Prices and pressures
Completing a trifecta of softer price data from the US this week, both import prices (-0.4 per cent) and export prices (-0.6 per cent) declined in May, partly due to lower fuel prices, keeping the annual increase in the import price index low at 1.1 per cent.
Source: BLS
Even with some very solid employment figures Down Under this week, Australia's 3-year bond yield declined to 3.82 per cent, as low as we've seen since 10 April.
Despite this, cost pressures in Australia have not declined everywhere.
The below chart from CBA and Macrobond shows what's happened to output prices for residential construction costs since 2020, and it's not good.
The increase has arguably been more severe for medium-density projects, with costs reportedly up by more than 50 per cent.
The latest ASIC figures showed a decade-high of 2,643 construction company insolvencies over the past year, with more inevitably in the post.
Source: ASIC
This week, Fairfax reported a coming 65 per cent increase in insurance costs for new homebuilders in Victoria, effectively doubling the premiums to be charged in the space two years.
The Teals unsurprisingly (albeit incorrectly) blamed the increase on climate change, while the Greens are calling for a range of wild changes to housing market policies, none of which are going to do anything helpful for new housing supply.
It increasingly feels like 2024 and 2025 will be very disappointing years for construction and housing supply, with rising unit prices eventually driving a supply response in 2026 and 2027.
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