Auction Results For Today

Domain have released their preliminary results for today, provided by APM.

Still lower than last year, using their standard method of calculation:

Brisbane cleared 49% of 137 scheduled auctions. Adelaide cleared 65% of 106 scheduled and Canberra 74% of 81 scheduled auctions.

Last week settled gain significantly lower, so expect the same again. And consider the gap between the number listed 3,143 and the number “reported auctions” 2,160.

You could easily argue the true picture is 1,484 (number sold) / 3,143 (number listed) giving a preliminary result of  47% clearance.  Would that give a truer picture?

Either way you look at it, rates are down.

The Financial Market Earthquakes – The Property Imperative Weekly 24 March 2018

Today we examine the recent Financial Market Earthquakes and ask, are these indicators of more trouble ahead?

Welcome to the Property Imperative Weekly to 24th March 2018. Watch the video or read the transcript.

In this week’s review of property and finance news we start with the recent market movements and consider the impact locally.

The Dow 30 has come back, slumping more than 1,100 points between Thursday and Friday, and ending the week in correction territory – meaning down more than 10% from its recent high.

The volatility index – the VIX which shows the perceived risks in the financial markets also rose, up 6.5% just yesterday to 24.8, not yet at the giddy heights it hit in February, but way higher than we have seen for a long time – so perceived risks are higher.

And the Aussie Dollar slipped against the US$ to below 77 cents from above 80, and it is likely to drift lower ahead, which may help our export trade, but will likely lead to higher costs for imports, which in turn will put pressure on inflation and the RBA to lift the cash rate. The local stock market was also down, significantly. Here is a plot of the S&P ASX 100 for the past year or so. We are back to levels last seen in October 2017. Expect more uncertainty ahead.

So, let’s look at the factors driving these market gyrations. First of course U.S. President Donald Trump’s signed an executive memorandum, imposing tariffs on up to $50 billion in Chinese imports and in response the Dow slumped more than 700 points on Thursday. There was a swift response from Beijing, who released a dossier of potential retaliation targets on 128 U.S. products. Targets include wine, fresh fruit, dried fruit and nuts, steel pipes, modified ethanol, and ginseng, all of which could see a 15% duty, while a 25% tariff could be imposed on U.S. pork and recycled aluminium goods. We also heard Australia’s exemptions from tariffs may only be temporary.

Some other factors also weighed on the market. Crude oil prices rose more than 5.5% this week as following an unexpected draw in U.S. crude supplies and rising geopolitical tensions in the middle east. Crude settled 2.5% higher on Friday after the Saudi Energy Minister said OPEC and non-OPEC members could extend production cuts into 2019 to reduce global oil inventories. Here is the plot of Brent Oil futures which tells the story.

Bitcoins promising rally faded again.  Earlier Bitcoin rallied from a low of $7,240 to a high of $9175.20 thanks to easing fears that the G20 meeting Monday would encourage a crackdown on cryptocurrencies. Finance ministers and central bankers from the world’s 20 largest economies only called on regulators to “continue their monitoring of crypto-assets” and stopped short of any specific action to regulate cryptocurrencies. So Bitcoin rose 2% over the past seven days, Ripple XRP fell 8.93%and Ethereum fell 14.20%. Crypto currencies remain highly speculative. I am still working on my more detailed post, as the ground keeps shifting.

Gold prices enjoyed one of their best weeks in more than a month buoyed by a flight-to-safety as investors opted for a safe-haven thanks to the events we have discussed. However, the futures data shows many traders continued to slash their bullish bets on gold. So it may not go much higher. So there may be no relief here.

Then there was the Federal Reserve statement, which despite hiking rates by 0.25%, failed to add a fourth rate hike to its monetary policy projections and also scaled back its labour market expectations. Some argued that the Fed’s decision to raise its growth rate but keep its outlook on inflation relatively unchanged was dovish. Growth is expected to run at 3%, but core inflation is forecast for 2019 and 2020 at 2.10%.  They did, however, signal a faster pace of monetary policy tightening, upping its outlook on rates for both 2019 and 2020. You can watch our separate video blog on this. The “dots” chart also shows more to come, up to 8 lifts over two years, which would take the Fed rate to above 3%.  The supporting data shows the economy is running “hot” and inflation is expected to rise further. This will have global impact.  The era of low interest rates in ending. The QE experiment is also over, but the debt legacy will last a generation.

All this will have a significant impact on rates in the financial markets, putting more pressure on borrowing companies in the US, and the costs of Government debt. US mortgage interest rates rose again, a precursor to higher rates down the track.

Moodys’ said this week, that the U.S.’ still relatively low personal savings rate questions how easily consumers will absorb recent and any forthcoming price hikes. Moreover, the recent slide by Moody’s industrial metals price index amid dollar exchange rate weakness hints of a levelling off of global business activity.

The flow on effect of rate rises is already hitting the local banks in Australia.  To underscore that here is a plot of the A$ Bill/OIS Swap rate, a critical benchmark for bank funding. In fact, looking over the past month, the difference, or spread has grown by around 20 basis points, and is independent from any expectation of an RBA rate change.  The BBSW is the reference point used to set interest rates on most business loans, and also flows through to personal lending rates and mortgages.

As a result, there is increasing margin pressure on the banks. In the round, you can assume a 10 basis point rise in the spread will translate to a one basis point loss of margin, unless banks reduce yields on deposit accounts, or lift mortgage rates. Individual banks ae placed differently, with ANZ most insulated, thanks to their recent capital initiatives, and Suncorp the most exposed.

In fact, Suncorp already announced that Variable Owner Occupier Principal and Interest rates will rise by 5 basis points. Variable Investor Principal and Interest rates will increase by 8 basis points, and Variable Interest Only rates increase go up by 12 basis points. In addition, their variable Small Business rates will increase by 15 basis points and their business Line of Credit rates will increase by 25 basis points. Expect more ahead from other lenders.  The key takeaway is that funding costs in Australia are going up at a time when the RBA is stuck in neutral. It highlights how what happens with rates and in money markets overseas, and particularly in the US, can have repercussions here – repercussions that many are possibly unprepared for.

Locally, the latest Australian Bureau of Statistics showed that home prices to December 2017 fell in Sydney over the past quarter, along with Darwin. Other centres saw a rise, but the rotation is in hand. Overall, the price index for residential properties for the weighted average of the eight capital cities rose 1.0% in the December quarter 2017. The index rose 5.0% through the year to the December quarter 2017.

The capital city residential property price indexes rose in Melbourne (+2.6%), Perth (+1.1%), Brisbane (+0.9%), Hobart (+3.9%), Canberra (+1.7%) and Adelaide (+0.6%) and fell in Sydney (-0.1%) and Darwin (-1.5%). You can watch our separate video on this, where we also covered in more detail the January 2018 mortgage default data from Standard & Poor’s. It increased to 1.30% from 1.07% in December. No area was exempt from the increase with loans in arrears by more than 30 days increasing in January in every state and territory. Western Australia remains the home of the nation’s highest arrears, where loans in arrears more than 30 days rose to 2.44% in January from 2.08% in December, reaching a new record high. Conversely, New South Wales continues to have the lowest arrears among the more populous states at 0.98% in January. Moody’s is now expecting a 10% correction in some home prices this year.

According to latest figures released by the Australian Bureau of Statistics (ABS), the seasonally adjusted unemployment rate increased to 5.6 per cent and the labour force participation rate increased by less than 0.1 percentage points to 65.7 per cent.  The number of persons employed increased by 18,000 in February 2018. So no hints of any wage rises soon, as it is generally held that 5% unemployment would lead to higher wages – though even then, I am less convinced.

The latest final auction clearance results from CoreLogic, published last Thursday showed the final auction clearance rate across the combined capital cities rose to 66 per cent across a total of 3,136 auctions last week; making it the second busiest week for auctions this year, compared with 63.3 per cent the previous week, and still well down from 74.1 per cent a year ago. Although Melbourne recorded its busiest week for auctions so far this year with a total of 1,653 homes taken to auction, the final auction clearance rate across the city fell to 68.7 per cent, down from the 70.8 per cent over the week prior.  In Sydney, the final auction clearance rate increased to 64.8 per cent last week, from 62.2 per cent the week prior. Across the smaller auction markets, clearance rates improved in Brisbane, Perth and Tasmania, while Adelaide and Canberra both returned a lower success rate over the week. They say Geelong was the best performing non-capital city region last week, with 86.1 per cent of the 56 auctions successful. However, the Gold Coast region was host to the highest number of auctions (60). This week they are expecting a high 3,689 planned auctions today, so we will see where the numbers end up. I am still digging into the clearance rate question, and should be able to post on this soon. But remember that number, 3,689, because the baseline seems to shift when the results arrive.

As interest rates rise, in a flat income environment, we expect the problems in the property and mortgage sector to show, which is why our forward default projections are higher ahead. We will update that data again at the end of the month. Household Financial Confidence also drifted lower again as we reported. It fell to 94.6 in February, down from 95.1 the previous month. This is in stark contrast to improved levels of business confidence as some have reported. Our latest video blog covered the results.

Finally, The Royal Commission of course took a lot of air time this week, and I did a separate piece on the outcomes yesterday, so I won’t repeat myself. But suffice it to say, we think the volume of unsuitable mortgage loans out there is clearly higher than the lenders want to admit. Mortgage Broking will also get a shake out as we discussed on the ABC this week.  And that’s before they touch on the wealth management sector!

We think there are a broader range of challenges for bankers, and their customers, as I discussed at the Customer Owned Banking Association conference this week.  There is a separate video available, in which you can hear about what the future of banking will look like and the importance of customer centricity. In short, more disruption ahead, but also significant opportunity, if you know where to look. I also make the point that ever more regulation is a poor substitute for the right cultural values.  At the end of the day, a CEO’s overriding responsibility is to define the right cultural values for the organisation, and the major banks have been found wanting. A quest for profit at any cost will ultimately destroy a business if in the process it harms customers, and encourages fraud and deceit. You simply cannot assume banks will do the right thing, unless the underlying corporate values are set right.  Remember Greenspans testimony after the GFC, when he said “I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.”

Preliminary auction clearance rates soften

From CoreLogic.

Preliminary auction clearance rates soften as the number of auctions surges to the second busiest week so far this year.

There were 3,097 homes taken to auction across the combined capital cities this week, making it the second busiest week of the year so far, with preliminary results showing a 67.5 per cent success rate. In comparison, 1,764 auctions were held last week and the final clearance rate came in at 63.3 per cent. Over the same week last year, auction volumes were lower with 2,916 homes going under the hammer across the combined capital cities, although the clearance rate was a stronger 74.1 per cent.

CoreLogic Auction Results


In Melbourne, a preliminary auction clearance rate of 68.9 per cent was recorded across 1,656 auctions this week, down from 70.8 per cent across just 453 auctions last week. Over the same week last year, 1,441 homes were taken to auction across the city, returning a clearance rate of 77.0 per cent.

CoreLogic auction clearance rate


Sydney was host to 1,055 auctions this week, with preliminary results showing a 67.8 per cent success rate, up from 62.2 per cent across 974 auctions last week. This time last year, the clearance rate was a stronger 76.8 per cent across 1,001 auctions.

Excluding Tasmania, where all 3 reported auctions were successful, Adelaide recorded the highest preliminary clearance rate this week (69.7 per cent).

Looking at auction volumes, Perth was the only city to see a slight fall in the number of homes taken to auction this week, while all other cities increased week-on-week.

The Property Cracks Widen

Sydney home price falls are now featuring in the main stream media.  Of course average price falls may not fully tell the story, as more expensive property is dropping faster, whilst demand for cheaper  options remains strong.

Nine News ran a segment last night.

The cracks are beginning to show in the Sydney property market, with the inflated prices from six months ago dissipating.

In some suburbs, prices have fallen as much as 30 percent, as the median house price copped its largest knock since August 2008.

In the three months to December, the harbour city’s median house price fell 1.3 percent, tumbling a further 2.5 percent in the following three months to March, CoreLogic data shows.

It’s the steepest drop in a decade, with the average price of a home now priced at $880,743.

CoreLogic’s Kevin Brogan said the tide was slowly turning.

“I don’t think there’s any cause for panic,” he said.

“At the moment it’s trending towards being a buyer’s market, but I think what we’re seeing is quite a gradual adjustment to the market.”

Experts say a crackdown on investor loans, increased stock and the curbing of tax benefits has contributed.

Over the past fortnight, the auction clearance rate dropped to just 56.1 percent.

Compare that to this time last year, when 78 percent of homes were selling.

Yesterdays Daily Telegraph newspapers also painted a picture of gloom:

Auctions Results Flaccid Once Again

Domain has released their preliminary results for today.

Lower volumes and clearances compared with last year at this time. The preliminary results will drift lower as the full results come in. Last week was further down thanks to the long weekend in some states.

Brisbane cleared 56% of 93 scheduled, Adelaide cleared 71% of 50 scheduled and Canberra 57% of 81 scheduled.

Auction Clearances Up A Bit On Lower Volumes

From CoreLogic.

Capital city preliminary clearance rate rises to 67.3 per cent, with auction activity across the capitals significantly lower.

There were 1,721 auctions held across the combined capital cities this week, significantly lower than the 3,026 held last week, although higher than one year ago (1,473). The fall in auction volumes this week is due to the fact that four of the eight states and territories have a public holiday this coming Monday.

CoreLogic Auction Results statistics

The preliminary clearance rate across the combined capital cities rose to 67.3 per cent this week, up from 63.6 per cent last week, although this will revise as more results are collected over the week. Over the same week last year, the clearance rate was recorded at 75.1 per cent.

CoreLogic Auction clearance rate

The two largest auction markets, Melbourne and Sydney, saw their preliminary clearance rates rise, with Sydney at 66.6 per cent across 936 auctions and Melbourne at 72.2 per cent across 447 auctions, while the highest clearance rate was in Canberra where 77.6 per cent of auctions cleared over the week.

Looking at results by property type, units outperformed houses again this week with 70.0 per cent of units selling at auction, while 66.0 per cent of houses sold across the combined capital cities.

Popping The Housing Affordability Myth

Home prices are horribly high in Australia. I think we can all agree on that point. But what is really driving this?  “Classic” economic theory is that supply and demand of property drives prices, so factors such a number of builds, population and migration, and planning controls are all to blame. Indeed, a recent paper from the RBA peddled the line, as does the property and real estate sector. State and Federal Governments also talk this up.

But, there is another factor which is, according to our simulations, is much more directly impacting home prices and affordability. That is availability of credit. And this  is contentious, because classic economists (including those residing in most central banks) tend to argue that credit growth is a zero sum gain, in that if there is a loan on one side of the ledger, there is a creditor on the other side of the fence, so the net impact is zero.

Worse still, classic theory suggests that banks are limited in what they can lend by the availability of deposits. Neither of these statements is true, and it fundamentally changes the banking and banking supervision game.

Back in 2014 I discussed this, based on an insight from the Bank of England.  Their Quarterly Bulletin (2014 Q1), was revolutionary and has the potential to rewrite economics. “Money Creation in the Modern Economy” turns things on their head, because rather than the normal assumption that money starts with deposits to banks, who lend them on at a turn, they argue that money is created mainly by commercial banks making loans; the demand for deposits follows. Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.

More recently the Bank of Norway confirmed this, and said “The bank does not transfer the money from someone else’s bank account or from a vault full of money. The money lent to you by the bank has been created by the bank itself – out of nothing: fiat – let it become.”.

And even the arch conservative German Bundesbank said in 2017 recently “this means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – ie that banks can only grant credit using funds placed with them previously as deposits by other customers“.

Therefore the only limit on the amount of credit is peoples ability to service the loans – eventually.

With that in mind, we have built a scenario model, based on our core market model, which allows us to test the relationship between home prices, and a series of drivers, including population, migration, planning restrictions, the cash rate, income, tax incentives and credit. We are looking at national averages here, and we have smoothed the data from RBA and ABS to bring the trends out.

So first, lets walk through some of the relativity mapping. First we look at home prices relative to income growth. The blue area tracks changes in home prices since 2004, and the yellow line is the change in income.  Most striking is that income growth and home prices are running in opposite directions, and have been especially since 2013. So income growth is not correlated to home price growth.

Next we look at home prices relative to migration and once again there is little alignment between home price growth and migration rates, this despite up to two thirds of population growth being fed from migration in recent years.

The relationship between overall population growth and home prices is equally disconnected. For example the rate of growth slowed from 2012 onward when we have had a large run up in home prices.

We then turned to building approvals, and even adjusting for the delay between approvals and commencements, there is little correlation.

Up next is the RBA cash rate. Here we see an inverse linkage, in that as interest rates are cut, home prices expand. This also suggests that should rates rise, home prices will fall.

And here is the reason. The correlation between home prices and credit availability are clear to see. As credit rose from 2012 onward, home prices did too. It also suggests that if credit availability is tightened, we should expect prices to fall – take note, given the current tighter underwriting standards now in force. This is why I predict ongoing falls in property prices.

And more specifically, credit for property investment is even more strongly correlated. As we know investors are attracted by the capital growth, and also the capital gains and negative gearing tax breaks available.

So then, we rolled all these factors into our overall model, and examined the relative influence of each on home prices. The four most powerful levers in terms of home prices is first overall growth in personal credit, including mortgages and other loans at 27% of total impact. Investment lending contributed a further  18%, followed by tax policy for investment property at 17% and the cash rate at 14%. The other factors, the ones which are spoken about the most, property supply, population growth, planning restrictions and migration, together make up just 22% of total impact. Or in other words, without addressing the credit elephant in the room, tax policy and interest rates, the chances of taming prices is low.

So now I can quote the recent Grattan report again, but with renewed vigour. “…much of the debate has focused on policies that are unlikely to make a real difference. Unless governments own up to the real problems, and start explaining the policy changes that will make a real difference, Australia’s housing affordability woes are likely to get worse”.

And the greatest of these is credit policy, which has for years allowed banks to magic money from thin air, to lend to borrowers, to drive up home prices, to inflate the banks balance sheet, to lend more to drive prices higher  – repeat ad nauseam! Totally unproductive, and in fact it sucks the air out of the real economy and money directly out of punters wages, but make bankers and their shareholders richer.

One final point the GDP calculation we use in Australia is flattered by housing growth (triggered by credit growth). The second driver of GDP growth is population growth.  But in real terms neither of these are really creating true economic growth.

To solve the property equation, and the economic future of the country, we have to address credit. But then again, I refer to the fact that most economists still think credit is unimportant in macroeconomic terms!

The alternative is to continue to let credit grow well above wages, and lift the already heavy debt burden even higher. Current settings are doing just that, as more households have come to believe the only way is to borrow ever more. But, that is, ultimately unsustainable, and why there will be an economic correction in Australia, and quite soon.








Auction Results 10 Mar 18 – Going Down!

Domain published their preliminary results for today, and both volumes and clearance rates are down – partly thanks to the long week end in some states. But even allowing for this, the rates are lower than this time last year. The final results will of course settle lower as normal.

Brisbane cleared 57% of 91 listed, Adelaide 73% of 58 and Canberra 76% of 35 listed.

Another Crack In The Property Market Wall

The AFR is reporting that Deposit Power, which which provided interim finance to property buyers, has closed its doors leaving an estimated 10,000 residential, commercial and property investors in the lurch about the fate of nearly $300 million worth of deposits.

This is after the collapse of New Zealand’s CBL’s insurance, which was an issuer and guarantor of deposit bonds.which provided interim finance to property buyers, has closed its doors after the collapse of New Zealand’s CBL’s insurance, which was an issuer and guarantor of deposit bonds.

Deposit Power had links with most of the major property broker networks, including Mortgage Choice and Connective, and major banks through their broker networks.

There are fears that the status of existing deals – which used the deposit bonds as a form of bridging finance for up to 48 months – could be jeopardised by the collapse of the insurance company.

Worried mortgage brokers, who recommended the products to clients, are seeking advice on whether clients need to buy other cover, or secure additional or replacement financial risk bonds.

It could mean unspecified risks, uncertainty and deal delays for tens of thousands of counter parties, financiers and their representatives, including lawyers and other brokers.

Negative Gearing Reforms Could Save A$1.7 Billion Without Hurting Poorer Investors

From The Conversation.

Reforming negative gearing could save the federal government A$1.7 billion without hurting “mum and dad investors”, according to our new modelling, by focusing tax deductions on investors with smaller property portfolios and removing them for richer investors.

Combined with changes to capital gains tax, reforming negative gearing could make the Australian housing market more sustainable and equitable.

Negative gearing allows investors to claim a tax deduction if their rental income is less than their expenses. It cost the federal government A$3.04 billion in 2013-14, according to our calculations.

Our report also confirms that negative gearing and the capital gains tax discount incentivise housing investors to take on debt. This potentially makes the housing market less stable and crowds out first home buyers.

According to Treasury modelling, the Labor Party’s plan to limit negative gearing deductions on newly acquired rental housing would put relatively modest downward pressure on house prices. Preliminary research from Melbourne University has found that eliminating negative gearing would result in an increase in home ownership.

Nevertheless, there are concerns that reforming negative gearing would harm the financial wellbeing of mum and dad investors.

But using data on the distribution of property and incomes makes it possible to differentiate between poorer and wealthier investors, allowing the government to target reforms to cushion the blow for investors on lower incomes.

Targeted negative gearing reform

In our example, investors in the bottom half of the income and property distributions could be allowed to claim tax deductions for all allowable rental expenses. Those in the 51st–75th income percentiles could deduct 50% of those expenses, while negative gearing would be eliminated for those in the top 25% of incomes.

Our modelling of this scenario shows this would save the federal government A$1.7 billion, or 57.3% of the current cost to the budget, each year. If negative gearing deductions were limited based on property values, the saving would be A$1.5 billion (or 48.3%).

Given this reform would be less likely to hurt poorer investors, they would be less likely to withdraw from the rental market than if negative gearing was eliminated. This would also mitigate the impact of negative gearing reform on renters.

Most experts agree that negative gearing is linked to housing market activity. However there is no consensus on just how significantly negative gearing affects housing prices or rental market activity.

Our modelling does not focus on the impact negative gearing reform might have on the housing market, house prices, rents, or how investors might respond, but our modelling does show the impact of changing who can claim negative gearing deductions, as well as capping it at different levels.

Who benefits from capital gains tax?

Our research also identified that the capital gains tax discount has been a significant factor in the growth of negative gearing since 1999, as investors are able to claim a rental loss but do not pay full tax on later capital gains.

Home owners who also own at least one rental property receive the highest capital gains tax benefits. Our analysis showed this group has an average property portfolio valued at over A$730,000.

These home owners also have an average taxable income of A$82,000 per person, which is more than 250% of the average taxable income of renters (A$31,000).

We modelled some alternative capital gains tax scenarios reducing the discount – which would increase the tax payable on net capital gains. Our calculations show that reducing the discount would lead to higher income earners paying more capital gains tax.

This would reduce the difference between the tax payable by higher and lower income rental investors, and therefore reduce inequities in the current system.

Author provided

Our modelling shows benefits of negative gearing are skewed towards more affluent investors in middle age and in full-time employment. Investors aged over 55 or who aren’t in the labour market (those who are unemployed, retired or not working) benefit the least from negative gearing.

We need to change the way we tax housing to create a more equitable and sustainable housing market. But this needs to be done (and communicated to investors) in a way that limits the risk of a shock to the market if investors exit the housing market.

Policymakers have been reluctant to change the fundamental settings of the tax system, but our modelling shows it can be done in a way that limits the impact on poorer investors.

The main limitation on this reform is behavioural, determining how investors will react to the effects of tax changes. Housing reform is complex, involving a range of market factors as well as the tax drivers.

Authors: Helen Hodgson, Associate Professor, Curtin Law School and Curtin Business School, Curtin University; Alan Duncan, Director, Bankwest Curtin Economics Centre and Bankwest Research Chair in Economic Policy, Curtin University; John Minas, Lecturer, Griffith University; Rachel Ong, Professor of Economics, School of Economics and Finance, Curtin University