[Podcast] The Big Picture Economic and Property Trends You Must Understand, with Pete Wargent

I took some time last weekend to look at some articles and commentary that came out about a year ago when the GVC (Great Virus Crisis) was just beginning.

The media was full of negative commentary but in my regular podcasts my guests and I gave a much more measured commentary using our perspective gained from many years in the market, and as a result, we were circled by a pack of “hangry” housing bears.

They were all confidently growling that local house prices would slump by the largest margin on record.

Of course, they were fuelled at that time by some crazy forecast from the banks and the perennial negative Perma Bears who were praying for the mother of all housing depressions.

Now the media is full of positive news and most of the bears have gone back hibernating in their caves, but some are still out there telling us the upturn in our property markets is just temporary.

We have an embarrassment of riches, with our economy and our property markets surging ahead.

While much of the commentary is about the micro factors – what’s happening on the ground in our property markets, I like to regularly get together with property commentator Pete Wargent in these “Big Picture” podcasts to look at the macroeconomic factors affecting our economy and the property markets to help give you some more clarity about what the future holds so you can make better investment and business decisions.

No fiscal cliff at the end of March

Remember how the property pessimists were worried that we would fall off the cliff due to the many deferred home loans?

Many banks gave temporary relief to borrowers impacted by COVID-19, allowing them to defer payments for a period of time.

However, APRA reports that as of 28 February, a total of $14 billion worth of loans are on temporary repayment deferrals, which is around 0.5 percent of total loans outstanding, down from $37 billion (1.4 percent of total loans outstanding) in January.

Sure, lots of homeowners and property investors took advantage of the mortgage safety net, but they didn't need to use it and are now repaying their debts.

We're not falling off of a fiscal cliff and our banking system is sound and stable – so it's a pity the Negative Nellys created so much stress amongst those who listened to them last year.

Property prices and GST boost state budgets by $7billion

The fastest house price growth in 32 years nationally has fuelled stronger than expected stamp duty revenues while also adding a feeling of wealth for existing homeowners.

We know when we feel wealthy and secure, we will tend to spend more. This all good news to help continue boosting the post-COVID-19 economy.

And this has a flow-on effect on government budgets.

We know our governments have taken on more debt to help us get through the coronavirus crisis, but now it seems that State government budgets are a collective $7 billion better than expected as rapidly recovering housing markets and consumer spending lift goods and services tax and stamp duty collections run ahead of forecasts.

Federal estimates of GST collections are already $5.9 billion ahead of where they were forecast to be just three months ago, while stamp duty estimates have improved in every state by more than a combined $1.5 billion compared to past figures.

The latest home loan figures show that investors are back in the market

The latest ABS figures show the value of new loan commitments for housing fell by 0.4 percent from a record-high $28.75 billion in January to $28.64 billion.

On the other hand, investors are back in the market with lending to investors rising by 4.5 percent in February to 3-year highs of $6.94 billion, while lending to owner-occupiers fell by 1.8 percent to $21.70 billion.

For owner-occupiers, the value of loans for construction rose 4.4 percent in February to a record-high $4.25 billion.

Renovation loans rose 8.3 percent to 11-year highs of $322.4 million.

Building approvals surging

​February saw another big upside surprise for dwelling approvals which leaped 21.6% in the month to be up 20.1%yr.

​The record house building approvals were driven by the government’s HomeBuilder program which has now have sparked shortages of key tradespeople and helped push the price of materials up by as much as 50 percent.

​Rampant demand in the renovation and home building sector is hitting customers with significant delays and pushing up the price of materials.

And disruptions to international supply chains are only making matters worse.

​​With dwelling approvals for houses at record highs, it’s likely we will see additional pressure growing on construction costs as demand continues to build for residential construction materials and resources.

The lift in residential construction costs is also placing upwards pressure on inflation where housing costs receive the heaviest weighting within the CPI ‘basket’ of goods.

Although HomeBuilder has now been phased out at the end of March 2021, it’s highly likely we will see a continuation in this trend towards higher residential construction costs as it will take some time for builders to work through the surging pipeline of house approvals.

Job vacancies

Despite the concerns of double-digit unemployment, 90% of the jobs lost over Covid have been recovered.

In seasonally adjusted terms, job vacancies rose by 13.7 percent or 34,800 to a record 288,700 available positions in the three months to February.

Vacancies are up 26.8 percent or 61,000 available positions in February compared with a year ago.

Of course, JobKeeper has now ended, and while there is some concern that more people become unemployed, the residential property boom if you’re in strong demand for construction workers.

ANZ Bank Forecasts

A new report released from ANZ Bank predicts house prices at the national level will rise to a strong 17% through 2021, before slowing to 6% in 2022.

What a turnaround from all the pessimistic forecasts all the banks made in the middle of last year. ANZ senior economist Felicity Emmett said she expected the Australian Prudential Regulation Authority (APRA) would then introduce macroprudential measures to slow house price growth into 2022.

Also… it is unlikely that APRA will intervene with macroprudential controls any time soon, in light of APRA chairman Wayne Byres’ comment this week when he reminded Parliament that its primary responsibility is financial stability, not soaring house prices, and it is not seeing activity right now that would compel it to intervene.

Links and Resources:

Michael Yardney

Metropole’s Strategic Property Plan – to help both beginning and experienced investors

Join us at Wealth Retreat 2021 on the Gold Coast June 12th – 16th – get more details here

Pete Wargent – Next Level Wealth
Pete Wargent’s new book Low Rates High Returns

Some of our favorite quotes from the show:

“March has come and gone, and there was no fiscal cliff.” – Michael Yardney

“I believe that good debt, debt against appreciating assets, is really an asset.” – Michael Yardney

“Once you realize that no amount of money is going to make you happy unless you shift your mindset into gratitude and abundance mode, you’ll never be happy.” – Michael Yardney

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