2-Sense: Lending starts to pick up the pace

2-Sense podcast

The Australian Property Podcast is picking up some momentum, with over audio 50,000 downloads alone per month this year.

This week Batesy and I discuss the acceleration in housing lending - albeit not for construction - the housing supply conundrum, and the drop of more than 20 per cent in office valuations.

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

You can also watch the YouTube version here:

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P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

1. Boom or Bust – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

    2. Download our property buying guide

Download our free property buying guide here. 

You can also check out a few of our recent property investment purchases here. 

Get in contact with us today if strategic property investment is your thing. 

    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is rapidly becoming one of Australia's biggest business podcasts, now with well over 50,000 audio downloads per month, and growing fast.

And our popular Low Rates High Returns Show also remains available on Spotify.

    4. Subscribe for my free daily blog

Subscribe for my free daily blog with some 3.7 million hits here. 

You can also catch up with me daily on Twitter here, where I'm active daily and have over 14,500 followers. 

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here.

My new book, co-authored with Cate Bakos is available to buy here or on Amazon here - follow our book release on Facebook here and at our Buy Right podcast series here. 

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today.

Protecting your wealth as deficits blow out

Debt and deficits

As the highly partisan debate about US economy rages on - has President Biden (if indeed Biden is in charge of anything) achieved a brilliant soft-landing, or destroyed living standards with several years of rampant inflation? - the federal Budget deficit in the meanwhile quietly flames out towards $2.1 trillion.

US interest payments on the national debt alone passed $1 trillion this month.

As the brilliant analyst Charlie Bilello highlighted with his graphic below, all of this is going on when the economy has been powering along with some extremely low rates of unemployment.

How far is the deficit going to blow out next time there's a recession or a deep downturn?

It makes one think...

US reserve currency

To be fair, I've not really been one of those "death of the US dollar!" types.

I remember watching some documentary or other when flying long haul as a backpacker concerning the looming demise of the US dollar...but come to think of it that doco must've been about a quarter of a century ago now!

However, a US national debt topping $35 trillion probably does mean that the decades ahead will be locked into low interest rates, ongoing inflation, and probably a good deal of money printing for good measure.

Perhaps not too surprisingly, given this context, money markets are pricing for a Federal Funds rate falling to 3 per cent by the back end of next year.

Interest rate cycle turns

The global narrative around interest rates is now shifting in a dovish direction.

Australia's 3-year bond yield - having topped out at around 4.35 per cent in October 2023 - fell back to 3.44 per cent today.

This week the European Central Bank cut interest rates for a second time in this cycle, despite the core rate of inflation remaining significantly above target.

One of the speaking reps noted that there could be a "series" of interest rate cuts to follow, depending on how things play out with the return to the target inflation rate.

You could see the real-time reaction in markets, with the price of gold spiking to a new record high.

Source: Bloomberg

Inflation-busting investments

How to protect yourself from more decades of the same?

Owning gold and other commodities is one popular inflation hedge, and a stocks/bonds portfolio is another proven method over the long term.

Farmland, commercial property with inflation-linked leases, residential property, and a manageable level of mortgage debt which will be inflated away over time are some others. 

Australia is certainly somewhat better placed than many other countries from a government debt perspective, although there's a decent amount of indebtedness at the state level and the country also tends to run very high levels of net immigration.

In all eventualities, the purchasing power of the currency looks likely to get smoked. 

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P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

1. Boom or Bust – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

    2. Download our property buying guide

Download our free property buying guide here. 

You can also check out a few of our recent property investment purchases here. 

Get in contact with us today if strategic property investment is your thing. 

    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is rapidly becoming one of Australia's biggest business podcasts, now with well over 50,000 audio downloads per month, and growing fast.

And our popular Low Rates High Returns Show also remains available on Spotify.

    4. Subscribe for my free daily blog

Subscribe for my free daily blog with some 3.7 million hits here. 

You can also catch up with me daily on Twitter here, where I'm active daily and have over 14,500 followers. 

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here.

My new book, co-authored with Cate Bakos is available to buy here or on Amazon here - follow our book release on Facebook here and at our Buy Right podcast series here. 

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today.

Interest-only handbrake release?

IO loans stymied

The prudential regulator APRA released the latest quarterly data on ADI lending statistics and exposures. 

The mortgage arrears rate - as measured by impaired loans plus loans 30-plus days past due - increased, albeit  modestly, to 1.69 per cent (note this data is solely related to ADI lenders). 

Western Australia and Queensland's cyclical but burgeoning economies have generally helped loan arrears to stay low.

There's comparatively little higher risk lending these days, and practically no lo-doc lending to speak of. 

Although there's far less high debt-to-income lending now, there has been a bit of an increase in low-deposit lending over the past three quarters of data to 7 per cent of new housing loans, mainly due to first homebuyers taking advantage of the Commonwealth deposit guarantee.

The flow of new interest-only lending held steady at 20 per cent of loans...about half of what we were once used to seeing.

The overall stock of outstanding interest-only (IO) loans fell to a new all-time low of 11 per cent of outstanding housing loan balances by value.

There has been a stunning shift here resulting from prudential/regulatory intervention which severely stymied the flows of IO lending, and then saw an interest-rate differential for this loan product type.

It may well be that the bottom is in now, and the flow of interest-only picks up gradually from here.

At least, hopefully. 

Every quarter the new low in IO loans is seemingly widely celebrated, but this does also add holding costs to investments, and in recent years we have witnessed steepling rents, and a chronic shortage of housing stock overall.

The 3 percentage points lending assessment buffer hasn't much helped with this trend either, and hopefully this will also be dropped after the first weak inflation print. 

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Actually, while we're here...there's been a lot of hype about mortgage arrears, some of which has been justified, but S&P Global Ratings reported a surprise decline in Australian Prime SPIN mortgage arrears in July to just 0.94 per cent.

Perhaps not so surprisingly, non-conforming SPIN arrears increased to 4.19 per cent.

The recent improvement in prime arrears has been very much related to the resources-driven boom, especially in Western Australia, and to a lesser degree, Queensland. 

Landlords have felt the pain of rising holding costs, and some have sold up; but for those remaining in the market rents have increased and rental vacancy rates have been at record lows.

As such overall RMBS arrears were notably higher for owner-occupiers (1.52 per cent) than for investment loans (1.18 per cent). 

Overall, things have held up pretty well and most stretched homeowners have hung on, with respite set to come in the form of lower mortgage rates in 2025 and beyond. 

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P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

1. Boom or Bust – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

    2. Download our property buying guide

Download our free property buying guide here. 

You can also check out a few of our recent property investment purchases here. 

Get in contact with us today if strategic property investment is your thing. 

    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is rapidly becoming one of Australia's biggest business podcasts, now with well over 50,000 audio downloads per month, and growing fast.

And our popular Low Rates High Returns Show also remains available on Spotify.

    4. Subscribe for my free daily blog

Subscribe for my free daily blog with some 3.7 million hits here. 

You can also catch up with me daily on Twitter here, where I'm active daily and have over 14,500 followers. 

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here.

My new book, co-authored with Cate Bakos is available to buy here or on Amazon here - follow our book release on Facebook here and at our Buy Right podcast series here. 

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today.

US inflation falls to 2.5pc

US inflation at 3-year low

US inflation came in at +0.2 as expected in August.

Source: BLS

Over the year, headline inflation was +2.5 per cent, way down from the peak of +9.1 per cent. 

The 'all items less food and energy' reading fell to +3.2 per cent (the 6-month annualised core inflation figures were a much healthier +2.7 per cent). 

The 3-month annualised figure was +2.1 per cent, suggesting that in real time price pressures are probably being broken.

Source: BLS

This wasn't a bad result...essentially in line with expectations.

There are arguably some worrying signs in the economy, but with services inflation still looking potentially a bit sticky, the Fed will probably go with a 25 basis point cut in September, and await further information. 

I think. 

Net immigration is high, but down from the highs

Oil prices tumble

US inflation is expected to come in +0.2 per cent in August and +2.5 per cent over the year (or +3.2 per cent for the core measure). 

With oil prices tumbling to the lowest level since 2021, the US 2-year bond yield has also dropped sharply to the lowest level in 2 years, while market-based measures of inflation expectations have dropped to the lowest level since 2021. 

Breakeven rates over the next 10 years have fallen practically all the way back to 2 per cent.

Source: Bloomberg

Gareth Aird of CBA put out his usual amazing array of charts (you can track down his updates on LinkedIn, which show that Australia is probably heading in a similar trajectory over the months ahead).

Lower fuel prices will be welcome! 

In other news, Australia saw +120,000 permanent and long-term arrivals into the country in seasonally punchy July, which was only a very slight decrease on the prior year.

Permanent and long-term departures were a bit higher than last year at -53,000, meaning that net permanent and long-term immigration over the year to July slowed a bit further from the February 2024 highs to +463,000.

International student arrivals were 132,970 in July - slightly higher than a year earlier - with the government now looking to put some caps in place for higher education institutions.

Overall, it looks as though net immigration will naturally normalise a little as the labour market softens, but still immigration is running at relatively high levels. 

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P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

1. Boom or Bust – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

    2. Download our property buying guide

Download our free property buying guide here. 

You can also check out a few of our recent property investment purchases here. 

Get in contact with us today if strategic property investment is your thing. 

    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is rapidly becoming one of Australia's biggest business podcasts, now with well over 50,000 audio downloads per month, and growing fast.

And our popular Low Rates High Returns Show also remains available on Spotify.

    4. Subscribe for my free daily blog

Subscribe for my free daily blog with some 3.7 million hits here. 

You can also catch up with me daily on Twitter here, where I'm active daily and have over 14,500 followers. 

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here.

My new book, co-authored with Cate Bakos is available to buy here or on Amazon here - follow our book release on Facebook here and at our Buy Right podcast series here. 

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today.

API Podcast: A time to sell?

API Podcast

I joined Cate Bakos and the good folks at Atelier Wealth to discuss whether there's a good time to sell property and when, and much more besides.

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

You can also watch on YouTube here:

And you can grab a copy of our book here!

Average household sizes are increasing again

Dwelling stock increases

The ABS released the latest figures on dwelling values up to the June 2024 quarter.

The average or mean dwelling price increased by +$15,600 to $973,300 over the 3-month period, with significant increases recorded in Western Australia, South Australia, Queensland, and New South Wales, but with a few declines notable elsewhere.

Source: ABS

The number of dwellings was estimated to be around +52,900 higher at 11,211,000, taking the total estimated value of the dwelling stock up to $10.9 trillion.

Source: ABS

That seems to be a pretty momentous yet almost meaningless number when considered on its own, but we can compare it to Australia's annual nominal GDP, and the ratio is about 4.09x (the highest ratio we've seen in Australia was about 4.5x during the pandemic period). 

Following decades of falling average household sizes - and then a surprise plunge to under 2.4 persons per dwelling during the pandemic 'race for space' - it appears that Aussies are gradually bunching up together again.

Indeed, the estimated number of persons per dwelling at 2.44 seems to have now returned to its pre-pandemic levels. 

This trend will probably continue for a while to come in response to higher rents, and more employees being called back into the office. 

The impact of this will likely be to take the pressure off rental price inflation as the renting cohort adjusts to the new normal conditions.

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With oil prices falling to the lowest level since 2021 - a disinflationary move - and Australia's key commodity prices also tumbling - bond yields are breaking lower.

Australia's benchmark 3-year bond yield is now trading below 3½ per cent:

Macquarie announced a cut to its fixed rates for 2-year and 3-years to 5.59 per cent.

Inflation expectations lowest in 32 months

Inflation expectations ease

While the shots continue to be fired between the Australian government and the central bank, in real time there appears to be a growing risk of the economy sliding into the mire.

The NAB Survey is arguably the closest we have to a real-time read on the state of play, and business conditions slipped by another -3 points to a reading of just 3 index points.

Business also confidence fell almost across the board, with particularly weak confidence in the retail sector notable, and the overall reading for confidence fell by -5 points to a negative reading of -4 index points. 

Source: NAB

Forward looking indicators continue to look moribund, too.

The monthly figures for prices tend to bounce around a lot, but the trend is clearly lower, and the figures for output prices have returned to long-term averages (while still trending lower).

Source: NAB Survey

Indeed, in separate news, AN-/Roy Morgan's consumer confidence survey for September showed inflation expectations falling to a 32-month low of 4.6 per cent.

That's broadly consistent with hitting the inflation target (indeed, consumer price inflation was under target through 2018 until 2021):

Overall, the NAB Survey made for pretty morose reading, foreshadowing a slowdown in hiring and wages growth, and the risk of rising unemployment as the economy stagnates further. 

---

P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

1. Boom or Bust – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

    2. Download our property buying guide

Download our free property buying guide here. 

You can also check out a few of our recent property investment purchases here. 

Get in contact with us today if strategic property investment is your thing. 

    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is rapidly becoming one of Australia's biggest business podcasts, now with well over 50,000 audio downloads per month, and growing fast.

And our popular Low Rates High Returns Show also remains available on Spotify.

    4. Subscribe for my free daily blog

Subscribe for my free daily blog with some 3.7 million hits here. 

You can also catch up with me daily on Twitter here, where I'm active daily and have over 14,500 followers. 

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here.

My new book, co-authored with Cate Bakos is available to buy here or on Amazon here - follow our book release on Facebook here and at our Buy Right podcast series here. 

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today.

Munger's mental models #7: Get investing!

Mungers mental models

It's been a while since we looked at one of these, so let's take a look at the next in the series of Munger's mental models.

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

2-Sense: Is the Aussie property market going to crash?

2-Sense

Is this Betteridge's Law in action, or is the property market about to get smoked?

Batesy and I discussed this, and why property listings are actually lower than the media is reporting.

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

You can also watch the YouTube version here:

Interest rate cuts to begin as US jobs miss

Jobs miss

The US nonfarm payrolls report showed employment growing by a lower-than-expected +142,000.

Source: BLS

The unemployment rate held fairly steady as expected at 4.2 per cent.

However, there were downwards revisions to the preceding two months by a combined -86,000, taking the 3-month average for employment gains down to just +126,000 (and below 100,000 for the private sector).

A disappointing set of numbers for hiring, which saw the 2-year bond yield drop by around 7 basis points to 3.67 per cent.

Markets are pricing a 50 basis points cut this month by the Federal Reserve as 55 per cent likely (versus 45 per cent for a 25 basis points cut).

Lending for housing surges back

Housing lending advances

A bit of a turn-up, as the ABS reported home lending surging in July.

While still below the previous peaks, housing lending is up by a rapid +27 per cent from a year earlier.

Source: ABS

While housing prices have reportedly been easing in Melbourne, Canberra, Darwin, and Hobart, homebuyers have evidently been getting more active in the most populous states. 

Overall, owner-occupier lending was up by +3 per cent in July, and by +21 per cent over the year.

Source: ABS

Investor lending increased +5 per cent over the month and +35 per cent over the year.

While there's been plenty of discussion of landlords selling up in Victoria, on these numbers it looks like there are plenty of new landlords coming into the market as well.

Investors have also been coming back into the market with gusto in Sydney, Brisbane, and Perth by the looks of it.

Source: ABS

The average loan size hit a new record, but at least part of this is due to lower income earners being shut out of the market by lending restrictions.

While first homebuyer numbers were surprisingly robust, fuelled by government incentives and the bank of Mum and Dad, housing construction lending was again very disappointing, and declined further over the month.

James Foster ran through all the key details here.

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P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

1. Boom or Bust – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

    2. Download our property buying guide

Download our free property buying guide here. 

You can also check out a few of our recent property investment purchases here. 

Get in contact with us today if strategic property investment is your thing. 

    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is rapidly becoming one of Australia's biggest business podcasts, now with well over 50,000 audio downloads per month, and growing fast.

And our popular Low Rates High Returns Show also remains available on Spotify.

    4. Subscribe for my free daily blog

Subscribe for my free daily blog with some 3.7 million hits here. 

You can also catch up with me daily on Twitter here, where I'm active daily and have over 14,400 followers. 

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here.

My new book, co-authored with Cate Bakos is available to buy here or on Amazon here - follow our book release on Facebook here and at our Buy Right podcast series here. 

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today.