Today's Finance and Wealth figures from the ABS showed that Australians have been enjoying unprecedented levels of household wealth, perhaps even making Aussie households the richest in the world.
That many don't feel this way in part reflects that household wealth is often largely tied up in illiquid assets, such as the family home (real estate) and superannuation (pension), while there is now more than $1.1 trillion sitting in currency and deposits (cash), which doesn't earn a great deal of income in today's lower interest rate environment.
Another great speech today from the Reserve Bank's Dr. Kohler provided some handy pointers and context for people in this situation.
Firstly, it's important to take a long run view: over time the stock market has generated considerably higher returns than other investment options such as bonds or cash, notes the RBA.
That's as should be expected, as the cumulative returns from productive enterprise and human endeavour should outstrip the returns from other asset classes over time.
Secondly, investors need to consider total returns, being both share prices and the dividend income.
Total return indices have quietly compounded away from an indexed base of 100 to somewhere in the millions over the past century, despite the volatility along the way.
Stock prices fell by about 50 per cent through the financial crisis, for example, so education, diversification, and a long run view are all important.
The RBA pointed out how the various sectors have delivered remarkably similar returns.
(It's worth noting that that you can get some very different results here depending upon the timeframe and the component parts. For example, if you strip out the industrials index and map it against the All Ordinaries, real estate trusts, and resources indices since financial deregulation, you will see a significant cumulative difference.
Resources stocks can be volatile, exposed to commodity prices, capital intensive, and saddled with debt.
But the point is a fair one).
Although many have bemoaned returns from the Aussie stock market in recent years, Australia is a bit different from some other countries in that the returns from dividends (income) tend to be considerably higher than the global average, and therefore the capital gains (growth) tend to be correspondingly lower.
This is partly due to franking credits in Australia, which have been around since 1987, although unsurprisingly the Labor Party is eyeing these up too.
This is potentially very handy news for prospective retirees, provided that they have familiarised themselves with the above point on volatility above and can manage the risks accordingly.
Policies in the US have driven valuations high through this cycle - extraordinarily high in certain cases - reflected in the outperformance above.
But trees don't grow to the sky, and mean reversion could hardly be unexpected now that the Federal Reserve's tightening is well underway.
Valuations in Australia have generally speaking tracked far closer to their long run average of late, while recognising that PE ratios are a limited metric (and to be prudent we might also choose to acknowledge record high mining profits here).
In the short run the market may be a 'voting machine', but in the long run company earnings are the fundamental driver of valuations.
Terrific stuff once again from the RBA.
From my reading, here were 5 key takeaway points from the speech:
-equities have comfortably outperformed bonds and cash over the long run
-equities can be volatile, so some diversification is likely to be smart
-Australia's indices are bank heavy, and the 10 largest companies make up almost half of the total exchange by value (refer to the preceding point)
-many of our largest companies have been around for a very long time, but the industry composition of the index has shifted around quite dramatically over time (once again emphasising the diversification point)
-most returns in Aussie stock markets since in recent decades have come from income, not capital growth
While many companies have been around for the long haul, all companies ultimately have a life cycle - they are born, they live, and they die (or they merge, or get taken over) - so owning a broad cross-section of the index is likely to be less risky than owning individual stocks for most average investors.
Of course, everyone's circumstances are different, and therefore please note that this is not financial advice!
Despite the slowdown in lending for housing the monthly for total lending finance has trended gently higher from $69 billion in April to $71 billion in October 2018.
Although investment loans for dwellings have been smashed lower, there has been evident strength in commercial finance to some sectors such as mining and manufacturing.
The rolling annual value of fixed loans to the mining sector has really taken off, tripling from their 2017 nadir.
Strength in commodity prices might just save the economy's butt.
Something needs to plug the gap because dwelling construction and the associated multiplier is rapidly being sucked down the gurgler.
The value of sales of residential blocks is falling away, and sharply so in the case New South Wales.
Spare a thought for homeowners in Darwin, where the once exuberant housing market is in a multi-year decline.
Home values in the Top End are down 19 per cent since June 2014, but the declines are now accelerating.
The monthly value of investment in dwellings for rent or resale is now as close to zero as you'll ever see.
The latest figures for the NT economy are worse than atrocious, with private capital formation imploding by 28 per cent, and final demand contracting by more than 8 per cent in the September 2018 quarter alone.
Household consumption was also very significantly in negative territory as the sun sets on Darwin's resources-driven boom.
The flow of new interest-only (IO) loans was only 16 per cent of new residential term loans in the September 2018 quarter.
While IO mortgages are still an option for some borrowers, the terms are often less attractive, and with the lending slowdown there is also now a smaller denominator, so flows are now very considerably softer than they were.
With many borrowers also having voluntarily switched to paying down mortgage debt, IO loans were down to 27 per cent of residential loans by value by the end of September quarter, and will be closer to just ¼ today in December.
The chart here only goes back to March 2008, but the stock has never been so low in percentage terms.
Many of the outstanding IO loans were written under tighter serviceability assessments, while those on IO loans for a longer period probably have a reasonable amount of equity.
Credit growth to investors is now non-existent.
High LVR lending is the lowest on record, at just 6½ per cent of approvals with an LVR of 90 per cent or greater, down from 22 per cent at the 2009 peak.
Low-doc lending is also the lowest on record at just $196 million in the September 2018 quarter, down from $6.4 billion at the peak, which is a remarkable measure of just how far things have come.
Finally loans approved outside serviceability fell sharply, and gross loans impaired and past due remained low for ADIs at 0.84 per cent.
Reserve Bank reports and speeches seem to oscillate between playing down housing market risks and conceding that there is no handle on what the 'right' amount of leverage is, hence the focus has been on the quality of lending.
As all of the statistics quoted above show lending standards have been incrementally tightened for some years.
What happens next is unclear.
It's hard to get a handle on timing, but the most recently available figures for rental vacancies showed vacancy rates nationally at their lowest level since 2014, as we head into the festive period.
Source: SQM Research
There are now fewer homebuyers, and therefore more renters - thus with lending to investors stagnant and lending to non-residents having evaporated this would/should ultimately be reflected in rental market tightening once Sydney and Melbourne have worked through the current swathe of completions.
'Although absolute population growth is strongest in Sydney and Melbourne, these cities also have an overhang of off-the-plan settlements to cushion any such shock to the rental market, at least for the time being.
For that reason the first reports of a 'rental crisis' are more likely to emerge in smaller capital cities such as Hobart, Canberra, and perhaps Adelaide.
And regional locations such as the Hunter Valley, Coffs Harbour, Wagga, Bowral, and Dubbo in New South Wales, then Ballarat, Shepparton, Warrnambool, and Mildura in Victoria, and so on.
Even some of the basket case resources regions could be heading towards renewed rental shortages as once-bitten investors remain spooked away.'
The ABS released its residential property price indexes this morning.
The indexes showed capital city prices down by -1.9 per cent over the year to September 2018.
Dragging back the data series all the way back to their inception in 2003 you can see that - with Melbourne prices down by -2.6 per cent in Q3 2018 - surprise package Hobart is set to take the mantle of strongest performer over the full history of the data series.
That may seem an unlikely outcome, but there is more interstate and international capital around these days - especially from China - and Hobart has been relatively affordable until recently.
Asian tourism is firing in Tassie, and the lower dollar has helped to turn around the exporting economy.
Indexed housing market price changes in Brisbane and Adelaide continue to track each other remarkably closely in recording modest price growth, and there was also solid growth in Canberra over the year to September (+3.7 per cent).
A significant decline over the year was again recorded in deflationary Darwin at -4.5 per cent.
Looking at the chart from 2003 to 2018 by capital city the most striking observation is just how similar price growth has been, despite the divergence of the resources capitals through the mining boom years (I've posted a few charts here - you can click on them to expand).
Looking at the long run figures the case for a raging property bubble isn't an especially strong one, with the weighted average capital city price index slightly more than doubling over the 15 years to September 2018. A glance at a compound interest rate table tells you equates to a compound annual growth rate of ~5 per cent, while prices would already be some way lower today as I write this in December.
This was a 15-year period through which the Aussie population increased by 5¼ million - overwhelmingly into a handful of capital cites - and the standard variable mortgage rate declined by ~125 basis points.
In Sydney the more volatile detached house price index was down by -5 per cent year-on-year as at September 2018, and attached dwellings were down by -3 per cent.
The mean dwelling price nationally has declined from a peak of $697,100 to $675,000, mainly due to the declines now being recorded in Sydney and Melbourne.
The figures for the total dwelling stock are preliminary only, but show that New South Wales and Queensland have addressed their respective housing shortages through this cycle, as previously sluggish levels of apartment construction picked up very strongly.
Melbourne has tended to be less supply-constrained and has long built dwellings at a solid pace, and the figures for Victoria reflect this consistency.
There are now about 10.2 million dwellings in Australia.
Finally the total value of dwelling stock peaked for this cycle at $6.99 trillion, and has since declined to $6.85 trillion (note that these figures are not adjusted for population growth).
As expected the figures confirmed an ongoing deflation in property prices in 2018, with capital city prices down by -1.5 per cent for the quarter, and -1.9 per cent year-on-year.
The ABS figures suggest that the Sydney decline has been ongoing for about 18 months now, although my on-the-ground experience was that prices may have peaked a little earlier.
Melbourne took a little while to join Sydney, but recorded the sharpest decline in Q3 2018 with prices down by -2.6 per cent in the third quarter alone.
The ABS noted that price declines are no longer confined to premium markets, with declines also now reported across lower and middle price market segments.
Auction markets now head until hibernation until after Australia Day, which is also when the final report for the Royal Commission into banking and financial services misconduct falls due.