There are more interesting articles, commentaries and analyst reports on the Web every week than anyone could read in a month.
Each Saturday morning I like to share some of the ones I’ve read during the week.
The weekend will be over before you know it, so enjoy some weekend reading.
Reserve Bank holds: Why the board won’t lift the cash rate until late 2019
With little surprise to anyone, the RBA has kept interest rates on hold this month.
So when can we expect a rise?
According to this article from Domain.com.au there’s no rise in sight until 2019.
The Reserve Bank’s statement accompanying the October interest rate decision, where rates were kept on hold at 1.5 per cent, provided a mixed assessment of the Australian economy.
While the RBA was optimistic about economic growth and the jobs market, the RBA highlighted the risks surrounding household debt, slow income growth, tighter credit conditions and global trade.
The RBA maintained the key line that “[f]urther progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual”.
However, there were three key developments in September that will remain top of mind for the board as they ponder their next move.
Banks are raising – but also cutting – home loan rates
While the cash rate hasn’t changed in more than two years, banks are adjusting their home loan rates .
Most banks, excluding NAB, recently increased owner-occupier home loan rates for existing customers.
But banks are also cutting rates for new home loan customers to try to capture market share.
As a result, home loan rates for owner-occupiers haven’t changed much overall.
For investors, interest rates have remained fairly steady overall in 2018 but have fallen for new customers.
The RBA noted that while credit conditions are tight, “mortgage rates remain low and there is strong competition for borrowers of high credit quality”.
Total housing credit growth slowed to a 5.4 per cent annual increase, the slowest rate since 2013.
The combination of investors withdrawing from the market as prices fall and tighter lending by the banks has meant property investor credit growth has fallen to a record low level.
The risk of a US-China trade war has increased
One of the biggest threats to the Australian economy is a possible trade war between the US and China.
The RBA maintained the line that “one ongoing uncertainty regarding the global outlook stems from the direction of international trade policy in the United States”.
A trade war would reduce Chinese demand for our exports, particularly commodities such as iron ore.
This would impact Australia’s economy as China is Australia’s largest export destination and trading partner (see graph below).
The RBA modelled three trade-war scenarios earlier this year, with its worst case scenario a 20 per cent tariff on all US imports and a 20 per cent tariff on US exports by all other countries.
The RBA predicted that a large-scale trade war would increase Australia’s unemployment rate and lower economic growth, but that a lower exchange rate and a lower cash rate rate would help to insulate Australia’s economy.
Strong economic growth masks some underlying weakness
Australia’s GDP growth over the year to June was 3.4 per cent, the fastest rate since 2012.
But the headline figure masks some underlying weakness.
Households are saving less of their income.
The saving rate fell to 1 per cent, its lowest level since 2007.
While this may be a sign of confidence about better job prospects and higher wages, with household debt at record high levels, declining savings may concern the RBA.
However, it is possible that spending will slow in the future, due to falling house prices weighing on household consumption.
Government spending on infrastructure was also a major contributor to growth over the past year.
Over the longer term, GDP growth has been boosted by strong population growth, with GDP per capita growth declining by more than GDP growth since the 1990s.
The RBA is keeping a close eye on the many moving parts of the economy and the risks on the horizon.
Read the full article here
Vendors pull up the ladder
Despite a new season – there seems to be little to get excited about when it comes to property listings.
Spring listings flat
Normally you’d expect to see a strong spring rise in property listings in September, often of up to 5 per cent.
But in a sign that vendors are now pulling up the ladder on this cycle it didn’t happen last month, with total listings up by just 0.3 per cent in Sydney and listings actually falling by 1.8 per cent in Melbourne.
The below data being well compiled as always by SQM Research.
Over the past year, Sydney listings remain 18.7 per cent higher at 36,128.
Read the full article here
Melbourne and Sydney home prices have been falling faster in recent months
They may be the two most popular cities to call home – but it looks like home prices in Sydney and Melbourne just keep falling.
An article on Business Insider looks at the results, which show further falls in recent months.
Sydney and Melbourne home prices have fallen 6.1% and 3.4% respectively over the past year, according to CoreLogic’s Home Value Index.
While still a mild downturn, especially considering how much values rose in the subsequent price upswing, it’s clear the pace of declines are now starting to accelerate.
Prices fell by 0.9% in nominal terms in Melbourne in September, and by 0.6% in Sydney, far larger than the levels reported earlier this year, especially in Melbourne.
After removing the impact of seasonal patterns, that meant Melbourne prices fell at an annualised pace of 14% in September, according to analysis from Macquarie Bank, while Sydney prices fell by a smaller but still large annual pace of 10.5%.
Clearly, both a significantly faster than the annual decline in nominal values recorded in both cities over the past 12 months, indicating that the pace of the downturn has accelerated in recent months.
This chart from Macquarie shows the evolution in monthly annualised price movements by individual capital city going back to the start of 2016.Macquarie Bank
Not only have pace of declines in Melbourne and Sydney accelerated in recent months, but there are also signs that Perth prices are coming under renewed pressure.
Read the full article here
House prices to drop 40%
Is it all doom and gloom for Australia’s property market?
In this article for Switzer, John McGrath looks at why we should ignore the naysayers and focus on reality.
A recent TV programme presented a particularly grim view of Australian property, suggesting the market could shortly spiral out of control with up to a 40% fall in home values within the next 12 months.
It’s going to be Bricks and Slaughter – get out while you can!
This story was particularly misleading and unsurprisingly melodramatic.
I say this having now experienced five property cycles in my 35-year real estate career and each time, often at around this stage of the cycle, the same old headlines re-appear.
Steve Keen predicted a 40% drop in 2010, Johnathan Tepper predicted a 30% to 50% drop in 2016. Of course, both were ridiculously inaccurate.
Generally speaking, the sponsors of such theories are seeking self-promotion.
They are inevitably looking to promote a book or attract eyeballs to their websites.
It’s interesting to note that respected commentators like Louis Christopher of SQM Research, who was featured on the programme, has since stated that his views were distorted and taken totally out of context.
Louis Christopher: “I was disappointed and unhappy…the segment was sensationalist to say the least.”
If you saw this story, please don’t let it scare you.
Our property market is one of the most stable in the world because there are so many fundamentals keeping its foundations strong at every point in the cycle from peaks to troughs.
Let’s look at a few of them.
Firstly, two out of three Australians own their own home or are living in a home with the owner and one in three are in a rented place.
Of the 66% who own their home, half of these homes are fully paid off with no loan whatsoever.
Next, let’s look at the generational change occurring, where many Baby Boomers (aged 60 to 75 approximately) are assisting their children secure a first home and of course as the life cycle turns, many will also be leaving their often considerable assets to their kids.
In the main, most Australians are wealthier than ever before through their property, other assets or indeed, inheritance.
Statistically, the average Australian is worth around $395,000, which is at record highs.
Next, let’s look at the underlying factors that we are experiencing today that may affect property, negatively or positively.
We are enjoying a robust economy, low levels of unemployment, record low interest rates and significant overseas immigration and investment.
None of these are likely to change significantly into the future.
After all, we are the lucky country.
Read the full article here
Victoria’s most unwanted house: 9.5 years and still no sale
What makes a property unwanted?
Too expensive? Too messy?
Well despite having non of these elements, this article from Realestate.com.au looks at a property that has been listed for 9.5 years with no sale.
IT’S NEAT, affordable, and costs “less than an outdoor toilet in Melbourne”.
But despite its virtues, 23 Ararat Rd, Stawell, appears to be Victoria’s most unwanted house.
While the town is renowned for its short distance race, the sale campaign for the three-bedroom country charmer has been more like a marathon.
Monaghan’s Real Estate director Terry Monaghan has been chasing a buyer for No. 23 for 3445 days — almost 9.5 years; a hefty figure that might make it the state’s longest running house listing.
At this point, if the house had legs they’d be worn to the ground.
It’s a far cry from the 90-120 days it generally takes to sell a house in the town just under three hours from Melbourne’s CBD, according to Mr Monaghan.
And it might be a case of pure bad luck.
“We’ve had a number of offers in the past, but they’ve often been contingent on the prospective buyer selling their house beforehand; but it hasn’t worked out,” Mr Monaghan said.
“It’s a great property, and at the price ($385,000), it probably costs less than an outdoor toilet in Melbourne.”
At $385,000, the home is $325,000 cheaper than Melbourne’s median house price, which CoreLogic recorded as $710,000 across the 12 months to October, 2017.
And while it’s $205,000 more than Stawell’s $180,000 median price recorded in the same period, Mr Monaghan said it was justified.
“It’s on a much larger (1.2ha) block than many of the houses close to town, and it has shedding,” he said.
“But it would also make a terrific commercial development.
“It has 70 metres of Western Highway frontage; about 4000 vehicles use that road each day, and it’s going to be duplicated.”
But the house is very liveable as is, according to Mr Monaghan, with gas heating, reverse-cycle cooling, and built-in wardrobes in each bedroom.
Read the full article here
Weekend video: Can You Spot The Liar?
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.