Another dose of charts and common sense from Tarric Brooker, as we look at the latest data and explore the implications for Australians on Australia Day. Houses and Holes, mate, Houses and Holes!
See the charts here: https://avidcom.substack.com/p/dfa-chart-pack-26th-january-2024
And Tarric’s article on the Houthi Strikes, The Closure Of The Gate Of Grief And The Sea Of Economic Consequences https://avidcom.substack.com/p/houthi-strikes-the-closure-of-the
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Sometimes, we see clearer looking in on another economy, and the dynamics in Canada are mirroring Australia, and New Zealand, so when the Bank of Canada Governor Tiff Macklem discussed the latest Monetary Policy and decision, it was relevant more broadly.
They held target for the overnight rate at 5% and warned that while rates might have to go higher if inflation reaccelerated, their base case was a pause, for some time, waiting the for effects of higher rates to pull inflation into target – a target not expected to be met for some long time. The Bank is also continuing its policy of quantitative tightening.
Global economic growth continues to slow, with inflation easing gradually across most economies. While growth in the United States has been stronger than expected, it is anticipated to slow in 2024, with weakening consumer spending and business investment. In the euro area, the economy looks to be in a mild contraction. In China, low consumer confidence and policy uncertainty will likely restrain activity. Meanwhile, oil prices are about $10 per barrel lower than was assumed in the October Monetary Policy Report (MPR). Financial conditions have eased, largely reversing the tightening that occurred last autumn.
The Bank now forecasts global GDP growth of 2½% in 2024 and 2¾% in 2025, following 2023’s 3% pace. With softer growth this year, inflation rates in most advanced economies are expected to come down slowly, reaching central bank targets in 2025.
They called out risks to this forecast:
First, inflation expectations have come down only very modestly over the past few quarters. If households and businesses continue to expect inflation to stay elevated, this could impede the pace at which price and wage growth moderate.
Second, wages have been increasing at a fast pace relative to productivity growth. On average, consumers’ real wages are higher than they were in 2019. Productivity growth is effectively stalled and wages are still rising robustly. Because of this, the Bank remains concerned that cost pressures could add to inflation.
Third, house prices could also rise more than anticipated. This would increase inflation by raising shelter costs. While the base case includes a modest increase in house prices, this forecast is subject to a high degree of uncertainty. This risk could materialize if easing financial conditions lead to stronger-than-expected demand for housing while supply remains constrained.
The conflict in Israel and Gaza and attacks on ships in the Red Sea are affecting seaborne trade in the region and could push oil prices and shipping costs higher. So far, global disruptions from these developments have been contained. But if the conflict were to spread further, oil prices could rise sharply and the prices for traded goods could also increase significantly.
In Canada, the economy has stalled since the middle of 2023 and growth will likely remain close to zero through the first quarter of 2024. Consumers have pulled back their spending in response to higher prices and interest rates, and business investment has contracted. With weak growth, supply has caught up with demand and the economy now looks to be operating in modest excess supply. Labour market conditions have eased, with job vacancies returning to near pre-pandemic levels and new jobs being created at a slower rate than population growth. However, wages are still rising around 4% to 5%.
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The Australian Government has directed the ACCC to conduct an inquiry into Australia’s supermarket sector, including the pricing practices of the supermarkets and the relationship between wholesale, including farmgate, and retail prices.
The year-long inquiry will also examine competition in the supermarket sector and how it has changed since the ACCC’s last inquiry in 2008.
“We know grocery prices have become a major concern for the millions of Australians experiencing cost of living pressures,” ACCC Chair Gina Cass-Gottlieb said.
“When it comes to fresh produce, we understand that many farmers are concerned about weak correlation between the price they receive for their produce and the price consumers pay at the checkout.”
“We will use our full range of legal powers to conduct a detailed examination of the supermarket sector, and where we identify problems or opportunities for improvement, we will carefully consider what recommendations we can make to Government,” Ms Cass-Gottlieb said.
Like London buses, you wait a long time, then they come in bunches – this is the fourth inquiry currently underway across the sector. As well as price gouging, shrinkflation, supplier management and competition need to be addressed.
In a year, we will know if it was worth the wait!
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Lots of noise this week about the revamped stage 3 tax cuts. It’s worth remembering first that 2 in five Australians pay no tax because they do not earn enough, so this is change is certainly not going to impact every household.
Anthony Albanese had repeatedly committed to delivering stage 3 as legislated by the Coalition – but told the National Press Club on Thursday, “When economic circumstances change, the right thing to do is change your economic policy. That’s what we are doing.”
At one level of course this is another broken promise – just like the superannuation tax cap which came in last year. Presumable the calculus is more people will benefit than not, and it’s a long time to the next election, so people will forget. We will see.
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The latest forward view of Australian Wholesale Energy Prices out to 2027 show prices for East Coast consumption will remain at nose-bleed levels out as far as 2027, according to data from the Australian Energy market.
There is a reason for this, in that marginal wholesale power prices are remarkably set based on the cost of gas, via LNG in the international markets. This will pressure get worse as coal fired generation is retired across Australia.
Governments of various flavours have messed up here from a policy perspective, in that a small number of international operators are the Australian gas cartel of Santos, Woodside, Origin, Shell, Exxon and friends.
The Governments latest solution to the high price of power, was to set a policy price cap of $12 a gigajoule in the domestic market that is unless cartel members meet certain exemptions such as investing in new gas projects.
That $12 cap was set after receiving warnings from Treasury that energy prices were set to soar by about 50 per cent over 2023 and the first half of 2024. As a result of the intervention, power prices were reduced, by an estimated $230 dollars a year, which is mere chicken feed, given the massive run up in price. Estimates are the average household bill will rise by $700 by mid-2024 compared to June 2022, based on Treasury figures. And In practice the $12 cap is behaving as a floor, as the cartel ships more gas offshore.
All of this means that China who can often on-sells the gas to Europe at a healthy profit, is still seeing cheaper gas prices than in Australia!
The solution of course is for the Government to increase the local reservation and reduce the price cap (floor). But that would bring them up against the political and economic powers of the gas cartel.
So the bottom line is that Australian East Coast households are being taken to the cleaners, one reason why costs of living are so high, while local manufacturers are being priced out, and reducing the capacity for local production.
Which begs the question is this simple stupidity, or something much worse. Who really are pulling the economic strings in the country? Game of Mates anyone?
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Well, finally, the problems in Australian high-rise construction are getting airtime, but many households are caught up with these rolling disasters, as estimates suggest well more than half of recently built apartments are defective.
It frankly remains a game of “Russian roulette” when buying off-the-plan apartments and consumers could be forgiven for asking themselves if it is safe to buy an apartment off the plan with issues frequently emerging in Sydney’s building developments. The current legislation is not effective, and of course the question is who would foot the bill for repairs.? Yet the industry keeps making empty promises, and is claiming things are now fixed. No surprise there.
Lets look back at some of the issues so far in NSW. In recent years building developments such as Opal Towers and two buildings owned by Toplace have hit the headlines for all the wrong reasons, leaving some owners and occupiers out of pocket and traumatised. Last year NSW regulators issued work rectification orders across building sites, including The Laneways Rosebery, which has serious structural defects, and Toplace’s Vicinity complex in Canterbury over “potential serious defects”.
At Mascot Towers in Sydney’s inner-south, residents were offered a settlement at the start of January after being forced to evacuate their defect-ridden apartment building years prior.
Less than a fortnight later, NSW Building Commissioner David Chandler has moved to reassure residents there was no immediate threat to an apartment and retail development in Macquarie Park after concerns about concrete were identified in the building’s basement and ground floor.
“What we have done so far is we’ve told the developer, ‘You are responsible and you are going to fix this under the powers of the NSW [Residential Apartment Buildings] Act’,” Mr Chandler said last Thursday.
But Lachlan’s Line is just one of many, with building work rectification orders “issued all the time” by Building Commission NSW. “We’re probably issuing four or five orders a week at the moment,” Mr Chandler said.
The ABC writes, In December, the NSW Building Commission was given extra powers to order fixes during construction, aimed at boosting public confidence in buying homes off the plan.
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Our latest review of the latest property market, as the new year gets into gear. According to the WeeChats, “buy now”, but on the other hand, listings in Melbourne continues to build.
But things are not that straight forward. Perhaps we should review “Three Monkeys And An Elephant”, to misquote two parables…
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Today’s post is brought to you by Ribbon Property Consultants.
We got the latest on New Zealand Property for December 2023 from the Real Estate Institute of New Zealand.
I love how they spin the release, saying that the December 2023 figures show a notable increase in sales activity, median prices lifting, lower days to sell, and a clear sense of more confidence overall (year-on-year).
This is despite the fact that actually New Zealand house prices edged lower in December, down around 0.3% mom on a seasonally adjusted basis, though trends diverged across the country, ranging from a 1.9% mom fall in Northland to a 4.2% lift in Tasman.
The national average was weighed down by a 0.9% mom price fall in Auckland. Among other big regions, Wellington prices lifted 0.6%, while prices in Canterbury eased 0.1%.
ASB’s commentary on the REINZ figures are helpful here. They say the NZ housing market has struggled to establish a clear direction since the last housing market correction came to an end in around March/April last year. Monthly price movements have usually been modest in either direction, with the market oscillating between small lifts and even slighter falls over most of the year (see our chart above for the contrast between 2021’s large price rises and 2022’s decent falls with 2023’s more meagre movements).
All-up, prices managed a bounce of only about 1.2% over H2 of last year.
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I get very tired of the high-level reporting of home prices, because as you know I believe we have many discrete markets, which are behaving very differently across locations, states and types of property. Averages mask.
But in some areas, prices are indeed continuing to drop. And drop fast. For example, in my old stomping ground, Thirroul, median house values rose significantly from 2019, peaked in 2021 at over 2 million dollars, that’s double their 2019 levels, then fell away to a new trough of $1.68 million in March 2023, before rising a little, but then moved down to around $1.78 million. And Units in the same area are still descending and on average are just now over $1m.
Similar patterns are showing up elsewhere.
Last year I did a number of “antispruik” shows where we did deep dives at a post code level and looked at how vendors were cutting their asking prices to get a sale.
And actually, as the AFR reported home values in 27 coastal towns have plummeted by more than $200,000 from their pandemic highs two years ago, while 56 towns lost more than $100,000, analysis by CoreLogic shows.
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Today’s post is brought to you by Ribbon Property Consultants.
Well, in another volatile week, the S&P 500 posted a record high close on Friday of 4839.81 for the first time in two years erasing the last of a nearly 25 per cent between its record high close of 4,796.56 on Jan. 3, 2022 and its low in October 2022.
The S&P 500 has been in a bull market since it closed at its low on Oct. 12, 2022, fueled by a rally in chipmakers and other heavyweight technology stocks on optimism around artificial intelligence.
The Dow Jones Industrial Average, which also hit a record closing high on Friday, had already confirmed on Dec 13, 2023 that it had been in a bull market since Sept. 30, 2022.
Meanwhile, while the Nasdaq composite recovered 43% in 2023, it would need to rise another 4.8% to return to its record high close of 16,057.4437, reached on Nov. 19, 2021.
On Friday, the S&P 500 jumped 1.23% The Nasdaq jumped 1.70%, while Dow Jones Industrial Average rose 1.05%.
But the questions of Central Bank rate cuts, QT, and whether stocks are still over valued hangs over the market like a bad smell. Volatility will remain the main game for some time to come.
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