MB Members’ Report: Sydney housing loses its safe haven status

ScreenHunter_01 Oct. 04 00.04 For several years now, I have argued that Sydney housing offers relatively good value from an investment perspective. This was based upon the view that Sydney housing was relatively undervalued following an extended period of under-performance over the second half of the 2000s, as well as tighter supply and generally stronger fundamentals than the other major capitals. The situation has changed materially over the past 18 months, however, following the 22% surge in Sydney house prices over that period, driven by unprecedented demand from property investors. This has seen Sydney's price premium...
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ASX at the close

ASX_logo by Stan Shamu, IG It’s been a fairly busy day on the economic calendar in Asia, with some key releases out of Japan and China. The risk-off tone in global markets has continued as investors focused on unrest in Ukraine, Hong Kong and data from the US for direction. As a result, not only are markets risk-off at the moment, but constant repricing of rate hike expectations are also at play. Emerging markets are the worst hit at the moment and the trend is likely to continue in the near term. Fed members have been growing increasingly hawkish and even some of the traditional doves have said they see...
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It’s Raine-ing elderly property investors

200236712-001 By David Collyer, cross-posted from Prosper Australia: Angus Raine of RE agents Raine & Horne burst into song about property taxes in a letter on page 55 of the Australian Financial Review today- and what a nice cartoon, Clement! Angus wants Stamp Duty tax breaks for empty nesters – people trapped in inappropriate housing by bad taxes. He wants capital gains concessions for real estate investors over the age of 60, saying, “tax constraints are making it very difficult for them to access the capital tied up in these assets.” The Raine & Horne agents will be walking tall today,...
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US inflation moderates as Europe deflates

deflated balloon by Chris Becker Last night saw the release of two key important metrics in the ongoing fight against deflation in the Northern Hemisphere by the ECB and the Fed. First, following some very lacklustre Euro-wide consumer confidence figures (something that's been repeated worldwide), the very closely watched German CPI print for September came in as dead flat - no change, with the yearly figure remaining at a paltry 0.8% Up next was the Federal Reserves preferred inflation gauge, the price index for personal consumption expenditures (PCE), which is up only 1.5% over the year to August, in a...
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Cormann rules-out housing super fix

ScreenHunter_282 Nov. 14 14.15 By Leith van Onselen Finance Minister, Mathias Cormann, has ruled-out allowing first-time home buyers to access their superannuation to pay a house deposit, arguing that such a move would merely inflate house prices further. From The Australian: Senator Cormann said the idea would probably put pressure on house prices at a time when people were concerned about housing affordability... Senator Cormann countered the idea by suggesting it would only increase further. “The purpose of superannuation is to provide an income stream in retirement,” he told ABC News24. “There is a sole...
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Forecasting the failure of economics

B747BulkheadFail by Chris Becker A very dry article via CBS popped up in the Twittersphere today that tried but failed to explain the inability of economics - as a profession - to forecast: The Queen of England famously asked why economists failed to foresee the financial crisis in 2008. "Why did nobody notice it?" was her question when she visited the London School of Economics that year. Economists' failure to accurately predict the economy's course isn't limited to the financial crisis and the Great Recession that followed. Macroeconomic computer models also aren't very useful for predicting how variables...
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China PMI moderates

Flatline by Chris Becker Straight from Markit, more to follow: “The HSBC China Manufacturing PMI was revised down  slightly to 50.2 in the final reading for September from the flash reading of 50.5, and unchanged from the August reading. Output and new orders were both revised down. Meanwhile, the employment and price sub-indices were revised up, although both remain at relatively low levels. The new export orders sub-index rose to its highest reading since March 2010. Overall, the data in September suggest that manufacturing activity continues to expand at a slow pace. We think risks to...
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Investors still hog wild for mortgages

ScreenHunter_05 Apr. 15 22.08 By Leith van Onselen The Reserve Bank of Australia (RBA) today released its private sector credit aggregates data for the month of August: A chart showing the long-run breakdown in the components is provided below: Personal credit growth (0.2% MoM; 1.1% QoQ; 1.1% YoY) and business credit growth (0.0% MoM; 1.2% QoQ; 3.2% YoY) continue to grow at a modest pace in annual terms, whereas housing credit growth (0.6% MoM; 1.7% QoQ; 6.7% YoY) is stronger, but remains at fairly subdued levels relative to its long-run average growth rate; although it is still growing more than twice as...
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Asia’s industrial production shocker

chinatoyfactory01 by Chris Becker Some more troubling news on the export front for Australia as an Asian regional slowdown seems underway, with Japan and South Korea reporting some woeful stats this morning. The August print for Japanese industrial production came in well under expectations at -2.9% year on year and coupled with a core CPI read that is hovering just above 1%, it pays to ask the question if Abenomics is actually working. More from David Scutt at Marketscuttlebutt: South Korea logged a monthly decline of 3.8%, the sharpest contraction seen since December 2008, with the annual rate sliding...
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ANZ-RM consumer confidence rises above average

ScreenHunter_15 Mar. 18 16.24 By Leith van Onselen The ANZ-Roy Morgan Research (RMR) consumer confidence index rose in the week ended 28 September, up 0.8 points (0.7%) to 113.7, taking it just above its long-run average reading of 113.2 (see next chart). As usual, ANZ chief economist, Warren Hogan, talked-up the result, saying that the ANZ still believed “household spending will grow moderately this year", seemingly summoning the confidence fairy and wealth effect from rising housing prices, even though wages are falling in real (inflation-adjusted) terms. The below chart plots the most recent Westpac-Melbourne...
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RP Data: Home prices up marginally in September

ScreenHunter_07 Mar. 20 20.55 By Leith van Onselen RP Data's price results are in for September, with the daily index recording a 0.10% rise over the month at the 5-city level, with values rising in Sydney, Brisbane and Adelaide, but falling in Melbourne and Perth (see next chart). It was the fourth consecutive monthly increase in values, with values also up by 2.83% over the quarter (see next chart). Home values have now increased by 6.31% since the start of the year at the 5-city level and by 9.4% over the past 12 months, driven by strong growth in Sydney and Melbourne (see below charts). however,...
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Hong Kong crisis due to property bubble?

FrRxIiM by Chris Becker Are the burgeoning protests in downtown Hong Kong - where the financial district is the next target of Occupy Central - about greater democracy under the tightening "one country, two systems" crackdown by Beijing, or something as banal as property prices and high-end consumer goods? From FT Alphaville is this fascinating chart of the Hang Seng bourse vs the Centa-City house price index showing a very frothy mix indeed: Using the pegged HKD has been a blessing for asset prices, but maybe it underlies some tensions within the youth-based movement seeking further freedoms...
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Kelly O’Dwyer talks foreign investment, negative gearing

ScreenHunter_06 May. 06 09.27 By Leith van Onselen Liberal MP, Kelly O'Dwyer, appeared on ABC Lateline last night to discuss foreign investment in Australian real estate, as well as negative gearing (amongst other things). The full transcript can be viewed here, On foreign investment, O'Dwyer once again slammed the Foreign Investment Review Board's (FIRB) monitoring and enforcement of foreign ownership rules, in particular the requirement that non-residents cannot purchase pre-existing dwellings and the requirement that temporary residents sell their pre-existing homes within three months of departing Australia: KELLY...
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Macro Morning

marketmorning by Chris Becker Last nights action on markets was interesting to say the least, and fun for this little black duck (although lack of sleep is hurting this morning). Monday nights in Europe and the US session seem to have a greater sense of volatility about them and last night was no different, as the complex reacted to the Occupy movement in Hong Kong and absorbed two significant data points. First in Europe, deflation seems to be the base case as even Germany came in at dead flat for the month, up only 0.8% for the year. This perversely sent the Euro up intra-session on overbought USD...
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Kohler flip-flops on Australian housing

ScreenHunter_4409 Sep. 30 07.48 By Leith van Onselen Watching Business Spectator's Alan Kohler take contradictory positions on Australian housing over the past two weeks has been a sight to behold. On 17 September, Kohler declared that Australia's high house prices are not a problem and are the result of a well-functioning market: The point is that it’s not entirely clear that expensive housing is a bad thing, although I am talking my book, of course, as a home-owning, empty-nest baby boomer (with frustrated, renting children). It is true that a bubble followed by a crash would be undesirable, to say the least, but is...
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Why Chris Pyne is wrong on youth unemployment

ScreenHunter_29 Aug. 22 11.42 By Leith van Onselen Education Minister, Christopher Pyne, appeared on the ABC's Q&A program last night and showed why he is out-of-touch on the issue of youth unemployment, declaring that there is "no crisis". From The Age: Q&A host Tony Jones asked whether the Coalition should place youth unemployment on a "crisis agenda to try and fix this?" "There isn't a crisis. There certainly is an emphasis from the Coalition on young people either learning or earning so when they leave school – and happily more people are finishing year 12 which gives them a better chance of getting a job...
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Iron ore daily price update (FMG whinge)

iron ore by Chris Becker The riots in Hong Kong have added to the market dramas around the world, and on the open yesterday Dalian futures were limit down (-4%) before recovering, but still in the red across the complex (except a blip in rebar) with spot down 1.1%, 12 month swaps down nearly 2% The spot and swap chart is still in near free-fall: As is rebar, the main constituent of China's property construction boom: And Dalian six month futures: Although I'm a day early, here is how the quarterly iron ore price is shaping up, nearly cracking below $90USD average: . Lots...
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Rents in Beijing fall in September

house-prices-falling Cross-posted from Investing in Chinese Stocks The real estate slowdown in Beijing has now hit rental apartments. Rents are down 1.8% in September. Still up 2.5% yoy, but that could quickly reverse given the current pace. Transactions fell 10% mom. To give an idea of how fast rents increased, in August 2010 I was paying ¥2600 for an apartment and this year when I left, rent was about to hit ¥4000. Granted a subway stop was built nearby, increasing the attractiveness of the area, but the rent I paid was consistent with city averages. Image source:Behind Beijing’s Runaway Home...
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RM inflation expectation lowest in 2014

ScreenHunter_05 Mar. 12 11.39 By Leith van Onselen Roy Morgan Research (RMR) has released its inflation expectations survey for August, which revealed that consumers' inflation expectations over the next two years fell by 0.2% to 4.8% per year in August - 0.2% down from a year ago and the lowest result recorded so far in 2014: According to the media release: Analysis by State shows inflation expectations were driven lower by falls in five out of the six Australian States: New South Wales (5.0%, down 0.3%), Queensland (4.9%, down 0.1%), Western Australia (5.3%, down 0.4%), South Australia (4.3%, down 0.7%) and...
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Links 30 September 2014

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: PIMCO MacroPerspectives (PDF) - PIMCO The Geneva Report on global deleveraging - VOX Geneva Report warns record debt and slow growth point to crisis - Financial Times Why investment advice is often so confusing - A Wealth of Common Sense Two-year Treasury yields are at multi-year highs - Business Insider Why hedge funds love tech stocks - Alpha Attribution Where Bill Gross went wrong - Pragmatic Capitalism North America: The US manufacturing renaissance is real - Dr. Ed’s Blog The Fed and the case of regulatory capture - Justin...
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ASX at the close

ASX_logo by Stan Shamu, IG While the rest of the world seems to be enduring an endless wall of worry, the US continues to power ahead with investors now pinned on this week’s non-farm payrolls reading. Taking a step back though, it has been a slow start to the week for Asia, with mixed moves across the board. The headlines have not been pretty, with ugly protests in Hong Kong and another disappointing economic reading out of China showing declines in industrial profits. Protests in Hong Kong have seen the Hang Seng plunge while the Shanghai Composite is treading water. Having said that, the real...
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NZ PM joins the jawbone shoutdown of the Kiwi

anvilflying by Chris Becker As distasteful as having an ex-financial speculator as your country's leader, I'd still rather have former FX trader John Key than a Luddite as my Prime Minister. Because at least he knows how to smack down the currency in co-operation with its central bank, the RBNZ - from Bloomberg: The kiwi dropped against all 31 major counterparts as Prime Minister John Key was reported as saying currency needs to be weaker. Prime Minister Key said the so-called Goldilocks level for the nation’s currency is around 65 cents, Interest.co.nz reported, citing comments to reporters. “We...
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Falling incomes the ultimate barrier for FHBs

ScreenHunter_01 Jan. 27 23.41 By Martin North, cross-posted from the Digital Finance Analytics Blog In the current discussions about macroprudential, stimulated by the RBA comments last week and likely to be stoked further as the RBA appears before the Senate Banking Committee on Thursday, many are claiming that household balance sheets and incomes are supporting the growth in house prices, and so no intervention is needed. The chair of the Banking Committee Sam Dastyari is “concerned about the unanticipated consequences of the Reserve Banks’s view-change on the sustainability of the housing boom and whether it needed to...
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Who needs science when you have dirt?

371_think by Chris Becker I really hate bad news - to the point that I pointedly do not watch any regular news or read the mainstream dailies (especially the terrorism mongers at Newscorp). There is an amazing amount of positive informative things happening around the world all the time - especially in exciting fields of biotechnology, communications, materials science and my favourite space exploration and aerospace in general. Unfortunately you've got to call a spade and spade and use said shovel to hit people over the head with the injustices and plain stupidity of their elected officials. Especially when...
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RBA: Low dollar no saviour for manufacturing

ScreenHunter_20 Feb. 20 10.06 By Leith van Onselen More arse covering from the RBA today, this time arguing that a lower dollar could not have saved Australian manufacturing. From The Canberra Times: A lower exchange rate would not have helped manufacturing during the mining boom, according to modelling conducted by the Reserve Bank... But the Reserve Bank paper, Exchange Rate Movements and the Australian Economy, suggests that fixing the dollar at 2003 levels - around 60 US cents – would have made little difference. "Even a constant nominal exchange rate would not have prevented the ongoing decline in the relative...
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