from their peak, and the trend for investor lending hit a fresh cyclical low in November.

The Northern Territory economy is in a most parlous state, with its budget forecasts blown to smithereens. 

Were there any bright spots?

Not many!

Mining is the one bright light industry wherein finance has picked up for both fixed loans and revolving credit, and this is one industry where wages might be expected to record solid gains in 2019, especially for FIFO workers. 

With China's growth slowing to the most sluggish rate since 2009 the end of the Royal Commission can't come soon enough for the stalling Aussie economy. 

Loan sizes down in Victoria & WA

Loan sizes cut

The average home loan size for housing finance in November was 4 per cent below the peaks of earlier in 2018 for both first homebuyers (down $13,500) and non-first homebuyers (down $16,500). 

Home loan applicants may have seen their borrowing capacity cut much more sharply than this, by up to 20 per cent in many cases. 

However, according to Reserve Bank of Australia research only around 1 in 10 borrowers use their maximum borrowing capacity or something close to it, hence the average loan has fallen by a far lesser amount to date. 

In the Reserve Bank's own words "tighter lending standards do not constrain most borrowers but do affect some". 

The impact to date has been more notable in Victoria (down 5 per cent from the peak) and Western Australia (down 5 per cent) than it has in New South Wales (down 3 per cent). 

In Queensland there has been only limited impact on the average home loan size (down by 1 per cent), while in Tasmania the average loan size has not decreased at all.

These results are mainly driven by non-first homebuyers, which comprise the bulk of owner-occupier mortgages. 

In part due to data collection challenges related to loan-splitting - which may risk understatement* of the average loan size per dwelling - the ABS will discontinue its reporting on loan sizes henceforth.  

It's been emotional.

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*the average loan size reported by AFG brokers, for example, has been consistently higher than the ABS derived figures. 

New home sales plunge again

New home sales dry up

New home sales plunged another 7 per cent in the month of December 2018.

Transaction levels are now 15 per cent lower than a year earlier according to Housing Industry Association (HIA) surveys.

Private new home sales are now floundering at the lowest level since 2012.

Source: HIA

Unit approvals were also 54 per cent lower than a year earlier in November.

The HIA sees home building activity contracting throughout 2019, perhaps very sharply.

Yield curve inverts

More and more economists think that the impact of credit tightening has been too severe for the economy to handle, and are set to call for rate cuts in 2019. 

Financial markets recognise that the RBA isn't keen to cut unless it absolutely has to - financial stability, although yet to be actually defined, is considered paramount - and are pricing an each way bet of a cut by the end of 2019.

Futures markets have the curve inverted all the way out until the middle of CY2020.

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Jobs figures are set to be the highlight on Thursday morning this week.

Median market forecasts are calling for an increase in total of employment of about 20,000 in December, and for the unemployment rate to be steady at 5.1 per cent. 

News follows price

Royal Commission winding up

It's been a torrid 12 months for Australian banks and bankers, forced to identify then air their dirtiest laundry in public, and it's been interesting to watch some of the price action as the horror stories were played out in public.

The Royal Commission public hearings began in February 2018, at which point Commonwealth Bank (ASX: CBA) had a share price with a $73-handle. 

In October 2018 came "peak fear" and the stock price went as low as $65 as the market digested the interim report findings (the final dividend date also fell at the end of September).

As always you can click to expand the graphic:

The final Royal Commission report is now only ten trading days away, and the stock price closed out the week at the highest level since August at $73.23, and went as high as $73.55 in early trade on Monday.  

The other banks have seen resurgent prices lately, even the beleaguered AMP Limited (ASX: AMP). 

Markets accordingly don't appear to be too concerned with what's coming - perhaps banks might even be able to lend again without the paranoid forensics?

But let's see. 

Discl: holder. 

Record arrivals to fill the apartment stock

Record high arrivals

As the construction cycle reaches its zenith there'll be plenty of talk about 'ghost towers' and a stock overhang.

But in Australia's case any such glut will only be a temporary affair with permanent and long-term arrivals surging to a record high +829,000 over the year to November 2018, a significant 6.6 per cent increase from a year earlier and the fastest rate of new arrivals the country has seen. 

Plenty of Aussies head in the other direction, of course, but it seems likely that net overseas migration could be tracking at the highest level in about 4 or 5 years.

Since passing 25 million in August the estimated resident population of Australia has increased by about ¼ million.

Each of the most populous states saw record short arrivals and visitor spend in 2018 too, as also reflected in numbers reported by Tourism Research Australia, although visitor arrivals from China are now looking a tad peaky.

While only a small share of the overall pie, both Tasmania and the ACT have been successful in attracting a greater share of visitors to Australia.

Visits for the purposes of education also hit a record high at nearly 600,000.

The wrap

November tends to be a seasonally quiet month for both permanent and short-term arrivals, but in annual terms several records were broken for the month.

The busiest month of the year for both long term arrivals and international students is February, which is a couple of weeks away yet, while Lunar New Year also falls in the first week of February this year.

Therefore expect to see signs of rental market tightening ex-Sydney by the end of next calendar month.

On the other hand, such a powerful flow of new arrivals is unlikely to do much positive for the glacial recovery in wages growth.

It's been interesting to see real wages growth take off in Britain lately as immigration has eased, EU jobseekers have stayed away, and Polish workers returned to a resurgent domestic economy.