This is an edited version of a live discussion about the findings from our surveys and models as we look at the latest in mortgage, rental, investor and overall financial stress across Australia. We will have our post code engine online so you can suggest specific post codes to examine.
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Digital Finance Analytics (DFA) Blog
DFA Live Q&A Replay: Stressed: A Deep Dive Into The Latest Household Data
More this week from our property insider Edwin Almedia, on the dynamics of the markets, as listing rise and interest rates stay high. We also look at the battle between the RBA and The Treasurer, and at the Grenfell Tower UK report which really spotlights the severe defects across the building system and which is directly relevant to Australia too!
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Today’s post is brought to you by Ribbon Property Consultants.
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This is our weekly market update where we start in the US, cross to Europe and Asia and end in Australia, covering commodities and crypto on the way, and a reminder, this show is data rich, not shouty stupidity like so much on socials these days, and the purpose is to help me understand what is really going on at the moment. If it helps you too, that’s great!
As often in September, market uncertainty rippled through markets this week, adding fuel to an already-volatile period which points to more of the same ahead.
The flows of data remained mixed, and U.S. stocks tumbled on Friday after closely watched jobs numbers showed labor market momentum slowing more than expected, suggesting a narrower path for the U.S. to achieve a soft landing, defined as the Fed being able to cool inflation without badly damaging economic growth. Beyond that, investors are still grappling with a shift in Federal Reserve policy, a tight U.S. election and worries over stretched valuations, plus numerous geopolitical tensions, and a resetting of AI tech related expectations to boot.
So, we saw an ebbing risk appetite across markets. The S&P 500 dropped 1.7% on Friday and has lost nearly 4.3% in the past week, its worst weekly decline since March 2023.
Nonfarm payrolls expanded by 142,000 last month, compared with expectations for a 165,000 advance. The prior two months of gains were lowered, another sign that the US labour market is weakening.
Positioning remains extreme, and investors are complacent about the risks that a soft landing could turn into something nastier. September often brings volatility on markets, but don’t ignore the direction of travel.
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In my latest Friday chat with journalist Tarric Brooker, we look back at the recent stoush between the Reserve Bank and the Government as inflation remains sticky, and the Treasurer says Government spending is helping to bring inflation down.
Plus, thanks to Tarric’s excellent slides we parse the latest data and delve into the mechanics of high migration, home prices, and falling real GDP per hour worked.
You can see the slides here: https://www.burnouteconomics.com/p/dfa-chart-pack-6th-september
Here is the article Tarric referred to in the show: https://www.burnouteconomics.com/p/burnout-economics-and-aussie-household
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Digital Finance Analytics (DFA) Blog
The Australian Monetary Policy Civil War: With Tarric Brooker
In this show we look at the latest property data from New Zealand, from the REINZ and CoreLogic.
The Real Estate Institute of New Zealand (REINZ) released its July 2024 data at the end of August. The national median price decreased by 2.2% year-on-year, from $770,000 to $753,000, and decreased by the same amount month-on-month. For New Zealand, excluding Auckland, the median price decreased 1.5% year-on-year from $680,000 to $670,000. Month-on-month, the median price also decreased by 1.5%.
But here is the REINZ spin. “In July, we saw an increase in sales across the country compared to last year and June 2024. As more listings hit the well-supplied market, buyers are slower to make decisions, extending the average Days to Sell. Despite ongoing economic challenges, early signs suggest potential improvement, indicating favourable conditions in the residential property landscape might be on the horizon,”
The value of New Zealand homes continued declining in August, according to property data company CoreLogic. The median value of NZ dwellings was $811,583 in August, down 0.5% from July. August was the sixth consecutive month the national median value has declined. It’s now down $31,000 since its summer peak in February, and is 16.8% lower than its all time high set in January 2022.
“This all adds up to likely further restraint on property values, although the potential impact of lower mortgage rates can’t be ignored.”
So, as listings rise of course this puts downward pressure on asking prices as prospective purchasers have more choice and negotiating power. The RBNZ rate cut will certainly help the market, especially if further cuts follow. But lower net migration, and the cold winds of recession will continue to haunt the market.
It is certainly worth considering the fate on Australian home prices in the light of what happened in New Zealand, as rate cuts and recession grind the market down. But the one sure thing, true in both markets is that Real Estate Industry Hopium remains fully intact!
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Digital Finance Analytics (DFA) Blog
Kiwis See Average 16% Home Price Falls From Peak, But Hopium Ahead!
I have been talking about the absolutely stupid Government policy of gas supply, as a few big multinational companies continue to pump and export gas owned by Australia abroad, using energy from said gas sufficient to support Australian need, in order to liquidity it for export.
The stupidity stems from the lack of an east coast reservation approach (something which Western Australia has done well with a mandated domestic gas reservation policy and there energy prices are lower as a result), with exporters making massive profits (most of which do not hit Australian shores either) thanks to high international demand.
Australia does not have a physical shortage of gas so much as an artificial one, given most of the country’s supplies are exported via long-term contracts to lucrative markets in North Asia.
Gas has become a proxy fuel in two ways. First the marginal price of gas – which is roughly 5 times what it should be – drives the cost of electricity, which is also high – even after government support for households. In addition, the use of gas as a transition strategy despite its high contribution to the climate predicament we are in, blunts other more sustainable long term options. Gas is just as much a problem as oil and coal, a harmful fossil fuel that will doom the world to rising temperatures and ever more pollution. But nevertheless here we are, because successive Governments appear under the thumb of big gas, and mumble on about Australia’s reputation risk if they acted in the interests of Australians!
The Australian Energy Market Operator (AEMO) is forecasting that within just a few short years, supplies of gas on the east coast could fall well short of demand at peak times, typically in winter.
So now, for the first time, and in spite of Australia’s position as one of the world’s biggest gas exporters, the country is preparing to do something that was once unthinkable. The scene of the crime of a place I know well, Port Kembla in New South Wales, near Wollongong and about 100 k’s south of Sydney.
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Well now we know. Australia’s annual GDP growth rate fell to its lowest level since December 1991, outside of the pandemic as consumers hunkered down in the face of elevated borrowing costs and stubbornly sticky inflation.
Annual GDP growth has slowed markedly from a decade average of 2.4%, partly due to the RBA’s rate tightening campaign through 2022-23 to rein in inflation. The cash rate is currently at a 12-year high of 4.35% and policymakers have signaled they’re in no rush to cut any time soon.
Australia’s Q2 GDP was worse than economists expected, growing by only 0.2% over the quarter to be up only 1.0% year-on-year. The result missed analysts’ expectations of a 0.3% quarterly rise.
With Australia’s population still growing aggressively through net overseas migration, population increased by 0.6% in Q2, meaning that per capita GDP declined by another 0.4%. In fact, Australia’s per capita GDP has now declined for six consecutive quarters and seven of the past eight quarters, to be down 2.0% from its peak.
As you will know if you have been following my surveys, the household sector is especially hurting as higher household earnings were partly offset by an increase in income tax payable and mortgage payments and so despite the population surge, Household spending actually fell 0.2% in the second quarter, detracting 0.1 percentage point from GDP growth. Discretionary consumption was hit particularly hard. This puts a number on the political pain of falling living standards from the inflationary cost-of-living squeeze, made worse for mortgage borrowers by the RBA’s higher interest rates.
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This is an edited version of a live discussion with Head of Investments At Walk The World Funds And Nucleus Wealth, Damien Klassen as we review the past volatile month and talk about what is ahead for the markets.
Original show here with chat: https://youtube.com/live/SSvtwrLRNEw
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https://digitalfinanceanalytics.com/blog/dfa-one-to-one/ for our One to One Service.
Digital Finance Analytics (DFA) Blog
DFA Live Q&A HD Replay: Investing Now: With Damien Klassen
In this weeks show we highlight the link between Government policy and home prices (rather than the economic theory of supply and demand), touch on the risks of renovations, as costs spiral and look at the latest listing and price trends as we move in the spring selling season.
Edwin Almedia, our property insider says, Melbourne is a bellwether. We will see.
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Today’s post is brought to you by Ribbon Property Consultants.
Markets have reduced their expectation of a cash rate cut this year following key data at home and in the US suggests both economies were still on solid footing despite elevated inflation and decade-high borrowing costs. Now Australian money markets are no longer fully pricing in an interest rate cut this year, implying an 85 per cent probability of an easing, against 118 per cent on Tuesday.
Actually, in Australia, money markets are pricing in two to three rate cuts by early April and this dialling back came after the monthly consumer price index indicator for July, released on Wednesday, beat analysts’ forecasts by rising to 3.5 per cent, against 3.4 per cent expected. The outcome added to the case for the cash rate to stay on hold in coming months.
Then on Friday, data showed retail sales in July were unchanged, following a 0.5 per cent lift in June. While the reading missed forecasts of a gain of 0.3 per cent, it also came after two months of strong gains, potentially in anticipation of tax cuts which kicked off on July 1.
Overall, it seems we are caught in this higher for longer rate cycle much longer than many expected, and the expectation of cuts in the next few months are unlikely to eventuate, black swan event excepted. The likely inflation pulse from too much Government spending and badly targeted “support” suggests our inflation battle is far from being over, even as growth will come in weak on 4th September when the National Accounts are released to June 2024.
For households and businesses on the sharp end of all this, its bad news, but is should also question those in positions of power, as Governments, Central Bankers and perhaps even markets have lost the plot.
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