Martin North – Page 47 – Digital Finance Analytics (DFA) Blog

Property Investors Are Quitting Like Lemmings!

In my stress surveys I have been calling out the pressures on renters and property investors, especially in the Centre of Melbourne and other inner-city areas across the country.

The math is obvious. Despite rental increases, there is a limit on how much property investors can lift them, as renters are under pressure already. And property investors are also faced with significantly higher interest charges and other costs, to the point that the proportion of investors making cash flow positive returns has dropped to an all time low. Given that capital appreciation, the only other growth lever, is at best anemic, and in some cases non-existent, and the fact that you can now get 5 per cent of more on other investments, including term deposits and bonds, investors are continuing to bail. Inner City apartments are on the front line, as listings grow.

The AFR picked this topic up in an recent article, saying low capital gains and the large increase in holding costs are prompting more residential property investors to bail out of inner Melbourne and Sydney markets, data from CoreLogic shows.

The portion of investor-owned listings has ballooned to 60 per cent across Melbourne city over the three months to the September quarter, up from 56.7 per cent from the previous quarter and a sharp jump from the 50.9 per cent share a year ago.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

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Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

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Things Are Going To Get Worse Before They Get Better…

US stocks mostly finished lower on Friday as tech shares fell and volatility surged, despite earnings from three major banks – JPMorgan, Wells Fargo and Citigroup helping to offset some of the negative sentiment.

Morgan Stanley’s Mike Wilson sees a rebound in earnings in the latter half of 2024 but for now, his message to investors is stick to the stock picker’s playbook as things are going to get worse before they get better.

The downward slide in US equities after the market peaked in July is set to continue with the catalysts for more declines already in place, according to the prominent equity bear who was ranked No. 1 in last year’s Institutional Investor survey after correctly predicting the 2022 stocks sell-off. His year-end target for the S&P 500 Index implies about a 10 per cent drop from the current level.

Oil on the other hand was more than 5 per cent higher, with WTI at 87.69 a barrel as concerns about the conflict between Israel and Hamas widening to include Iran flared. Some economists now estimate oil prices could soar to $US150 a barrel and global growth drop to 1.7 per cent — a recession that takes about $US1 trillion off world output if the conflict between Israel and Hamas widens to include Iran. Brent crude surged 7.5% in the week since the conflict began, posting its highest weekly gain since February, and was last at 90.94. All very inflationary.

Meantime gold surged more than 3 per cent back with the Gold contract above $US1900 an ounce to 1945.90 and the volatility index was more than 20 per cent higher at one point. The VIX was 15.8 per cent higher to 19.32 at the end of trade. The yield on the US 10-year note slid 8 basis points to 4.61 per cent in New York.

“This may be the most dangerous time the world has seen in decades,” JPMorgan boss Jamie Dimon said in a statement with the firm’s third-quarter results.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

More Evidence That Inflation Is Not Playing The Game

Wall Street’s main indexes closed lower on Thursday after a U.S. Treasury auction sent bond yields higher while investors were already digesting data that showed consumer prices rose more than anticipated in September.

After the data, the S&P 500 spent the morning zig-zagging between red and green. It turned decisively lower after a 1 p.m. EDT (1700 GMT) auction of 30-year U.S. Treasuries met weak demand.

US consumer prices advanced at a brisk pace for a second month, reinforcing the Federal Reserve’s intent to keep interest rates high and bring down inflation. Expectations ahead of Thursday’s publication of consumer price index numbers for September were for a continued clear reduction that would eliminate the last concerns that the Federal Reserve would be forced to raise interest rates once more. In the event, the market responded as though it had received a nasty shock, with bond yields surging higher while stocks sold off. An imminent Fed hike still looks unlikely — but evidently, many in the markets were hoping for any such chance to be extinguished.

The number was dominated by housing costs. Shelter inflation, on a year-on-year basis, is still above 7%. The clearest reason for disquietcomes from the “supercore” measure that Fed Chair Jerome Powell has emphasized in recent months — services excluding shelter. This category is heavily led by wage inflation, as labor is a large share of costs for such businesses.

Sentiment reversed after the 30-year Treasury auction, which drew weak demand and weighed heavily on the broader market sentiment. Swap contracts linked to future interest-rate decisions pushed the odds of another quarter-point hike back to about 50%, up from about 30% as recently as Wednesday.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

The RBA’s Third Phase Of Tightening, And What Happens Next…

The Reserve Bank of Australia’s (RBA) Assistant Governor (Financial Markets), Christopher Kent, gave an Address to Bloomberg on Wednesday where he expressed why the RBA is reluctant to lift the official cash rate further.

https://www.rba.gov.au/speeches/2023/sp-ag-2023-10-11.html

The RBA is in its “third phase” of monetary policy tightening as it assesses the impact of interest-rate rises to date, he said. The current stage is “an opportunity to see how the economy and how the data is evolving,’’ he said, reiterating that further rate increases may still be needed.

Much of the presentation concerned the lags as monetary policy takes effect. Basically, the RBA expects further impacts on the economy as the lagged effects of the 4.0% of monetary tightening delivered over the past 18 months flows through.

A ‘built in’ monetary tightening in Australia is one reason why the RBA is reluctant to lift the official cash rate further. Australia’s monetary system will tighten on its own as more pandemic era fixed rate mortgages reset from rates of around 2% to variable rates of more than 6%.

But that means those with big mortgages are being worst hit, while others are still enjoying their savings buffers and will continue to spend.

And the question will be, whether the current settings will crush inflation, or whether more rate hikes are needed. As I discussed the other day, there are significant pressures on the RBA to lift further, and some economists are expecting another one or two hikes into 2024.

Either way, there is little rate relief on the horizon for the next year plus.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.

The Banks Are Winners, And Households The Losers!

A deep dive into the thorny question of the economics of extending the loan term, something which the Bank of England highlighted in its latest report. Who wins (let you guess….)

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.