Cashmore's real estate (podcast)

Cashmore pod

I joined Catherine Cashmore on Cashmore's Real Estate here (or click on the image below):

The discussion on apartments was interesting.

Overall, unit prices have been less volatile and have experienced lower capital growth than houses over the past decade, especially in Melbourne where unit construction has been very high.

As also discussed on the podcast, Brisbane experienced a major glut of units around five years ago, which saw the median price of attached dwellings decline. 

The market is now tightening, however, with asking prices up 17 per cent over the past year.

Source: SQM Research

Some areas are faring much better than others, mainly being the more sought-after, well-located blue chip areas. 

The market supply is substantially lower now there are so few non-resident investors from China in the market. 

The cost of delivering medium-density stock is also up around 50 per cent over the past few years. 

US inflation set to fall

US inflation drill down

We've all seen the funky charts and graphs on shipping rates continuing to plummet, which is a decent indicator that global supply chain issues are righting themselves. 

But a huge part of the inflation story in the US was rental price inflation, as the population dashed outwards creating a huge wave of demand for rental housing away from the higher-density city locations.

The most timely measures suggest that rents are now in outright decline, however, as the key pandemic drivers of excess rental demand have eased. 

If you were to use rents on new leases in the US inflation data, core inflation is arguably already back below 3 per cent and falling fast. 

This might go some of the way to explaining why - although markets are expecting and pricing further rate hikes ahead - stock markets are holding the line.

The US S&P 500 i9ndex may be significantly down from its highs, but it's hardly in catastrophic territory given the returns over the past decade. 

Looking further ahead, US inflation appears likely to normalise back down towards the target as sky-high rents fall back down to earth.

The same might well also prove to be true in Australia, though rents are only a comparatively smaller component of our inflation basket, and we might also prove to be a few months behind the US in this regard. 

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The Queensland Government $40 million Help to Home scheme, designed to ease supply issues in the state, has reportedly delivered only one additional home to the market over the past four months, according to the Courier Mail. 

Unemployment rate nudges back down to 3.4pc

Sydney leads jobs growth

Employment hasn't really gone anywhere since June, but there was a positive monthly result in October at +32,000. 

This beat market forecasts, though jobs growth of +28,000 since June isn't quite as amazing as some of the more hyperbolic headlines are making out. 

The participation rate has declined a bit from 66.73 per cent in June to 66.53 per cent in October.

This was enough to see the unemployment rate back down to June lows at 3.4 per cent, which was lower than expected by market economists. 

New South Wales has been the king of the jobs market, adding +377,000 to employment over the year, and pushing the state's unemployment rate down to just 3.2 per cent (and the underemployment rate down to just 5.6 per cent).

It's now arguably the best performing state on many labour market metrics. 

Overall, a better than expected result in October, which will keep the pressure on the central bank to hike interest rates by a further 25 basis points in December.

I don't believe that much has really changed in terms of the medium-term outlook, though.

It was good to see COVID absences now in sharp decline - back down to the lowest level since December 2021, according to the ABS - and an according increase in monthly hours worked.

Overall, this was a solid result, which reflects that the labour market remained tight through October. 

Deliveroo went into administration in Australia yesterday, which will add more than 15,000 to the unemployment queue in due course, and that's before accounting for similar businesses impacted by the requirement to count workers as employees rather than contractors.

Temporary visa holders have also begun to flood back into the country now, so the labour force dynamic will likely be in a different position by February. 

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More detailed analysis as always from James Foster here. 

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Pre-tax wages growth comes in at...3.1pc

Wages increase a little

Private sector wages growth was a little healthier, at 3.44 per cent over the year to September 2022.

It's important not to lose sight of the fact that this is coming off the lowest rate of growth in history in 2020 and 2021, of course, so a rebound was to be expected. 

Public sector wages growth was a dismal 2.42 per cent over the year. 

There are some awards which will land in the fourth quarter figures - but still it's a pretty underwhelming set of numbers. 

Over the past three years private sector wages have increased only 7.1 per cent, while in the public sector the equivalent increase was only 6 per cent, before tax.

That's the lowest sustained rate of wage price growth we've seen. 

Over the year, pre-tax wages growth increased by 3.1 per cent nationally, well below the prevailing rate of inflation.

At the state level most states saw and increase, with Tasmania and Queensland leading the way, but the two territories bringing up the rear, being held back by public sector wages. 

Here are the figures by state and territory:

Australia's 3-year bound yield dropped back to 3.22 per cent, as it's become clear there is very little risk of a wages spiral.

Excluding visitor visas, annual net visa approvals leapt to more than 300,000 over the year to October, which is a record high.

Thus, although we saw some decent increases in wages in hospitality and retail wages this quarter, these numbers will begin to reset lower from next quarter onwards (particularly with fewer restrictions on how many hours international students can be employed for). 

With the best of the labour force date behinds us, wages growth will probably peak at around 3½ per cent, which is broadly consistent with achieving the inflation target over time. 

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Rental vacancies fell further in the September quarter to just 1.0 per cent, according to SQM Research.

Sydney's vacancy rate fell from 1.5 per cent to 1.3 per cent.

And in Melbourne, the vacancy rate fell from a revised 1.8 per cent to 1.5 per cent.

Asking rents increased by another 2 per cent in the capital cities in October, to be 24.4 per cent higher over the year. 

The rental vacancies figures were revised for previous months to reflect the newly available Census data on rental properties.

SQM's full media release is here.

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The US Producer Price index saw year-on-year increases drop from 7.2 per cent to 6.7 per cent in October, being further confirmation that the inflationary "burp" is passing globally. 

This is what will drive property values over the short, medium, and long term (with Michael Yardney)

Property Pod

Michael Yardney has produced a recent research report on Australia's property cycles and the structural shifts over the decades. 

We discussed on this week's podcast here (or click on the image below):

You can also tune in at Apple podcasts here, or Spotify here.

Or you can listed at Youtube here:

Underemployment soars to 20pc

Labour supply increasing

Roy Morgan reported that its unemployment rate rose to 9.2 per cent, as full-time employment declined. 

The combined unemployment and underemployment rate soared to almost 20 per cent. 

Source: Roy Morgan

It looks like the tight labour market has already ended. 

Net arrivals +200k in October

Arrivals continue rebound

These are only provisional figures, but is looks like provisionally there were around 1.22 million arrival trips into Australia in October.

Permanent arrivals migrating to Australia remain sluggish, and are likely to remain so until the new year. 

Source: ABS

It's now winter in Europe and summer in Australia, so departures provisionally declined to around 1.02 million last month.

Source: ABS

The final figures may be revised, but this looks like a net increase of around 200,000 for the month of October, with New South Wales leading the charge. 

Some industries have really struggled to find staff - such as retail and hospitality - but as the arrivals figures begin to ramp up this issue should be resolved in time. 

International student arrivals were 35,560 last month, compared to close to zero a year earlier, underscoring what an extraordinary period we have just lived through. 

Wages growth

Tomorrow's wages growth figures should finally show an increase, from very low levels, as the September quarter is the time of year when newly awarded pay rises usually show up.

The top end of the forecast range could see annual wages growth back up to around 3½ per cent. 

That said, it's probably going to be the best quarter of this cycle as monthly arrivals increase back towards their historic norms of 1.5 million to 2 million per month, bringing the labour force supply back into balance with demand. 

Source: ABS