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Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).
4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.
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A veritable heap of data out this week, so let's have a look at a couple of releases that relate to the housing market, in a very brief 60-second blog post.
Firstly, APRA's quarterly residential figures showed that interest-only loans have pulled back, but at more than 36 per cent of new residential loans they will still need to fall some way over the months ahead in order to get down to the 30 per cent supervisory cap. Plenty more work for lenders to do here to fall into line.
High loan to value ratio (LVR) lending, meanwhile, has fallen to the lowest level on record, with loans of above 90 per cent LVR down to just 7.7 per cent of new loans, having peaked at 21.3 per cent in December 2008.
'Low-doc' loans, non-standard loans, and mortgages outside serviceability are now also tracking at historic lows of just 2.2 per cent of the market, despite a recent marked uptick in the writing of low-docs.
This all means that life has become very much tougher for first homebuyers, while home owners with equity have often been able to refinance 20 per cent deposits and buy more property in their stead.
APRA's macroprudential measures appear to have changed the composition of lending, but the pace of mortgage growth hasn't been subdued to any great extent, with total outstanding residential ADI exposures passing $1.5 trillion in the March 2017 quarter.
The average mortgage size outstanding rose to $259,000, up by 3.9 per cent from a year earlier, while the average balance for interest-only loans continued to track at considerably higher levels at $346,100.
Of course, as has been widely reported, mortgage rates for investors with interest-only loans are consistently being tweaked higher, so there will likely be changes afoot to these figures. Credit growth slows
The Reserve Bank of Australia (RBA) also released its Financial Aggregates figures for April 2017 today, which showed annual business credit growth slowing to a 35-month low of only 3.1 per cent.
Housing lending is still humming along at 6.5 per cent annualised growth, however, while annual property investor credit growth rose to its highest level since January 2016 at 7.3 per cent.
Despite the strength of the housing lending sector, total credit growth slowed again to 4.9 per cent, the slowest annual pace since May 2014.
All of which means that the total share of outstanding credit pertaining to housing hit another record high of 61.9 per cent.
The increasingly widespread use of offset and redraw facilities continues to see personal credit growth driven into negative territory, while some small businesses are also funded by 'housing' loans using existing equity. The wrap
Some headaches apparent here for the Reserve Bank, with slowing credit growth and core inflation below target suggesting that interest rates should be cut in the normal course of things.
The reason markets have not been pricing this outcome is clearly related to the composition of credit growth, which has been increasingly sucked into the housing market.
Back in 2014, ACT Treasurer Barr assured everyone that the land tax hike in Canberra wouldn't be borne by renters:
"The impact will negligible...it's highly likely rents will continue to fall".
As expected, after the big rise in land tax on investment properties on 1 July 2014, the value of investor loans took quite a hit over the following two years.
Vacancy rates for houses in Canberra have dropped to an excruciatingly tight 0.7 per cent during the first quarter, with little sign of respite ahead.
After all, surely fewer investors would consider buying a rental home now, at least until rents have risen far enough to cover what in some cases has been a huge percentage increase in land tax liability.
And three years on, SQM Research's asking rents index for houses has increased by nigh on 20 per cent.
In the end, then, it seems that the cost will be passed on to renters...at least for houses.
Source: SQM Research
Although the median asking rent for units and apartments has moved a little higher, this may partly reflect a change in the composition and quality of the dwelling stock, as a great many poor quality old units have been bulldozed to make way for newer apartments.
And there's likely to be better news ahead for renters of apartments ahead too, despite big rates and land tax hikes for apartment owners commencing 1 July 2017.
At the end of calendar year 2016 there were well over five thousand units, apartments, and townhouses under construction in the Australian Capital Territory, comfortably a record high.
However, an important counter-argument is that there will be some very sharp increases in electricity prices pulling inflation higher this year, perhaps up to 30 per cent for some eastern seaboard consumers.
Granted, the core inflation measures should trim these rises back in the impact quarter, but any higher headline rate of inflation will provide the perfect reason not to cut rates, should a reason be wished for (and this seems likely to be the case).
Adding in the fact that the headline unemployment rate just dropped to 5.7 per cent - and the rather important point that the RBA Governor just doesn't seem to want to cut rates! - and futures markets are pricing in just 5 basis points of cuts by the Reserve Bank of Australia (RBA) by November.
Over the next few days, there are a number of key data releases which will go some way to determining sentiment.
These include the Building Approvals figures for April due out tomorrow, as well as Private New Capex, Retail Trade, and the Australian National Accounts for Q1 2017 (which are expected to produce a very soft result, albeit partly due to the Cyclone).
If these data print on the downside we'll be learning more about Governor Lowe's views over next few months...
Manchester continues to lead UK house price growth, according to Hometrack's latest index.
London has become a real two-speed market - splitting out the London market by price decile shows how price growth has shifted into properties in the lowest deciles, while premium properties are struggling.
It's taken a long old while to get going, but the great cyclical migration north is picking up the pace as the Sydney housing market prices out some homebuyers, and people gradually work out how dreary the winters are down south.
It's been pretty evident in Brisbane for a while - every second person you meet has seemingly just moved up from somewhere else, that somewhere else usually being Sydney.
And the figures now have confirmed that Brisbane now has the highest net internal migration gain of all the capital cities, hitting a pacy 10,100 in 2015-16.
Net internal migration to the Gold Coast (6,428) and Sunshine Coast (6,200) also increased to the highest levels in about a decade.
As the creator of most new jobs, Melbourne is attracting a historically high number of migrants internally, with a net gain of 8,300 people, while Hobart moved into positive territory with a net gain of 400.
On the other side of the coin Adelaide (-6,100) is suffering a remarkable brain drain, partly to the bright lights of Melbourne.
Meanwhile the resources capitals Perth (-3,300) and Darwin (-1,200) have continued to grapple with the winding down of mining construction, while Canberra (-180) also lost a handful residents on a net basis.
The figures released by the ABS for 2015-16 provided a remarkable insight into the changing face of Sydney.
Sydney lost 23,200 people net during the financial year, with the biggest internal migration loss to regional New South Wales as retirees take their equity to cheaper and coastal locations (and who can blame them?).
Sydney's rapid ongoing population growth has instead been driven by a combination of high rates of immigration from overseas and natural growth (more births than deaths), meaning that a large chunk of the resident population today is overseas born.
Total employment has suddenly surged in recent months, to be 195,300 higher over the year at 12,136,400 in original terms, for annual growth of a solid 1.6 per cent.
The bulk of employment growth has continued to be part time in nature, however, reflective of significant slack in the labour force.
I've written previously of how full employment can be both a cause and effect of real estate booms - a positive feedback loop as employment, population growth, and construction output increase - which can eventually result in spectacular blow-offs in property prices.
I cited the examples of Darwin and Perth in the early phases of the mining boom.
Constructive criticism of my piece argued that easy credit is a bigger factor in creating property bubbles, but this alone can't explain why Perth residential prices increased by 104 per cent between September 2003 and December 2006, while Sydney's median prices simultaneously fell 3 per cent.
Similar lending practices were in operation in both cities at that time, after all.
The below chart presents a clue - Western Australia was in the midst of a resources employment boom with the unemployment rate falling to below 3.5 per cent.
Darwin followed a little later, with its unemployment rate falling to below 3.5 per cent in 2006-7, and both cities saw huge increases in dwelling prices.
In this context it was interesting to note in yesterday's Detailed Labour Force figures that Greater Sydney's unemployment rate fell to just 4.4 per cent.
Construction has been a key driver of the economic boom in Sydney, with the number of new home completions breaking the record set in 1971 this year.
35,871 new homes were completed in the Greater Sydney area over the year to February, eclipsing the previous 12-month record of 35,687, set more than 40 years ago.
Approvals have also hit historic highs across the state of New South Wales, with 74,217 approvals over the year to March 2017, more than doubling the levels seen in 2011.
Despite this, I don't believe Sydney is at full employment levels yet.
If anything the labour market seems to have tailed off a bit lately following a spectacular performance in 2016, and part of the low unemployment rate story may be accounted for by disenchanted homebuyers moving interstate (and some retirees opting to relocate to less costly pastures).
The best performing labour market over the year to April was Greater Melbourne, by a wide margin.
The search for gainful employment
One of the possible reasons that more people aren't migrating interstate as much as they once did is the middling state of conditions in the economy.
The median duration of job search has deteriorated from 13 weeks to 15 weeks over the four years since April 2013.
The city in which it takes longest to find work is Adelaide at more than 20 weeks on average, which has resulted in pedestrian population growth in South Australia, while Perth has been heading in a similar direction.
Comeback trail for regions
There is some brighter news around the traps. I often look at the Townsville region as a useful bellwether for regional Australia, and Queensland in particular.
Having fallen away sharply since the peak of the resources boom, total employment is now trending moderately higher again after some high-profile industry closures.
Indeed, there has been a spate of brighter news and planned projects reported for the region, and the unemployment rate has begun to trend down, having soared from around 4 per cent in 2012 to double digit levels.
Whether or not the controversial $22 billion Adani coalmine ultimately attracts a tick of approval could potentially be earth-shaking news for the region, with the project expected to be headquartered in Townsville.
Total mining employment declined by 22 per cent between May 2012 and August 2016 in Australia, but has recovered a little over recent quarters.
The latest regional quarterly figures from the Australian Financial Security Authority (ASFA) provided the most compelling evidence yet of rising financial stress levels.
Although the number of Part IV and Part XI bankruptcies was higher in the March quarter than in the preceding three months to December, year on year there was a modest decline.
Western Australia has seen a clear uptrend since the June quarter of 2014 as the resources downturn continues to bite.
Looking at new personal insolvency activity, however, there was a clear rise in the number of debtors both on a quarterly and on an annual basis.
Here too the figures for Western Australia reveal clear signs of financial stress, but in fact there was a strong increase in the number of debtors right across the board in the first quarter of the calendar year. Below the figures for personal insolvencies are smoothed on a rolling annual basis to strip out seasonality.
Sydney stress emerges The number of debtors entering personal insolvency in Greater Sydney increased by a non-trivial 11 per cent in the March quarter. Drilling into the statistical areas it is clear that many of Sydney's lower socio-demographic suburbs and LGAs are driving the increase, with elevated levels of activity in Penrith, Campbelltown, Bankstown, and Blacktown, and a secondary tier of stress emerging in Fairfield and Liverpool.
There is also a growing heat spot of financial stress focused on the Central Coast, with rising debtor activity reported in Gosford and Wyong. As explicitly predicted in our Long & Short Reports, the region with the highest proportion of new debtors in the adult population was St Marys, for the apparent reasons explained in the report.
Across regional New South Wales, there was also a small flash of debtor activity in Newcastle during the March 2017 quarter, which will warrant careful monitoring.
Stress on the urban fringe
Similarly in Queensland the greatest contributor to the rising number of personal insolvencies was the outer urban region of Ipswich, including Springfield, while there was also a higher number of new debtors reported in the Logan region, where unemployment rates are elevated. Scanning out across regional Queensland the regions with the highest number of new debtors in the March quarter included Townsville and Rockhampton. Meanwhile in Greater Melbourne the greatest number of insolvencies was also seen in outer suburban hubs such as Wyndham, Whittlesea-Wallan, and Frankston. With both full time employment growth and wages growth so weak, the rise in the number of insolvencies looks set to continue.
It should be noted that with Australia's population swelling by well over 1 million people every three years or so, it is more or less assured that the absolute number of personal insolvencies will rise over time.
Adjusting the number of personal insolvencies for the size of the incumbent population and we can expect to see Queensland and Western Australia rising to the top of the pile, being the states most comprehensively impacted by the winding down of resources construction (and in Queensland's case, severe flooding).
Note that there is a series break in activity in the Australian Capital Territory (ACT), since before 2005 personal insolvencies were reported by state of lodgement rather than state of residence.
Overall, the ASFA figures provide compelling evidence of a rising trend in the number of people in financial difficulty.
The regions showing the greatest levels of financial stress fit closely with what has been previously highlighted in our detailed market reports.
In the absence of further monetary policy easing, a further rise in insolvencies appears inevitable.
Total construction work done declined by 0.7 per cent in seasonally adjusted terms to $46.4 billion over the first quarter of the calendar year to be 7.2 per cent lower over the year to March 2017.
After weaker trade and retail figures, all of the signs appear to be pointing to a weak result for GDP growth in the first quarter.
First, here's the good news: having peaked all the way back in 2012, engineering construction activity is now rising again.
There were still moderate ongoing declines in Western Australia and the Northern Territory as resources construction activity continues to wind down, but the rates of these declines is now tapering off.
And indeed, at the national level engineering construction activity is rising again, partly driven by infrastructure projects in the three most populous states.
Dodgy weather...or peak resi?
Residential building work done dropped by 4.7 per cent in the quarter, which was the worst quarterly result for the sector since the introduction of the Goods and Sales Tax (GST) more than a decade and a half ago.
Building activity slowed across new house building, apartments, and major renovations, suggesting that at least part of the reason for the decline was Cyclone Debbie towards the end of the quarter, while Sydney also had some shocking weather during the period.
And looking at the building work done figures by state confirms as much, with a very sharp 10 per cent quarterly drop in Queensland, and a somewhat lesser 4 per cent decline in New South Wales.
In Victoria building activity powered to a new record high in chain volume measures terms, with the industry going like the clappers in Melbourne and operating at close to full capacity.
New detached house construction has been broadly flat since the end of 2014, with the growth in residential construction since that time driven by record activity levels in the apartments sector.
Here too there was a sharp weather-related 22 per cent fall in Queensland, plus a relatively small decline in New South Wales.
But there was also a slowdown in evidence in Western Australia, South Australia, the Northern Territory, and Canberra.
On this evidence, then, it's possible that the peak for apartment construction activity might have passed, although there is of course still a huge pipeline of work to be completed.
Firstly, growth in the economy in the first quarter is going to be weak, and perhaps very weak.
On the positive side there is light at the end of the tunnel for the resources states, as engineering construction activity finally looks to be bottoming out, after years of contraction.
Strip out the impact of Cyclone Debbie and heavy rain in Sydney and the apparently sharp drop in residential construction in the first quarter of the year may prove to be less than dramatic.
However, it's hard to escape the conclusion that building activity in the residential sector is about to fade away as the record pipeline of apartments is delivered to the market.
It might reasonably be expected that dwelling starts fall by about a quarter over the next couple of years.
Given the huge level of employment in the construction industry, this could prove to be a very significant drag on the economy going forward.
Stamp duty and transfers paid in New South Wales hit $9.63 billion over the year to April 2017.
This will be another huge boost to the New South Wales Budget, which ended the 2016 financial year in surplus, partly thanks to a one-off bonus from the Ausgrid transaction.
Later this morning the Australian Bureau of Statistics (ABS) will releases its March quarter figures for Construction Work Done.
This may be a key data series in determining whether interest rates yet have further to fall.
Total construction activity has declined over the past three years as the resources boom has wound down, yet the industry still employees more than 1.1 million people, about three quarters of whom are accounted for by the residential property sector.
Construction work done fell by 7.8 per cent last year to $46.3 billion in the December quarter - although the rate of decline slowed significantly towards the end of the year - and this was despite another solid 5.7 per cent lift in residential construction in 2016.
There was a bit of dodgy weather around towards the end of the March quarter, so a further decline wouldn't be a surprise, although public works should now at least be contributing a little bit of growth.
Credit Suisse put out a note last week suggesting that Australia's output gap may be consistent with several further interest rate cuts, citing upwardly-biased labour market figures which understate the likely level of slack in the labour market.