Our latest surveys to the end of February reveals the current state of Household Finances in Australian as measured by cash flow. A record 73.3% of those living in the rental sector are under pressure, while just over half of those with a mortgage are also in net negative cash flow. All up around 48% of households or 4.7 million families are struggling. The causes are clear to see, with costs of living still outstripping real incomes, high mortgage interest rates thanks to RBA monetary policy and rental cost driven sky high. Massive net migration, and bad government housing policies have created this disaster, which will likely be with us for decades. Housing affordability is shot.
So, in today’s show I will walk through the latest findings, ahead of a live show during which we will examine the data at a post code level. That show will be on Tuesday 12th March 2024.
But here we examine how we measure cash flow stress, examine the latest results across mortgage, rental, investor and overall financial stress, and also look at our price scenarios for the months ahead, alongside our estimates of mortgage defaults in the next 12 months.
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In our weekly market update once again, the Nasdaq Composite and S&P 500 reset their record intraday and closing highs as tech shares continued to lure investors enthused over the potential impact of artificial intelligence across the economy. And MSCI’s gauge of stocks across the globe rose 0.76%, to 767.09 and hit a record high, as the AI love-in continues.
So again, we see the market backing AI, while choosing to ignore some of the less positive data signals, and so you have to simply ask the question, will this end well? Some of us are old enough to remember the dot-com bubble!
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Our latest Friday afternoon chat with journalist Tarric Brooker focussed in the great housing debate, which has become a touchstone for debate in Parliament at the moment.
And using the great charts which Tarric presents we look at the issue from multiple dimensions, as well as a quick look at China’s property sector.
You can find Tarric’s charts here: https://avidcom.substack.com/p/dfa-chart-pack-1st-march-2024
We got the January 2024 retail data from the ABS today, and they reported that Australian retail turnover rose 1.1 per cent (seasonally adjusted) in January 2024. This follows a fall of 2.1 per cent in December 2023 and a rise of 1.5 per cent in November 2023.
Economists were divided on what to expect, with some looking for 1.5% monthly rebound, while others like Westpac were expected just a 0.3% rise.
The National Retail Association said the latest trade figures reveal the uphill struggle retailers face in 2024 if consumer sentiment remains low and trade continues to slow, despite Australia’s population boom. While data reveals that retail turnover has stalled, population growth and increasing costs of doing business show retail growth has actually fallen in real terms.
The ABS said “The rebound in January follows a sharp fall in December when consumers pulled back on spending after taking advantage of Black Friday sales in November. Retail turnover is now back at a similar level to September 2023.
But as Westpac notes, the pattern reflects difficulties the ABS is having adjusting for shift in seasonal patterns associated with the increasingly popular ‘Black Friday’ sales. Pinpointing these shifts is difficult and typically requires the accumulation of more months of observations. Volatility is progressively smoothed as this happens – notably today’s release again saw a softer profile through November (initially estimated as a 2% surge) and December (initially reported as a 2.7% drop).
However, this volatility has concealed a material slowing over the three months. On a 3mth basis, nominal retail sales growth has slowed to just 0.5%qtr, 1.4%yr, neither keeping pace with price inflation.
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Today’s post is brought to you by Ribbon Property Consultants.
Digital Finance Analytics (DFA) Blog
Retail Sales Scream Recessionary - If You Look Under The Hood!
An important update relating to the Section 11 power at the RBA with Robbie Barwick from the Citizens Party. In some really good news, it appears this change will be resisted in Parliament, so we explore how this came about, and the broader issues which this whole episode represents.
Yes, the democracy sausage is indeed still sizzling, largely thanks to individuals making their views known to our Politicians and the influence of social media on public discourse to positive effect!
See my show A Question Of Democracy! https://youtu.be/R8GNp1hYdq8
The CPI data out today was meaningless, in terms of guiding a rate cut decision. So today I will explain why this is the case, as we go over the numbers. Alongside the main release, there was a second report on revised weights which were applied.
The Australian Bureau of Statistics (ABS) released its monthly inflation indicator for January, which were based on revised weights to the index, and we should also highlight that the first month of the quarter data is at best partial, as while it does provide us with an update on household durable goods the services data apart from garments repairs, hire and maintenance and repairs to dwellings.
Or in other words, the Numberwangers are at it again, despite the rather triumphant tones in some of the media about the prospect of rate cuts. While the RBA still considers the quarterly CPI as the best gauge of inflationary pressures, the new monthly indicator factors into the central bank’s interest rate decisions when it delivers an unexpected outcome.
The result was a 3.4% rise over the year, below economists’ expectations of a 3.5% rise. 3.4% in the year to January, is in line with the outcome recorded in December to remain the equal softest print for monthly inflation estimate since November 2021.
When excluding volatile items from the monthly CPI indicator, the annual rise in January was 4.1%, down from 4.2% in December” and annual inflation when excluding volatile items has been declining since the peak of 7.2% in December 2022.
The Trimmed mean (core) inflation also fell to 3.8% in the year to January (prior 4.0%).
The RBA does not expect inflation to return within its 2 per cent-to-3 per cent target band until December 2025. And there is not enough here, in my view to lead the RBA one way or the other, though the door remains open, possibly for a rate cut towards the end of the year, unless we see a second surge in good prices due to higher transport costs, and higher wages pushing though to higher goods and services costs.
The bottom line is while the figures were a little lower than market expectations for inflation to increase to 3.6 per cent, they are unlikely to alter the outlook for monetary policy due to the volatility of the monthly consumer price index.
And by the way, the Aussie Dollar dropped a bit – but only after the Reserve Bank of New Zealand held the cash rate there, and signalled rate cuts, eventually.
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DFA released its report for January several weeks back, and confirmed a further rise in mortgage stress. In our show on this important issue, we also discussed the different methods used to assess mortgage stress.
Now new research from Roy Morgan confirms our findings. They say their research shows 1,609,000 mortgage holders (31.0%) were ‘At Risk’ of ‘mortgage stress’ in the three months to January 2024. This period included an interest rate increase on Melbourne Cup Day with the RBA raising interest rates by +0.25% to 4.35%.
“The extended pause in official interest rate increases for four months from July – October 2023 reduced the pressure on mortgage holders and allowed growth in several areas of the economy to ‘catch up’ and reduce mortgage stress from the mid-year highs above 1.56 million. However, the interest rate increase in November has added renewed pressure on mortgage holders.
“While all eyes are on the latest inflation figures and their potential influence on future movements in interest rates, the fact remains that the greatest impact on an individual, or household’s, ability to pay their mortgage is not interest rates, it’s if they lose their job or main source of income”.
In a few days I will be releasing my February result for stress, and we expect this to remain in the very high range, as costs of living and mortgage costs continue to rise. We also report rental stress, which is right on the front line with rentals in some cases rising 20% or more.
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.
This is an edited version of a live discussion about the current state of play of crypto as it becomes morphed by major financial services players thanks to spot EFT’s and other developments. I am joined by Adam Stokes who says those who don’t understand crypto, don’t understand money. Those who don’t understand money, are destined to be a slave to it.
CBA recently published research showing that more housing was unaffordable, and that was based on two full incomes going to pay the mortgage. Now another report from Domain and Unloan shows that aspiring house buyers in Sydney are indeed largely priced out from the cheapest segment of the market after interest rates and home prices rose sharply last year.
For now, most aspiring home owners would have to rely on the bank of mum and dad to beef up their deposits, buy an investment property while renting, or consider a “lease to own” model.
Buyers have to look further out towards the city’s outer fringes to afford an entry-level house, or opt for a unit in the city. Unless they get help from the family bank, or buy a really cheap investment property and rent, or live at home. The property market is broken.
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.
