The latest monthly inflation read was out today, and it suggests rates will be higher for longer. While there was a drop, some of this was helped by Government intervention, and some other factors in the incomplete monthly numbers were still strong.
The RBA started tightening later than peers, yet shifted to smaller, quarter-point moves earlier. Now, as global disinflation trends beg the question whether Australia will again lag its peers, what’s clear is that the RBA will stay hawkish until it sees credible signs that inflation is moving back to target.
This month’s annual increase of 4.3 per cent is down from the 4.9 per cent rise in October and is the smallest annual increase since January 2022.
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Another deep dive into the dynamics of property with our insider Edwin Almeida. How are the new listings tracking, and how does this compare with the MSM stories we are seeing? Will new construction volumes remain in the doldrums?
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CoreLogic reported that their national Home Value Index (HVI) rose 8.1% in 2023, a significant turnaround from the 4.9% drop seen in 2022, but well below the 24.5% surge recorded in 2021. December’s 0.4% increase saw 2023 finish with a relatively soft monthly rise in home values.
Despite the annual 8.1% increase, the year was punctuated by diversity , with the annual change in housing values ranging from a 15.2% surge in Perth to a 1.6% fall across regional Victoria.
So now of course, the question is what will happen in 2024. Last week I made two shows for the channel, one on the top 5 elements supporting home price growth in 2024 and the other on the top five elements which could drive prices lower.
If you take, low supply, high demand, easing lending, Government support and RBA/APRA stability concerns, the potential for home prices, especially houses to rise in 2024 seems pretty strong. On the other hand, the risks from higher unemployment or a recession, the exit of property investors, higher delinquency and defaults, higher mortgage rates for longer, and dire housing affordability are all reasons why prices could fall in 2024.
To make an assessment of what will play out, you then have to do is to weigh the relative influence of each of these forces, against an unstable local and global economic environment.
This is something we model dynamically, in our Core Market Model, which incorporates all these elements and delivers scenarios at a post code level for houses and units.
In comparison, the AFR published estimates from a panel of 10 property market experts and economists. Overall, they take a more sober view on growth prospects for the housing market, with most tipping gains of somewhere between 1 and 5 per cent. The most optimistic prediction is for house price gains of up to 8 per cent, while the most bearish forecast is for prices to fall nationally by as much 5 per cent.
Last year’s “very unusual supply and demand dynamics” are expected to normalise in 2024, according to Barrenjoey chief economist Jo Masters, who is tipping 4.8 per cent growth nationally. Sydney house prices could rise by 3.8 per cent, with Melbourne up 3.2 per cent and Brisbane 5.9 per cent.
“Importantly, we think borrowing capacity will re-emerge as a key constraint on demand,” she told AFR Weekend in a quarterly property survey.
Trying to pin the tail on the property price donkey, is fraught with difficulty, because of the uncertainty in the system – one reason why I run scenarios, and why the specific tale you prefer will influence your expectation of price movements.
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Digital Finance Analytics (DFA) Blog
Pin The Tale (Yes, I Do Mean Tale), On The Home Price Donkey…
Bloomberg reported yesterday that the US has become the world’s biggest exporter of liquefied natural gas for the first time, with 2023 shipments overtaking leading suppliers Australia and Qatar.
The US exported 91.2 million metric tons of LNG in 2023, a record for the country, according to data through Dec. 31 compiled by Bloomberg. The expanded output was due to last year’s restart of Freeport LNG in Texas, which had been shuttered for months following a June 2022 fire and explosion. Qatar, the top LNG supplier in 2022, saw its volumes shrink for the first time since at least 2016, with a 1.9% decline dropping the nation into third spot for shipments of the super-chilled fuel. Australia ranked second, with exports that were little changed from 2022.
Unlike East Coast Australia, the US has a domestic gas reservation scheme in place, which has mostly succeeded in keeping domestic gas prices low.
And the mooted A$80 Billion Deal between Woodside Energy and Santos could also put more upward pressure on Australian domestic gas prices.
“Both Santos and Woodside are material domestic gas producers, which may create market concentration concerns,” RBC Capital Markets analyst Gordon Ramsay said in a note.
It makes no sense to give any member of the gas export cartel – Origin, Woodside, Santos, EXXON or Shell – greater control of gas import volumes. Remember East Coast Electricity prices are driven by the marginal cost of LNG.
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After the December Federal Reserve Press Conference where Jerome Powell appeared to pivot to rate cuts ahead, with a more dovish tune than just a few days before, markets dialed up their expectations of up to six rate cuts though 2024, and stock markets veered towards all time highs, while bond yields fell. Powell said at the press conference that it was premature to declare victory, though he did acknowledge the question of when to begin “dialing back” policy restraint was discussed.
Futures markets have been anticipating the Fed will cut rates six times this year, beginning with a likely quarter-point reduction in March. Traders have priced in a 67% chance of a 25 basis point rate cut in March though several Fed officials have pushed back against expectations of an imminent policy move in recent weeks.
Which begs the question, are markets fooling themselves?
Well, we now have the minutes of the Dec. 12-13 Federal Open Market Committee meeting which were released yesterday. “Participants viewed the policy rate as likely at or near its peak for this tightening cycle,” the minutes said.
Officials “reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably.”
This helps to explain why markets are lower, and bond yields higher. So yes, markets are ahead of themselves.
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Digital Finance Analytics (DFA) Blog
Are Markets Head-Faking Rate Cuts Early This Year?
Well, the numbers are now in so today I am going to review the performance of our channel over the last year, and specifically highlight the top 10 most watched shows.
I want to thank you for being part of the DFA community, watching our shows, and supporting us by subscribing, liking the shows, and sharing them widely. Its greatly appreciated and I want to celebrate the momentum we created together. Especially around some of our campaigns, most notably addressing the issue of bank branch closures and the need to be able to access cash.
None of these top ten were my live shows, which generally run each Tuesday evening. Generally live events tend to do less well on YT compared with recorded shows. But the great positive of live is the audience participation, which is key to building and nourishing the community. So a quick word of thanks, to all those who turn out regularly to support our live events.
And if you stand back, its clear that housing related shows rate well, as do the regular chats with Tarric and his slides, and some of the more philosophical shows such as Down the Rabbit Hole and the BRICS discussion, also did well.
If you have specific subjects you would like me to cover, or guest suggestions, drop them in the chat!
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Wishing all our followers and supporters a happy 2024. We will be back with daily shows on finance and property, and we briefly touch on some of the items on our new year agenda.
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In the last trading day before the Christmas break, U.S. stocks gyrated to a mixed close on Friday having digested cooler-than-expected US inflation data which firmed bets for Federal Reserve interest rate cuts in the new year. That said, all three indexes turned less decisive in light trading as the afternoon progressed, after an initial rally on data showing inflation is easing closer to the U.S. central bank’s target.
The Dow Jones Industrial Average fell 0.05%, to 37,385.97, the S&P 500 gained 0.17%, at 4,754.63 and the Nasdaq Composite added 0.19%, at 14,992.97. Small caps handily outperformed the broader market, with the Russell 2000 ending up 0.8%.
Of the 11 major sectors in the S&P 500, consumer discretionary was the sole loser, while consumer staples enjoyed the largest percentage gain.
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Digital Finance Analytics (DFA) Blog
Markets Gyrate Into Christmas After A Two Year Round Trip!
In our final Friday afternoon chat, for the year Journalist Tarric Brooker and I look back at 2023, with all its ups and downs, and consider the year ahead, which Schrödinger’s cat like could go down quite different paths.
And we look at the most burning question: When Could Australian Interest Rates Be Cut?
Tarric’s slides and articles is here: https://avidcom.substack.com/p/the-most-burning-question-answered.
Thanks to all those who follow and subscribe, and please like and share the show. We will be back in 2024 for more charts and chat.
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