Resi construction to go from tailwind to headwind

Approvals set to plunge

Building approvals fell by about 9 per cent in July 2021 to around 17,600 on a seasonally adjusted basis.

That's still 22 per cent higher than a year earlier, though, and the annual number of dwelling units approved is still very high at around 224,500. 

House approvals have been tracking at record highs over recent months, but will inevitably now fall as the tremendously effective HomeBuilder stimulus washes through. 

Unit approvals will also likely continue to trend lower over the year ahead, especially in Melbourne. 

There is still a large pipeline of new units due to hit the market in Footscray, Box Hill, Coburg, and South Melbourne, among other suburbs - representing a very significant percentage uplift to the existing stock of apartments - so expect the drop to continue for the Victorian capital. 

Overall, the stimulus was very successful in keeping construction at high levels, but it's reasonable to expect that this tailwind will soon become a headwind for the economy.

Economy may sputter through 2021

Credit growth solid in July

Housing credit growth picked up to 5.8 per cent in July, according to the latest RBA Financial Aggregates.

Scholars will note the recent acceleration is more relevant than the absolute level of housing credit growth, especially given the low levels of property on the market right now. 

For this reason, expect to see capital cities pushing 20 per cent annual price growth before this cycle tops out. 

Investor credit growth is now rising from all-time lows, up to 2.3 per cent, although overall the cycle has been dominated by homebuyers. 

Personal and business credit growth is still in the toilet, but with overall credit growth in the economy picking up to 4 per cent, there may just be enough residual momentum to see Australia muddle through the remainder of the calendar year. 

The economy was probably slightly positive in the second quarter of the year, will be deeply in contraction for Q3 due to widespread and ongoing lockdowns, but may begin to grow steadily again before the year is out as some restrictions are removed. 

Overall it's a bit of a quagmire, but with New South Wales hitting a record high for its vaccine rollout today, there's some hope that growth may be seen again by the fourth quarter of the year. 

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In real time New South Wales is about to go through 7 million doses administered, while Australia will hit 20 million doses within a couple of days. 

Listings plunge in August on lockdowns

Lockdowns bite

A bit more flavour on how and where listings have dropped.

Lockdowns disrupted new listings in Sydney and Canberra in August.

Total listings therefore fell by 9.6 per cent, from 238,384 to 215,911.

Over the year total listings have fallen by more than 26 per cent, down from 293,000 a year earlier. 

Total listings are now the lowest since records began in January 2010, according to SQM Research.

The biggest year-on-year declines were experienced in Sydney, Brisbane, Hobart, Adelaide, and Canberra, reported SQM. 

Property stock listings hit record low

Stock plunges again

An interesting media release is due out from SQM Research imminently as total property listings fall to the lowest level on record (since January 2010, when the data series began).

In August, total listings had declined to just 215,911.

Source: SQM Research

Stock levels are tight in all cities, but extremely tight in cities such as Hobart and Adelaide.

Source: SQM Research

There are quite a few moving parts here.

Obviously borders could reopen next year, adding to demand, but then presumably more willing sellers would be coming to the market as well. 

Meet the Experts mini-series #2: Con Mickalakis

Meet the experts podcast: the fundie

This week we chatted to Statewide CIO Con Michalakis about how they manage very large sums of money for super funds.

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

You can listen to the whole podcast back-series on Apple here.

You can also tune in to the full podcast series at Soundcloud, Stitcher, or Spotify.

You can download our new e-book here.

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The Big Picture podcast

The Big Picture

It's that time again - I went back on the Big Picture podcast with Michael Yardney. 

And a bit has changed since last time we spoke.

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

You can subscribe for the Michael Yardney podcast for free here. 

This is what's happening with mortgage rates

Mortgage market trends

New mortgage rates were still trending down through to the end of the financial year, with another couple of basis points trimmed off the average mortgage rate on new loans written. 

The general view has been that as the Reserve Bank tapered off its stimulus then mortgage rates might have bottomed out, leading to a surge in buyers fixing their mortgage rates.

But now the taper looks set to be delayed, and this week Westpac began offering a variable rate with a 1-handle, which went against the general narrative.

I thought I'd check in with Chris Booth, CEO at Lydian Finance, to find out what's going on at the coalface. 

The short video can be watched below:

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Construction work done increased 0.8 per in Q2, though this is all a bit moot given that half of the population has been plunged back into lockdown in Q3. 

Residential building has now topped out and will likely become a headwind from here on out, stalling the recovery of the Aussie economy well out into 2022. 

Vaccine rollout hits warp speed

Vaccine willingness

There's only one Aussie news story at the moment - and a highly contentious one at that! - as the lockdowns roll on seemingly endlessly in Sydney and Melbourne. 

Viewed from Europe, where travel is now happening freely, the whole sorry saga in Australia has taken on a frankly surreal twist, with kids being cautioned and fined for meeting outdoors, protesters being pepper-sprayed or showered with pellets, and goodness knows what else.

Quite astonishing stuff, but let's try to focus on the positives today!

Australia's delayed vaccine rollout on a per capita basis has suddenly exploded into life, and is now running faster than the U.S., the UK, Germany, Italy, or France managed at their respective peaks.

And the pace is still accelerating by the day. 

On weekdays one vaccine dose is being administered every 0.3 seconds across Australia, and the daily high of 310,524 doses administered should be exceeded over the coming days. 

New South Wales is now vaccinating faster than anywhere on the planet right now, at well over ¾ million doses per week, with about 6.14 million doses administered in total at the time of writing. 

Of course, at least part of this is down to the public more willingly accepting the vaccines available, rather than anything that the government has done differently (especially in New South Wales). 

The Federal and state government responses in Australia have ranged chaotically from infuriating incompetence to global excellence, but if the next few weeks are well executed things could be looking plenty brighter by the time schools are due back in New South Wales on October 5. 

Onwards and upwards. 

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The property market gets tighter still, especially in Sydney.

The market is already tight in Brisbane, Canberra, Adelaide, and Hobart.

Source: CoreLogic

Media gloom or investment boom

Gloom or boom

Great to be back on the Bushy Martin podcast to discuss the current state of play.

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

Melbourne buyers not keen on sight unseen

Zoom auctions

It's become very difficult to buy property in Melbourne at the moment, with buyers not keen to buy a property without inspecting.

Accordingly, many auctions are being withdrawn in Victoria. 

Most properties are still selling in Sydney, albeit on low volumes. 

Source: Domain

Race against time

New highs on the vaccine rollout, with over 310,000 doses administered within 24 hours, and more than 1.8 million over the past week. 

New South Wales leads the way, with 5.8 million doses, including more than 781,000 doses over the past week. 

Risks & opportunities in the housing market

R&O Report

I discussed the latest housing market risks and opportunities with Annette Beacher at ausbiz TV here (or click on the image below):

Stock levels remain very tight, according to REA's latest figures:

NSW employment plunges, but...

Employment holds the line

There was a 36,000 drop in New South Wales employment in July, while the state's labour force and hours worked also plunged.

There will inevitably be worse to come over the following few months, too. 

Despite this, gains in employment elsewhere kept total employment slightly positive in July, and total employment at a record high of 13.16 million (up by 5.4 per cent or 675,000 from the gloomy depths of a year earlier). 

Despite a relatively higher unemployment rate, Queensland has fared well over the past year, mostly avoiding the heaviest restrictions seen in Victoria (and more lately NSW). 

Victoria saw its employment increase in July, but has since gone back into another lockdown, taking total days in lockdown for the state to beyond 200. 

With the participation rate dropping in July, the unemployment rate spat out a remarkably upbeat result of just 4.63 per cent. 

However, the result is not nearly as promising as it looks.

Hours worked fell in July, and it will likely take a sustained drop in the unemployment rate to see significant wages growth returning, which now seems unlikely to happen this year. 

Ostensibly a decent set of headline numbers, but of course half of the population has been in lockdown since July!

Wages growth fizzer

Taper cancelled

Australia had been making progress on the unemployment rate, which fell to under 5 per cent before Sydney, Melbourne, Canberra, and Darwin were locked down, and Queensland had further restrictions.

There wasn't much evidence of improvement in the wage price index, though, which climbed to just 1.7 per cent over the year to June. 

The quarterly increase was very soft at just 0.4 per cent, missing market expectations.

The Reserve Bank would be hoping to see wages at above 3 per cent per annum, which seems a long way off now. 

There was a slight improvement in New South Wales and Victoria, to 1.8 per cent annual growth.

Queensland was just behind this pace at 1.7 per cent, with Tasmania leading the way at 2.2 per cent.

But while private sector wages growth picked up to 1.9 per cent, the public sector saw a new record low of just 1.3 per cent. 

With core inflation still below target, market analysts think that the Reserve Bank will now have to scrap its plans to taper QE this year, with over half of the Aussie population plunged back into lockdowns.

UBS put out a note this week expecting the taper to be delayed, and if anything there's a case for doing more, not less. 

Fairly dismal stuff, overall! 

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More granular analysis from the data king James Foster here.

LRHR Podcast: Jordan Eliseo - the gold investor

Meet the experts: mini-series

This week we discuss investing in gold with Jordan Eliseo from Perth Mint.

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

You can listen to the whole podcast back-series on Apple here.

You can also tune in to the full podcast series at Soundcloud, Stitcher, or Spotify.

You can download our new e-book here.

Don't forget to leave us a friendly review, as it helps us to get the word out!

Vacancy rates remain tight (SQM)

Tight vacancies

Brisbane's vacancy rate was 1.3 per cent in July 2021, well down from 2.2 per cent a year earlier.

And vacancy rates were under 1 per cent in Adelaide, Canberra, Hobart, Darwin, and Perth.

Up until July, Sydney and Melbourne appeared to be in a downtrend, but lockdowns may disrupt this.

SQM Research reported the latest rental vacancies figures in its media release here.

Housing supply

Building boom

There's been some interesting discussion about Australia's housing 'oversupply' on the socials.

There are, of course, several different was in which you might interpret the term. 

In terms of the number of physical dwellings, the dwelling stock increased by 1.6 per cent over the year to March 2021, and this is likely to pick up towards 2 per cent over the remainder of 2021. 

This comes at a time when annual population growth in Australia has slowed to just 136,000 or 0.5 per cent, due to border closures. 

The boom in construction of detached houses has overall been more than outweighed by the shift away from share houses and high-rise tower blocks, however.

Rental vacancies are approaching all-time lows (despite the high vacancy rates in e.g. Melbourne CBD, where the rental vacancy rate is 8 per cent).

Meanwhile lower mortgage rates have seen demand pick up strongly, to the extent that total stock listings are some 27 per cent lower than the 5-year average.