Are property markets morphing into buyers markets and vendor dropping their asking prices? Well, according to recent news corp articles, home seekers are bagging properties for an average of up to 15% below the list price in pockets of Sydney.
Vendor discounting tends to reflect price growth recorded a few months ago, rather than signalling the direction of future price growth. But its complex, Especially now.
Because of the over quoting and under quoting issue, I think it is really very hard to get a read on the true vendor discounting. The averages quoted are often misleading, there is considerable variation, even within the same areas.
Bottom line, is more than ever it is important to understand the granular data in the area you are looking at, rather than the averages, which mask what is really going on. In fact in my live show next Tuesday we will do another deep dive into my data at the post code level, so mark you diaries for that. Meantime, take vendor discounting with a truck load of salt.
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Today’s post is brought to you by Ribbon Property Consultants.
The ABS released their monthly lending indicators for September today, and it showed a strong uptick in new mortgage loans, in contrast to poor household spending trends and confidence overall, though as we will see there are questions about this dataset too. Significantly, we also note the ABS is about to terminate its monthly reporting of new loans data, saying the monthly Lending Indicators publication will transition to a quarterly release.
My observation is different because the monitoring of new loans for housing is an essential barometer for the economy, without the monthly data it will be easier for lenders to continue their push to reduce lending standards (something evidently being supported by the opposition party) and so drive home prices even higher.
So credit for home lending, especially investors is booming. Worth recalling here the RBA’s recent warning that falling interest rates could trigger a property price boom that encourages households to take on too much debt.
As you know my surveys highlight some households are under extreme financial pressure, and I will be discussing this in my live show next Tuesday, so official data on household spending, is also an important indicator. So conveniently, the ABS also released household spending data for August today. However, I have issues with these figures too as this data excludes, Rent and other dwelling services, Electricity, gas and other fuels, Communication Services, Education Services and Insurance and other financial services. IN other words, the spending data is partial and incomplete, and excludes more than half of a typical mortgaged or renting household.
So all up, the spending indicators are not really meaningful, yet the ABS will be enhancing the Monthly Household Spending Indicator and ceasing the Retail Trade publication after the June 2025 reference period. On the other hand, the data on lending will be only released four times a year.
This is another example of data not fit for purpose, and I assume the financial pressure the ABS is under. But it does beg the question. What have they got to hide – and who is pulling their strings?
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Compared to the weak RBA rate of 4.35%, the Reserve Bank of New Zealand, lifted earlier and higher, and has begun to cut rates as the New Zealand economy slipped into recession. Next week we will get the next RBNZ rate decision, and a new survey has show that although New Zealand business sentiment is improving a window has opened to allow a cut interest rates of 50 basis points. The RBNZ has forecast around 2.5% of rate cuts over a 2.5 year period.
The contrast with Australia is interesting, because the RBA has left rates at a lower rate trying to preserve the gains in employment, whereas the RBNZ lifted more aggressively and tipped the New Zealand economy into a recession. Neither outcome is great, showing the problem with blunt monetary policy tools.
In addition, the latest New Zealand migration stats reveals a sharp moderation in net overseas migration, a critical factor working against economic growth. And worse, a large number of citizens are emigrating from New Zealand, replaced by poorer migrants from developing nations according to Stats NZ. As a result, annual New Zealand’s population growth is slowing, which will moderate demand. And of course New Zealand’s economy is stuck in a protracted per capita recession and unemployment is rising fast.
All up, clearly more rate cuts are coming, and a period of falling prices – deflation – could well be on the cards. As a result, the RBNZ will need to front load those future rate cuts, so 50 basis points next week are highly likely.
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This is our weekly market update where we review the market action starting in the US, then Europe, Asia, and Australia and also cover commodities and crypto along the way. This is a data packed segment, so be warned!
This week markets drove higher, pretty much across the board, thanks to the fall out from the Federal Reserve is slashing interest rates, more benign US economic data and China finally moving more determinedly to bolster growth as China’s central bank lowered interest rates and injected liquidity into the banking system, and with more fiscal measures expected to be announced before a week-long Chinese holiday starting on Oct. 1. Listed shares of Chinese companies jumped on the latest series of stimulus measures from Beijing to boost the domestic economy, including those on international markets.
As a result, we saw upswings in markets across the globe, and this despite weaker oil prices and rising conflict in the middle east. MSCI’s gauge of stocks across the globe rose 0.25%, to an intraday record high. Europe’s benchmark STOXX 600 index closed at a record high, ending up 0.5% at 528.08. China’s blue chips jumped 4.5%, bringing their weekly rise to 15.7%, the most since November 2008. Hong Kong’s Hang Seng index also gained 3.6% and was up 13% for the week, its best performance since 1998.
The Dow Jones Industrial Average rose 0.33%, to 42,313.00, the S&P 500 fell 0.13%, to 5,738.17 and the Nasdaq Composite fell 0.39%, to 18,119.59. All three major U.S. stock indexes posted a third straight week of gains. Nvidia’s 2.2 per cent decline was the reason for the S&P 500 and Nasdaq slipping on Friday, pointing to a report that China is urging local companies to stay away from its chips. The NASDAQ Golden Dragon shot to 7.236.16 while the Russell 2000 was at 220.33.
The best performer of the session on the Dow Jones Industrial Average was Chevron Corp (NYSE:CVX), which rose 2.47% while the worst performers of the session was Amazon.com Inc (NASDAQ:AMZN), which fell 1.67 and International Business Machines (NYSE:IBM) was down 1.16% to 220.84.
“It’s a bubble dream,” according to Bank of America equity strategist Michael Hartnett. His data had another $US10.9 billion flowing into US equities in the week ended September 25.
“Fed cutting into recession is negative for risk assets, but Fed cutting with no recession is positive and investors firmly of the view Fed and China is sufficient policy easing to short-circuit recession risk,” Hartnett wrote.
So in the context of overvalued stocks, markets are still betting on higher ahead, which is quite possible but before the surface there are significant cross currents and risks. So volatility will remain the watch word, and the bubble dream might yet turn to nightmare. We will see.
This is a good news story, as I discuss with progress being made on the move towards the creation of a Postal Bank in Australia, with Robbie Barwick from the Australian Citizens Party.
But we need to keep the pressure on to ensure that the National Bank is developed in the way to benefit ordinary Australians and Businesses, so there is more still to do. And keeping pressure on our elected representatives will be essential!
In the past 48 hours we had a no change interest rate decision from the RBA and monthly headline inflation which dropped within the target 2-3% target range from the partial services heavy monthly data release, thanks to temporary Government handout to ease costs of living so window dressing the results, but which the RBA says they will look through in the policy deliberations.
The RBA, is facing increasing pressures at home to lower borrowing costs, with politicians sparring over the outlook on interest rates ahead of an election due by May 2025. But Bullock said the RBA won’t be dragged into politics as it is splitting with a global easing cycle as it waits for inflation to abate.
So today I want to look at the RBA statement, then delve into the detail from the inflation numbers and finally try to figure out what this all means.
The RBA last month warned the rapid rise in government outlays was one of the factors prolonging high inflation. The bank’s statement was a political headache for Dr Chalmers, and Ms Bullock subsequently softened the central bank’s stance, saying government spending was not the “main game” for inflation.
At the federal level, government spending on childcare, aged care and disability care surged by more than 20 per cent over the past year, while spending on public servant wages jumped 14.5 per cent. Spending on the NDIS has been a major driver of the explosion in government spending. The scheme, which is forecast to cost $49 billion this financial year, is growing at about 20 per cent per year and is on track to cost more than the age pension within a decade.
Since the 2019 calendar year, the underlying cost base in the construction sector has grown by a whopping 36 per cent, compared to around 21 per cent in the non-mining market sector as a whole.
As the public sector expands, productivity growth would temporarily slow as more resources poured into sectors such as healthcare and education, where productivity is about one-third lower than the private sector.
To the surprise of no one the Federal Reserve cut its benchmark interest rate on Wednesday as signalled in my earlier post, and they went for the more aggressive half percentage point. The Federal Open Market Committee voted 11 to 1 to lower the federal funds rate to a range of 4.75% to 5%, after holding it for more than a year at its highest level in two decades. It was the Fed’s first rate cut in more than four years. Governor Michelle Bowman dissented in favor of a smaller, quarter-point cut — the first dissent by a governor since 2005 and the first dissent from any member of the FOMC since 2022.
The impact of the first cut from the FED echoed through global markets. But remember that the FED shift lower to 4.75% to 5% probably won’t impact the Bank of England’s latest rate decision, which will most likely be a hold, following last month’s cuts.
So far as Australia is concerned, the new FED rates are still significantly higher than the RBA’s weak 4.35%, and inflation in Australia is running much hotter as a result. The data flows in Australia also suggests no reason for the RBA to cut anytime soon, as for example the the unemployment rate was steady at 4.2 per cent in August, according to seasonally adjusted data released today by the Australian Bureau of Statistics.
And another data point from the ABS showed that Australia’s population grew by 2.3 per cent to 27.1 million people in March 2024. Our population at 31 March 2024 was 27.1 million people, having grown by 615,300 people over the previous year. Net overseas migration drove 83 per cent of this population growth, while births and deaths, known as natural increase, made up the other 17 per cent.
I don’t thing the FED’s move based on inflation at 2.2% there has much relevance in the short term in Australia. Were it not for the massive flood of migrants and the job creation programmes funded by state and federal government, we would probably be in a recession, and rate cuts would already be in play. But the brutal truth is Government policy is keeping rates higher for longer.
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On Wednesday the BLS released the latest US inflation data and top line, it appears the post-pandemic spike in U.S. inflation eased further last month as year-over-year price increases reached a three-year low. However, while the spike in goods, food and energy prices is over, services inflation remains uncomfortably high.
Core prices rose 3.2% in August from a year ago, the same as in July. And on a month-to-month basis, core prices rose 0.3%, a slight pickup from July’s 0.2% increase. Core of course is closely watched by economists as it typically provides a better read of future inflation trends.
But it is important to look at the elements which flowed into the headline cpi. For example, a key reason for last month’s drop in overall inflation was the third drop in gas prices in the past four months: Average gas prices fell 0.6% from July to August and are down 10.6% from a year ago.
Importantly, the tick-up in core inflation from July to August reflected an acceleration in housing costs and some spikes in the prices of air fares and hotel rooms. Shelter highlights another serious issue — the high level of “sticky” inflation for services and commodities whose prices take a long time to change. Including shelter, this measure, calculated by the Atlanta Fed, remains above 4%. If shelter is ignored, it’s below 3%, making it far easier for the Fed to start easing!
But the big question now is whether we are in a pre-recession period in the US. Markets continue to expect big cuts ahead and bond yields are responding accordingly.
For Australia, where inflation is higher, and rates are unlikely to change this year from the current 4.35%, the economy will be buffeted by weaker demand from China, and rate cuts in other places. Which once again highlights the dilemma we are in thanks to poor monetary and fiscal policy in recent times. And again, the neutral rate does appear to be higher now, so we should not expect rates to miraculously slide towards zero. We are now in a higher rate for ever environment.
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This is my edit of our monthly economic update made in conjunction with Nugget’s News, where I go over the highlights of the past month and bring out some of the critical issues which are driving the markets, politics and the economy. This is for July and August 2024.
This month we got the switch from the FED in terms of rate cut expectations, the market heart attack, concerns of a slowing China hitting demand for iron ore and a some Reserve Banks cutting rates, while the RBA hold firm due to inflation still running hot.
Meantime, global dent continues to grow and the costs of servicing this is growing.
Expect a volatile September and October as we head into the November US election and FED cuts in September.
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This is an edited version of a live discussion with Crypto evangelist Adam Stokes as we examine the recent changes in the market, as gold rockets to new highs, even as rate cuts and QT is under way. Where is the real value of money, and how does Crypto play into this?
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https://digitalfinanceanalytics.com/blog/dfa-one-to-one/ for our One to One Service.
