Business credit remains solid

Solid credit growth

Yesterday the CapEx figures showed a solid rise for the September 2024 quarter, although investment plans for the financial year ahead do seem to be fading now, coming in a bit lower than expected. 

In a similar vein, the Reserve Bank of Australia's financial aggregates figures showed business credit growth rising by 1 per cent in October, to be a very solid 8.3 per cent higher over the year.

Total credit growth in the Aussie economy picked up to 5.3 per cent, stronger than the 4.8 per cent growth of a year ago, but there are probably now some headwinds to be faced in 2025. 

Housing credit growth also increased to 5.3 per cent over the year to October, up from 5.1 per cent in the preceding month. 

Although many landlords have been selling up, especially in Victoria, the figures showed that in aggregate investors are coming back into the housing market. 

Despite this, the housing credit impulse does seem to be fading into the end of the calendar year.

Overall, pretty solid numbers, which are consistent with more modest price growth in the housing market. 

It looks like domestic demand will be solid enough in next week's GDP figures, which should keep GDP growth in positive territory, perhaps at around 1 per cent over the year to September 2024. 

James Foster ran through the detailed GDP preview here, implying quarterly growth of just 0.4 per cent.

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Apartment building picks up in Melbourne

Inflation stays at 2.1 per cent 

The monthly inflation gauge came in significantly lower than expected at 2.1 per cent over the year to October.

Median market expectations were for a 2.3 per cent increase over the year.

However, it's worth noting that the headline figure was pushed down by a massive 35 per cent drop in heavily subsidised electricity prices.

The trimmed mean inflation figure remained stuck stubbornly above target at 3½ per cent over the year. 

Inflation excluding volatile items continued to decline to 2.4 per cent over the year to October, having previously declined from 3 per cent in August to 2.7 per cent in September. 

Progress has been bumpy, perhaps as one might have expected, but progress there has been.

Shane Wright from Fairfax took such a look at a few of the key disinflationary trends on X:

It looks like underlying rental price inflation, after stripping out the effect of the Commonwealth Rent Assistance, is ebbing lower now. 

It's probably not smart to read too much into the first month of the quarter on this gauge, but there was nothing too alarming in here, and indeed there's been no headline inflation to speak of for six months.

CBA revised down their forecast for Q4 core inflation from 0.7 per cent to 0.6 per cent, with risks skewed to the downside.

Markets were largely unmoved by the figures, which were broadly as expected.

Construction picks up

Construction work done was a bit stronger than expected, with residential building work done just fractionally (0.1 per cent) higher than a year earlier in the September quarter.

House building has been strong in Western Australia and Queensland, and there has been a lift this year for apartment and townhouse building in Victoria. 

That said, with medium-density projects costing up to around 50 per cent more than they did pre-pandemic, the same dollar value of work is producing far fewer units and apartments than it did before. 

Overall, residential building remains quite subdued for the time being, but should hopefully begin to pick up in most areas next year (except perhaps in Sydney). 

Engineering construction is much more ebullient and has lifted by a further 6 per cent over the past year, and is approaching decade highs.

Infrastructure and transport building has been enormously strong in New South Wales, and mining investment in Western Australia has also boomed along. 

Markets weren't overly excited by the figures with the 3-year bond yield trading at just below 4 per cent this afternoon, and the Aussie dollar trading just a little higher at 64.8 US cents.

The Reserve Bank of New Zealand wimped out of a super-sized rate cut and dropped interest rates by 50 basis points from 4.75 per cent to 4.25 per cent.  

Base case scenario is 50 basis points for next month as well. 

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As the 2025 election year draws closer, the government is beginning to splash some cash around, with the Help to Buy scheme now passing for up to 40,000 first homebuyers to be able to buy a property with a small deposit on a shared-equity basis.

I'm not sure this policy is popular as the government thinks it is, but the bill has been passed now anyway. 

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    2. Download our property buying guide

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    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

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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 14,700 followers. 

By the way, I'm an 8-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.

Aussie dollar plunges on Trump tariffs

Dollar drops

President-elect Trump announced today that 25 per cent tariffs would be introduced on all goods entering the United States from Mexico and Canada, while there will also be significant additional tariffs imposed upon China of 10 per cent.

This is strong news for the US dollar, and the Aussie dollar immediately dropped quite sharply on the news. 

The Aussie dollar hit the lowest level in four months. 

This is correspondingly bad news for an already-struggling Chinese economy, given that Trump had already promised 60 per cent tariffs if elected. 

Given Australia's reliance on exports to and trade with China - for iron ore and coal in particular - it's not a surprise to see bond yields falling here too.

Australia's 3-year bond yield was trading under 4 per cent this afternoon, down from a recent high of around 4¼ per cent a fortnight ago. 

The Reserve Bank of Australia had already anticipated such an outcome from a Republican sweep, as disclosed via the Freedom of Information log here:

It's quite possible that Trump's tariffs could also lead to a supply glut of cheap manufactured goods, pushing global goods inflation lower. 

In other news, the estimated resident population of Australia just went through 27½ million.

Although population growth has slowed, it is still assumed to be rising at around 1,600 per day, or an annualised pace of a massive 584,000. 

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    2. Download our property buying guide

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    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

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    4. Subscribe for my free daily blog

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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. 

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APRA maintains lending buffers

Buffers to stay tight

APRA announced today that for the time being the 3 percentage points lending assessment buffers will remain in place for mortgage borrowers:

Here is what the APRA Chair had to say:

Source: APRA

Quickly to step through those points...

Firstly, inflation has continued to moderate, and the risk of higher interest rates has receded.

No arguments there. Although it's become fairly fashionable to talk about the risks of steepling inflation, a more sober view suggests that there may soon be bigger fish to fry given how inflation has continued to moderate since the December 2022 peak. 

Source: ABS

Markets are generally expecting interest rates to be lower over the years ahead, rather than higher, which doesn't necessarily appear to align with the 3 percentage points assessment buffer. 

Source: ASX

Secondly, the regulator is mindful of shocks to households given the slowing labour market and geopolitical uncertainty. 

"Geopolitical uncertainty" is always and everywhere an issue - like, literally always - so to be honest I'm not really sure what that point means. 

Employment has grown by around +400,000 over the past year to a record high of above 14½ million, and the unemployment rate is 4.1 per cent. There isn't much evidence of how the lending assessment buffer factors into those figures either.

Thirdly, credit is available to good quality borrowers, and house piece growth has eased.

This is basically the crux of the matter currently - you can borrow to buy a property if you have an income of $250,000, and perhaps if you have wealthy parents to act as guarantors - but otherwise for first homebuyers and lower income-earners you're being stress-tested for a 9½ per cent mortgage rate that you'll never pay, and you're effectively locked out of the market.

And fourthly, house prices are higher than in 2020, and household debt levels are relatively high compared to long-term trends.

This is also true, although it's not clear that targeting housing prices or certain debt levels are the specific aims of the macroprudential policy toolkit:

"...[the] macroprudential policy toolkit is aimed at promoting stability at a systemic level to ensure financial institutions can continue to supply the credit and payment services required for the economy to grow at a sustainable rate".

The ratio of household debt to disposable income is currently around 1.85x - although if you net off mortgage prepayments buffers and offset account balances debt levels have remained manageable - and actually hasn't changed much for the past decade-and-a-half (a point regularly highlighted by the Reserve Bank of Australia economists, by the way, not by me). 

The wrap

Overall, the ongoing constrained credit environment appears to be a co-ordinated attempt to conclusively break the back of inflation, and lending assessment buffers thus seem unlikely to change until interest rates are clearly on the way down. 

This is working to slow inflation, but also has helped curtail building approvals to decade lows, and dwelling construction is consistently failing to keep pace with high levels of demand from rapid population growth.

From a financial stability perspective, in the short term restricting access to mortgage credit for lower income earners undoubtedly minimises any risks of arrears.

For the medium term, however, shortages of urban housing in magnet cities may be associated with volatility and risks later in the cycle, as previously evidenced in the US and Europe. 

This was discussed in detail in this book, for example.

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    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 14,700 followers. 

By the way, I'm an 8-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

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2-Sense podcast: 2025 property market predictions and more

2-Sense

Join Chris and I as we work through the 2025 property market predictions here (or click on the image below):

You can also watch the YouTube version here:

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 14,600 followers. 

By the way, I'm an 8-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.

Podcast: This is what’s going in regional NSW property

Regional NSW

Reece Marini joined me to talk through what's happening in the regional markets of New South Wales.

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

Canberra a rare pocket of growth

State Accounts sluggish

The ABS State Accounts underscored the relative strength of Queensland's economy, wherein Gross State Product defied the odds to grow by 2.1 per cent in the 2024 financial year, driven by the booming south-east Queensland corridor. 

The Northern Territory saw a rebound in oil and gas extraction after last year's declines, accounting for the strong number for the Top End, while Canberra's endless boom in public administrators rolled inevitably onwards. 

Public administration and safety was the main driver of the ongoing growth in government agencies, with a +7.7 per cent increase.  

Generally, through, growth in the Aussie economy per capita has been weak. 

Source: ABS

Canberra has always seen higher gross incomes per capita than other parts of the country, but the relative differential really accelerated away under Labor's governments from 2007 to 2015, and has remained there ever since. 

Gross income per capita in the ACT today is 52 per cent higher than in New South Wales, and an astonishing 72 per cent higher than in Victoria. 

It's been a tough year or two for Victoria, with a huge increase in land and property taxes being levied on the population in order to tackle the state's debt mountain. 

At the household level, once-lowly Tasmania now has a higher income per capita than Victoria for the first time.

A glance at the interest payable on dwellings over the past two financial years tells its own story, with households being slammed by higher mortgage rates.

It's no wonder retailer insolvencies have surged and the consumer economy in the mortgage belt is hurting. 

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Commonwealth Bank of Australia (ASX: CBA) saw a record closing share price of $156.38, up by more than 50 per cent over the past year, suggesting that banks are at least enjoying the higher mortgage rates. 

Construction insolvencies continue to surge

Developers go bust

Over the year to 3 November insolvencies in Australia continued to rise sharply, according to ASIC's latest data. 

5,194 insolvencies were reported for July to November, up from 3,511 for the prior comparative period. 

To date, there's been no let-up in the surge of construction sector insolvencies.

It goes without saying that this is not good news for the burgeoning housing shortage in Australia.

Charter Hall boss David Harrison was reported in the AFR today saying that if today is a housing crisis then "God knows what they'll call it in five or 10 years".

Developers in Sydney have been smashed by high interest rates and construction costs, meaning that developers don't see the value in commencing new unit projects.

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In other news, Canada's inflation rate picked up to 2 per cent in October, meaning that the next interest rate cut may prove to be 25 basis points, instead of 50. 

The UK inflation rate picked up to 2.3 per cent as the energy price cap was lifted by 10 per cent last month, impacting millions of households. 

Markets are still pricing for 59 basis points of cuts from the Bank of England before Xmas (down from 64 basis points before the inflation data was released).

New Zealand's economy is in a mess and struggling, and next week will see another 50 basis points interest rate cut...if not more. 

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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 14,600 followers. 

By the way, I'm an 8-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.

ausbiz: Population and property pressures

ausbiz TV

I joined Andrew at ausbiz TV to talk all the latest property news.

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

New home sales pick up, except in Sydney

New home sales off the lows

The proportion of employers preparing to increase staffing levels declined from 22 per cent to 19 per cent, according to the latest recruitment report from Jobs & Skills Australia.

It's still not always easy to find the required staff, though, especially in regional Australia, where recruitment difficulty rates remain quite elevated.

In other news relating to the housing shortage, new home sales rose by a promising 9.4 per cent in October, which should result in a rebound in new housing starts in 2025. 

The increase was driven by a 26.5 per cent increase in Victoria, where stamp duty has been scrapped for new builds since October 1, with no price caps. 

Most other cities and states are seeing a recovery from the nadir, with the notable exception of Sydney.

Reported the HIA:

“New home sales nationally are showing an upward trend, with sales in the last twelve months 8.0 per cent higher compared to the previous year.

“The rise in new home sales will see an increase in house commencements from early 2025.

“If this trend continues, New South Wales will be the only laggard market for home building activity. This is driven by the high cost of residential land, particularly in Greater Sydney."

There's been such a large rise in construction costs since 2020 that Sydney is unlikely to see a recovery in multi-unit building until prices have increased significantly. 

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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 14,600 followers. 

By the way, I'm an 8-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.