ABS – Page 61 – Digital Finance Analytics (DFA) Blog

Building Approval Trends Flat

The ABS released their data on Building Approvals for May 2015. Using our preferred data view, trend, which irons out some of the variables, the estimate for total dwellings approved fell 0.1% in May after rising for 11 months. The trend estimate for private sector houses approved rose 0.1% in May and has risen for six months. The trend estimate for private sector dwellings excluding houses was flat in May after rising for 11 months. The trend estimate of the value of total building approved fell 0.9% in May and has fallen for three months. The value of residential building rose 0.1% and has risen for 11 months. The value of non-residential building fell 3.4% and has fallen for five months.

Overall levels of approvals are still running higher than anytime this century, thanks to the growth in units, which we this are correlated to the high demand for investment property. High density development is more profitable for builders, and we know demand remains strong in the current low interest rate environment from local and international purchasers. The fall in the AU dollar makes foreign investment even more attractive. However, high volume builds, constructed for profit, will tend to degrade quite quickly, and compliance to building regulations will not necessarily be sufficient to ensure quality long term homes.

Comparing the seasonally adjusted estimate for total dwellings approved rose 2.4% in May following a fall of 5.2% in the previous month. The seasonally adjusted estimate for private sector houses fell 8.4% in May after rising for two months. The seasonally adjusted estimate for private sector dwellings excluding houses rose 16.6% in May following a fall of 16.9% in the previous month. The seasonally adjusted estimate of the value of total building approved rose 2.1% in May following a fall of 3.1% in the previous month. The value of residential building rose 3.3% following a fall of 3.7% in the previous month. The value of non-residential building fell 1.1% and has fallen for two months.

These seasonally adjusted series are too volatile to draw any conclusions, in DFA’s view, though others will I am sure prefer to focus here!

Strong Dwelling Approvals in May – ABS

According to the latest ABS data, released today, during May 2015, total new dwelling approvals rose by 2.4 per cent to 19,414 in seasonally-adjusted terms, compared with 18,964 in April. An uplift in multi-unit approvals saw a 15.1 per cent rise during May although detached house approvals fell by 8.5 per cent. A total of 218,442 approvals were recorded in the year to May, which is a new record for approvals over any twelve-month period since records began in 1983.

There were significant state variations with seasonally-adjusted new dwelling approvals strongest increase in Victoria (+11.0 per cent), followed by New South Wales (+8.8 per cent) and Queensland (+3.6 per cent). A slight increase was also recorded in Western Australia (+0.2 per cent). New dwelling approvals fell significantly in Tasmania (-32.6 per cent) and in South Australia (-9.9 per cent).

Household Net Worth now over $8 Trillion, but Savings down

The ABS released the latest national accounts, to March 2015. The Household Finance and Wealth data confirms again what we know, overall household net worth is up (thanks to asset appreciation) but savings are down.

At the end of March quarter 2015, household net worth was $8,090.9b, made up predominantly of $5,451.8b of land and dwelling assets and $4,131.0b of financial assets, less $2,121.6b of household liabilities. During the quarter, household net worth increased by $231.5b, driven mainly by holding gains of $207.0b. Financial assets ($129.0b) and land and dwellings ($79.8b) were the drivers of holding gains this quarter, with financial assets seeing the largest quarterly holding gains on record. The large increase in holding gains from financial assets was driven by net equity in reserves ($90.6b) and equities ($36.2b).

The increase of $17.6b in transactions in net worth was driven by $9.7b increase in net capital formation of land and dwellings; and net financial transactions of $7.3b, of which transactions in financial assets were $30.8b and liabilities were $23.5b. The March quarter 2015 transactions in financial assets were driven by $13.8b of transactions in net equity in reserves of pension funds and $11.2b of transactions in deposits. Transactions in liabilities in March quarter 2015 were driven by transactions of $24.3b in long term loan borrowing.

Both household assets and liabilities continued to grow over March quarter 2015, resulting in 2.9% growth in household net worth. Net worth has continued to grow over the last eight quarters, passing the $8 trillion mark in March quarter 2015.

Household financial assets grew faster than both residential land and dwelling assets and liabilities, growing by 4.0% ($159.8b), 1.9% ($96.1b) and 1.4% ($30.2b) respectively. Insurance technical reserves – superannuation, and shares and other equities were the key drivers of growth in financial assets this quarter. Insurance technical reserves – superannuation grew by 4.8% ($104.9b), recording its highest quarterly percentage growth since the June quarter 2012 growth of 8.4% ($131.4b). Shares and other equity grew 5.7% ($37.1b), recording its highest quarterly percentage growth since the March quarter 2013 growth of 6.1% ($32.4b).

The financial ratios graphs presented here are derived from the household balance sheet, financial account and income account. The interest payable to income ratio represents the proportion of household gross disposable income that is required to meet interest payments. Interest payable in the graph is the “adjusted interest payable”. It includes the financial intermediation services indirectly measured (FISIM) on the dwelling loan plus the dwelling interest payable from the household income account. It therefore represents the total nominal amounts paid as interest by the household sector. The interest payable to income ratio is relatively volatile in the short term, however some long term trends may be observed. After a period of volatility during the Global Financial Crisis, the ratio stabilised from March 2010 onwards, settling into a gradual downward trend. The ratio at March quarter 2015 was 11.1%, an increase of 0.6p.p from the December quarter ratio of 10.5%.

The mortgage debt to residential land and dwellings ratio shows the extent that household residential real estate assets are geared. The ratio has declined since peaking at 30.6% in September quarter 2012, but has remained unchanged since December 2014 at 29.2%, indicating that household mortgage debt grew at the same rate as residential real estate owned by the household sector for the past two quarters.

The debt to assets ratio gives an indication of the extent that the overall household balance sheet is geared. That is the degree to which assets are dependent on debt. At 31 March 2015, household debt was equal to 20.8% of assets, dropping below 21% for the first time since December quarter 2010.

The debt to liquid assets ratio reflects the ability of the household sector to extinguish debts in a short period of time using their readily available, or liquid, assets. The following are classified as liquid assets: currency and deposits, short and long term debt securities, and equities. The ratio of household debt to liquid assets fell from 134.1% at 31 December 2014 to 131.8% per cent at 31 March 2015, the third consecutive quarter of decline and the lowest ratio since September quarter 2008.

Household net saving was $16.4b for the quarter, decreasing from $22.8b in the December quarter. Despite the decrease in net saving, household net worth increased by $231.5b to $8,090.9b in March quarter 2015. With the inclusion of real net wealth effects, net saving increased to $215.9b for the quarter. The largest driver of the increase in other changes in real net wealth was real holding gains, which made up $192.2b of the $199.6b increase. Real holding gains for financial assets was $121.4b, which overtook land and dwellings as the biggest driver of real holding gains this quarter, and is the highest recorded holding gain for financial assets in the series.

Residential Property Now Worth A Record $5.5 Trillion

The ABS released their data on Residential Property Prices to March 2015. The total value of Australia’s 9.5 million residential dwellings increased to $5.5 trillion. The mean price of dwellings in Australia is now $576,100, an increase of $8,400 over the quarter. Sydney continues to drive residential property price increases with the Residential Property Price Index (RPPI) for Sydney rising 3.1 per cent in the March quarter 2015 and 13.1 per cent in the previous year. Established house prices for Sydney rose 3.8 per cent and attached dwelling prices rose 2.2 per cent.

The price index for residential properties for the weighted average of the eight capital cities rose 1.6% in the March quarter 2015. The index rose 6.9% through the year to the March quarter 2015. The capital city residential property price indexes rose in Sydney (+3.1%), Melbourne (+0.6%), Brisbane (+0.4%), Adelaide (+0.7%), Canberra (+1.1%) and Hobart (+0.5%) and fell in Darwin (-0.2%) and Perth (-0.1%). Annually, residential property prices rose in Sydney (+13.1%), Melbourne (+4.7%), Brisbane (+3.9%), Adelaide (+2.5%), Canberra (+3.0%) and Hobart (+1.9%) and fell in Darwin (-0.4%) and Perth (-0.3%).

We see how Sydney steamed ahead of other states in the last quarter.

We also see significant differences between the relative price of established houses and attached dwellings in Sydney compared with other centres, the rest of the states outside the capital cities.

A review of the Residential Property Price Indexes was undertaken in 2014 as a response to planned reductions to the ABS work program. The outcomes of the Review were released on the ABS website in a feature article in the September 2014 issue of Residential Property Price Indexes: Eight Capital Cities. The implementation of the review outcomes is occurring in this issue.

In summary, the changes in this issue are:

all Australian residential property sales data used to compile the price indexes and related statistics are now supplied to the ABS by CoreLogic RP Data;
from the March quarter 2015 the suite of residential property price indexes are considered final;
the method of calculating prices in the total value of the dwelling stock has been modified due to the change in timing of this release;
the unstratified median price and number of dwelling transfers series are now being published up to the current quarter.

Australian Job Mix In Rotation – Warning Signs Ahead

The recent ABS data on Labour Force in Australia which is a quarterly publication to May 2015 contained some interesting insights into the changes underway. Essentially, in sectors where there is strong international competition there has been a relative reduction in the number of jobs available in Australia, whilst in other sectors more shielded from the chill winds of direct international competition the relative proportion is rising. The chart below shows the change in the relative distribution of jobs on a 2 year, 5 year and 10 year horizon.

The most significant growth areas have been in Health Care and Social Assistance, Education and Training and Professional, Scientific and Technical Services. The most significant falls are in Manufacturing, Agriculture, Forestry and Fishing and Retail Trade. Mining highlights the long term growth, but short term fall in jobs as competition increases, and we move into the exploit phase. In marked contrast, Construction, which dipped in the 5 year horizon is now growing again. We also see modest falls in Financial Services due to greater efficiency and online channels, and a rise recently in Real Estate Services thanks to the property boom.

However, there is an important point to make. The rise in service related industries in general has lower wages relative to some other sectors, and it will only flourish whilst there are enough people able and willing to pay for said services. For example, the vast pool of superannuation savings will flow into the healthcare sector as households age. In essence these industries move money about the economy, but do not create things which in turn can create value. The worry is that those sectors which truly create wealth in the economy are under the most pressure. As a result, wages are flat, and the growth levers are not operating that strongly. This highlight the long-term issues we face.

Which industry sectors will be the next growth engines for the economy?

Latest Lending Aggregates All About Property

The ABS released their data for April. The total value of owner occupied housing commitments excluding alterations and additions rose 1.3% in trend terms whilst the value of total personal finance commitments rose 0.5%.

Total commercial finance commitments rose 2.4%. Fixed lending commitments rose 3.4%, while revolving credit commitments fell 0.4%. The trend series for the value of total lease finance commitments rose 1.6% in April 2015.

We continue to see strong investment lending with more than half of residential loans in April going to investors.

The proportion of commercial lending aligned to investment property rose and this explains much of the rise in commercial lending overall. Investment property lending is relatively unproductive, and makes little contribution to economic growth.

Unemployment Rate Falls to 6%

According to the ABS data, released today, Australia’s estimated seasonally adjusted unemployment rate for May 2015 was 6.0 per cent, a decrease of 0.2 percentage points (based on unrounded estimates) from a revised 6.1 per cent for April 2015. In trend terms, the unemployment rate decreased less than 0.1 percentage points to 6.0 per cent.

The seasonally adjusted labour force participation rate was unchanged at 64.7 per cent in May 2015 from a revised April estimate.

The ABS reported the number of people employed increased by 42,000 to 11,759,600 in May 2015 (seasonally adjusted). The increase in employment was driven by increases in part-time employment for females (up 29,800) and full-time employment for males (up 15,900).

The ABS seasonally adjusted aggregate monthly hours worked series increased in May 2015, up 2.2 million hours (0.1 per cent) to 1,631.8 million hours.

The seasonally adjusted number of people unemployed decreased by 22,000 to 745,200 in May 2015. This was driven by unemployed people who looked for full-time work, which decreased by 23,500 to 514,500.

The seasonally adjusted underemployment rate was 8.5 per cent in May 2015, unchanged from February 2015. Combined with the unemployment rate of 6.0 per cent, the latest seasonally adjusted estimate of total labour force underutilisation was 14.5 per cent in May 2015, a decrease of 0.4 percentage points from February 2015.

Housing Finance Up In April Is Investment Driven

The ABS released their Housing Finance Statistics to April 2015 today. The trend estimate for the total value of dwelling finance commitments excluding alterations and additions rose 1.4% to $32,109 m.

Investment housing commitments rose 1.4% and owner occupied housing commitments rose 1.3%. This is a strong result, and ahead of expectations. We suspect investors are bringing purchase decisions forwards ahead of possible anticipated lending tightening later. Further evidence that the dial needs to be turned back.

Looking at the trends, more than half of new loans (excluding refinance were for investment purposes, and the value of refinancing continued to track higher as borrowers move on to the new lower rate offers.

In trend terms, the number of commitments for owner occupied housing finance rose 0.7% in April 2015. In trend terms, the number of commitments for the purchase of new dwellings rose 1.1% and the number of commitments for the purchase of established dwellings rose 0.8%, while the number of commitments for the construction of dwellings fell 0.2%

In original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments rose to 15.2% in April 2015 from 15.1% in March 2015. However, in NSW it was lower, at 11%, in an environment where investment lending is hot.

However, the true first time buyer picture is more complex with a continued lift in FTB investors, as shown in the DFA adjusted picture. More than 4,000 FTB investors joined the ranks this month, a record, compared with about 7,000 OO FTB. If this continues, we expect investors to overtake OO FTB by the end of the year.

Trade Gap Surprise – Deficit of $3.8 billion

The ABS published the April International Trade in Goods and Services to April 2015. In trend terms, the balance on goods and services was a deficit of $1,883m in April 2015, an increase of $292m (18%) on the deficit in March 2015. However, in seasonally adjusted terms, the balance on goods and services was a deficit of $3,888m in April 2015, an increase of $2,657m (216%) on the deficit in March 2015. This is a significant “blip” and seems to be caused by a couple of specific one-off items, including loss of exports caused by bad weather, and the purchase of a large piece of machinery.

In seasonally adjusted terms, goods and services credits fell $1,561m (6%) to $25,659m. Non-rural goods fell $1,271m (8%) partly driven by coal, coke and briquettes, down $859m (22%) as a result of the temporary closure of ports due to severe weather conditions. Non-monetary gold fell $306m (22%), rural goods fell $31m (1%) and net exports of goods under merchanting fell $5m (15%). Services credits rose $52m (1%).

In seasonally adjusted terms, goods and services debits rose $1,096m (4%) to $29,547m. Capital goods rose $546m (10%) driven by imports of machinery and industrial equipment, up $1,232m (69%). Intermediate and other merchandise goods rose $371m (4%) and consumption goods rose $314m (4%). Non-monetary gold fell $91m (24%). Services debits fell $43m (1%).