A performance review of investment grade apartments

Investment grade apartments

From Mr. S. Wemyss of ProSolution Private Clients, comes a very interesting report.

Click here to download (or on the image below):

Sentiment at decade high as Australia dodges COVID bullet

Sentiment rips

Westpac reported that consumer sentiment increased another 4.1 per cent to 112 in December, from 107 in November.

Sentiment has therefore ripped to a 10-year high, having increased by a stunning 48 per cent since April. 

Source: Westpac

Dwelling prices look set to follow higher in 2021, as charted by Alex Joiner of IFM.

Source: IFM

Indeed, house price expectations have ballooned another 9.4pc higher to 143.7, now having doubled since the lockdown lows. 

Source: Westpac

Job security

Indeed's Callam Pickering showed that job postings have now fully-recovered to pre-COVID levels, leaving Australians far more comfortable in terms of job security. 

Meanwhile household savings have ballooned following this year's unprecedented stimulus, and data from the NSW Land Registry showed a surge in mortgages being paid off in their entirety over the past three months, which should keep a lid on credit growth.

The ASX closed at a 9-month high today, with the CAPE ratio now back above 20 as Australia has dodged a major bullet this year. 

Housing values rise in September quarter

Housing downturn ends (ABS)

Between the March and June quarters of 2020, Australia's capital city property prices fell by 1.8 per cent, driven by Melbourne, but by the third quarter of the year things were on the way up again. 

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House prices fell by 2 per cent in the second quarter of 2020, while attached dwellings dropped by about 1 per cent. 

The recovery was locked in during the September quarter, however, with all dwelling types recording an increase. 

In the September quarter prices rose in Brisbane (+1.5 per cent), Perth (+1.4 per cent), and Sydney (+1.0 per cent), with only Melbourne (-0.3 per cent) of the eight capital cities recording a modest decline. 

Over the year Sydney prices are +4.5 per cent higher, and indeed all capital cities saw prices higher than a year earlier with the exception of Darwin (-0.7 per cent), making a mockery of some of the more extreme doomsday predictions. 

You can click on the charts to expand them and pick out your capital city. 

The mean dwelling price in Australia increased over the year by $20,700 to $689,500, mainly driven by an increase of $25,100 in New South Wales. 

Dwelling construction continued throughout 2020, and as such rental markets will remain very weak in Sydney and Melbourne until the international border is reopened. 

The value of the dwelling stock increased again to $7.28 trillion, eclipsing the previous highs.

For what it's worth this puts the value of the Australian dwelling stock at approximately 3.78 per cent of GDP.

It's been claimed that this necessarily invokes a systemic correction or crash, but this is not necessarily the case - the ratio was higher in 2017, for one thing, while mortgage rates have declined dramatically since that time. 

The dwelling stock to GDP ratio has also been plenty higher than this in recent years in, say, Hong Kong, while dwelling price to income ratios in, for example, China (or any number of global cities) are significantly higher than those of Sydney or Melbourne. 

Jobs ads back to pre-COVID levels as Melbourne reopens

Job ads surge

The good news keeps coming for Australia.

ANZ reported that job advertisements jumped 14 per cent higher in November.

Job ads rose 27 per cent across October and November combined as Melbourne reopened. 

Source: ANZ Research

Advertisements are now only 3 per cent lower year-on-year, according to ANZ's widely followed data series. 

November tends to be a strong month without the normal seasonal adjustments - at 152,905 advertisements there's a good chance that the unemployment rate is now turning lower.

This may imply an unemployment rate declining towards 6 per cent, although it could take several years for us to get there. 

Westpac has revised up its GDP forecasts for strong results in 2021, but still doesn't see the unemployment rate declining to 6 per cent until around 2023. 

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UK house prices rose 1.3 per cent in November to be 7.6 per cent higher year-on-year.

This is the strongest annual growth since June 2016. 

The average UK house price rose to ₤253,423. 

Australia on the brink of Roaring Twenties?

Ripper rebound?

My sometime Wimbledon-based luncheon partner and fellow Noosaphile James Aitken was reported in the AFR today, noting the counter-intuitive possibility of a European summer boomtime as pent-up post-vaccinated demand is unleashed. 

Unlike in the period after the financial crisis, fiscal stimulus should not be snapped off too soon, and a powerful combination with monetary policy could drive the reflation trade. 

Now consider the Vitamin D-laden borderline miracle that is Australia, which has seen many of its key cities go for months with barely a whiff of a COVID case, yet is running a Budget deficit to the tune of $214 billion or more than 7 percent of GDP, alongside zero interest rates and quantitative easing. 

Could we see the economy come booming back over the next couple of years?

The iron ore rally is on the verge of becoming unhinged, with inventory drawdowns underway and the spot price mooning another 5.8 per cent higher to a fresh 6-year high of $145.01/tonne at the Friday close, thus cementing Western Australia's long-awaited economic recovery. 

The spot price has now soared by 279 per cent from its December 2015 nadir, and the strength in demand from China for this time of year is something we simply haven't witnessed before. 

Monthly new car sales have come soaring back since August as the Aussie economy has reopened.

Source: FCAI

There's also been a bumper grain crop this year, and even stock prices have soared. 

Eastern states have a people problem

Meanwhile back on the east coast the unemployment rate in New South Wales looks is set to wrap up 2020 at about 6½ per cent, which is the lowest of the states and the sort of number that we could only have dared to dream of back in May. 

With RBA Governor Lowe finally indicating that the policy of leaning against the wind to dampen credit and asset prices due to financial instability concerns - while running an output gap - has finally been shelved, it's likely to be a strong three years ahead for Sydney's housing market, with Melbourne also recording some strong results over the past week. 

Source: CoreLogic

Residential construction looks set to run strong for a couple of years thanks to the government's stimulus success.

It's a point that's been made here before, but the missing piece of the puzzle for Australia's eastern states will be the ability or otherwise to shed the virus paranoia and open the international borders. 

Tourism, students, and new migrants have been the lifeblood of growth for Sydney and Melbourne over the past decade, and without them the recovery is more likely to stutter.

US unemployment rate falls to 6.7pc, but...

US recovery stalls in November

The US nonfarm payrolls report disappointed with an increase of only +245,000 in November, well behind expectations for +469,000.

Nonfarm payrolls dropped 22.1 million through March and April, of which 12.3 million or 56 per cent have now been recovered. 

The unemployment rate edged down to 6.7 per cent, now 8 percentage points lower than the recent April high. 

However, the Federal Reserve understandably sees the 'true' unemployment rate as being closer to the 10 per cent highs seen during the financial crisis. 

The underemployment rate improved only marginally by 0.1ppt to 12.1 per cent. 

The Fed's Evans said interest rates weren't expected to be raised until 2023, and probably 2024.

The US 30-year mortgage rate fell to the lowest level in history at 2.71 per cent, and mortgage serviceability is now - by far - the most comfortable on record. 

Weekend reads (stamp duty changes)

Must see articles

This weekend at Property Update a look at the proposed changes to land tax and stamp duty, the surge in house approvals, and the latest interest rates decision.

Check it all out here (or click on the image below):

You can subscribe for the free Yardney podcast here. 

Things are shaping up nicely for the west coast

Iron ore ftw

Australia recorded another thumping trade surplus of $7½ billion in October.

The cumulative trade surplus over the past two years has been an unprecedented $138 billion.

Unfortunately things at home haven't been so clever this year due to the shutdown, and on the exports side coal, natural gas, and services exports have all floundered badly.

Iron ore, on the other hand, has exploded, and October was a record month for A$ exports, at more than $11 billion.

There's plenty more to come here in November too as the iron ore price has steamed to 6-year highs. 

Part of the reason that border closures haven't hurt more has been the lack of Australians travelling overseas, and as such all those extra A$ being spent at home in domestic and online retail, and now increasingly on internal travel and new vehicles. 

Overall, Australia is shaping up for a better year in 2021, and especially so in Western Australia.

The economies of Sydney and Melbourne, however, cannot start to fire again in earnest until the borders are reopened.