Will Australia join the great global deflation?

deflationcycle By Leith van Onselen Dixon Advisory's Max Walsh has written a ripper piece in The AFR today warning about the dangers of pinning an economy on rising housing values and debt, which more often than not lead to a significant downturn and a period of financial instability: If you think you have heard the story of the finance-based, housing-led recovery that was the ideal medicine for an economy under stress, you are correct. A property boom underwritten by high leverage and/or low mortgage entry rates will collapse suddenly, ensuring a slow recovery. In Australia our banks have become little...
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Land prices spiral upwards

ScreenHunter_18 Jul. 05 10.22 By Leith van Onselen The Housing Industry Association (HIA) and RP Data have released their latest Residential Land Report, which reveals that median vacant lot price across Australia hit a record $205,330 as at June 2014 after rising by 1.1% over the quarter (see next chart). Capital city lot prices rose by 1.8% in the quarter to be up by 7.4% compared to the June 2013 quarter. By comparison, land prices in Regional Australia were essentially flat in the June 2014 quarter (down 0.1%) to be up by 4.1% over the year. Residential lot sales also rebounded, with the number of sales rising...
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Housing requires both a supply AND demand fix

ScreenHunter_4628 Oct. 23 10.47 By Leith van Onselen The CEOs of the CBA and AMP have urged Australia's government's to invest in new infrastructure projects and undertake other supply-side reforms in order to improve housing affordability. From The AFR: Mr Narev urged governments to take the pressure off house prices by using infrastructure projects to increasing the supply of housing stock. “The appropriate dev­elopment of infrastructure, particularly roads and transport, will open up new opportunities to develop residential ­living and therefore create more supply in the market, which gets the overall property...
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Abbott’s PPL hits another road block

ScreenHunter_3900 Aug. 22 13.05 By Leith van Onselen Tony Abbott's flawed and unpopular paid parental leave (PPL) scheme has hit another major roadblock, with "Treasury officials revealing limited progress is being made in determining how state public service schemes will dovetail with the proposed Commonwealth one, or how much it will eventually cost". From The Canberra Times: Discussions between Canberra and the states had commenced before Christmas, according to the officials, and continued at a Council of Australian Governments meeting earlier this year, but they have apparently ceased with no discussions since the May...
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Memo to business: The TPP is not free trade

ScreenHunter_3418 Jul. 23 10.44 By Leith van Onselen A consortium of Australian business groups have released a joint statement backing the Trans-Pacific Partnership (TPP) trade negotiations, and urging trade ministers to make a concerted push to conclude negotiations when they meet in Sydney on Friday. From The AFR: The Business Council of Australia, American Chamber of Commerce Australian chapter and the US Chamber of Commerce issued a joint statement on Wednesday declaring the US-led Trans Pacific Partnership “key to creating jobs’’... “A successful TPP will mean more jobs, higher wages, stronger growth, a...
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APM: House price growth slowing

ScreenHunter_07 Mar. 20 20.55 By Leith van Onselen Australian Property Monitors (APM) (now called Domain Group) has released its September quarter house and unit price results (below), which recorded a 1.2% increase in house prices over the quarter at the national capital city level, and a 0.3% rise in national capital city unit prices. In the year to September 2014, APM recorded an 9.4% increase in national capital city house prices and a 6.8% rise in unit values - a deceleration from the 11.0% (houses) and 8.5% (units) annual growth recorded in the June quarter release. Looking at the capital city breakdown, you can...
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Mirvac’s negative gearing plea doesn’t make sense

ScreenHunter_4625 Oct. 23 07.57 By Leith van Onselen Mirvac Group CEO, Susan Lloyd-Hurwitz, has thrown a wet blanket over calls to reform Australia's negative gearing regime, claiming that any wind back of the rules would pose serious risks to the stock of rental properties available. From The Australian: "...as a society, we would have to think long and hard about the removal of negative gearing because it has very far-reaching implications”... “We need rental stock and it’s currently owned by mum-and-dad investors, negatively geared,’’ Ms Lloyd-Hurwitz said, noting that, unlike the US, Australian institutions and...
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Links 23 October

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: Currency Wars Evolve With Goal of Avoiding Deflation - Bloomberg Forex-Rigging Fines Could Hit $41 Billion Globally: Citi - Bloomberg Some common lies investors tell themselves - A Wealth of Common Sense North America: Nelson Bunker Hunt, Texas Tycoon, Dies at 88 - New York Times Home Sales Reach 12-Month High - New York Times Fed Can Back Up Tough Talk on Bank Behavior With Action - Bloomberg US economic momentum is intact - Quartz Is cheap gasoline good for the US? - Fortune Why attacking the Fed for making inequality worse is mostly wrong...
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REINSW slams RBA’s jekyll and hyde routine

ScreenHunter_4619 Oct. 22 13.57 By Leith van Onselen President of the Real Estate Institute of New South Wales (REINSW), Malcolm Gunning, has this afternoon slammed the Reserve Bank Of Australia's (RBA) inconsistency on property investment, which has seen it swing from encouraging investment to being on the brink of implementing macroprudential curbs to slow the property market down. From The Australian: "Six months ago, Mr Stevens was encouraging investment in real estate," Mr Gunning said. "Now that the public is buying properties with confidence, the RBA has changed its mind and is being critical, giving warnings about...
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Rents decouple from prices, population growth

ScreenHunter_17 Jul. 16 08.30 By Leith van Onselen The September quarter consumer price index (CPI) data, released today by the Australian Bureau of Statistics (ABS), revealed continued moderate rental growth at the national capital city level. According to the ABS, rents nationally grew by 0.7% over the September quarter of 2014 – up slightly on the 0.6% growth recorded in June – but was only 2.5% in the year to September, with a clear downwards trend evident (see below charts). What's most interesting about the current moderate rental growth is that it is at odds with other housing-related indicators,...
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Australian CPI in detail

ScreenHunter_01 Jun. 08 23.33 By Leith van Onselen As noted briefly by Houses & Holes, the Australian Bureau of Statistics (ABS) has released the Consumer Price Index (CPI) data for the September quarter 0f 2014, which registered a modest quarterly increase in prices, with the result also coming ahead of economists’ expectations of 0.4% inflation over the quarter. According to the ABS, headline CPI rose by a modest 0.5% in the September quarter, which follows June’s 0.5% rise (see next chart). On an annual basis, headline CPI growth fell to 2.3% from 3.0% in the June quarter, which is well within the...
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US goes back to the future with high LVR

ScreenHunter_4599 Oct. 22 09.48 By Leith van Onselen Just six years ago, the US and a number of European nations experienced first hand the carnage of a full scale property bust.  These experiences should have taught the world that debt-fueled property speculation, along with placing regulatory constraints on housing supply, is a recipe for disaster and bound to end badly. Yet last year, the Obama Administration looked to cement the US housing recovery by re-igniting sub-prime lending - one of the factors that caused the US housing bust (along with the Global Financial Crisis) in the first place - by getting banks to lend...
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Coalition gives ground on under-30s dole delay

ScreenHunter_3946 Sep. 01 12.43 By Leith van Onselen The Government's plan to make job seekers aged under 30 wait six months before receiving Youth Allowance or Newstart looks doomed, with Family First Senator, Bob Day, proposing a compromise one month delay and Social Services Minister, Kevin Andrews, indicating the government would support the measure. From The Canberra Times: "I can't say [what the government's final position would be] but one month would be better than what we've got now," Mr Andrews told Fairfax Media. The Senate crossbench has been staunchly opposed to the idea of a six-month wait but Senator Day, of...
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RBA warns property investors of macroprudential

ScreenHunter_4598 Oct. 22 08.18 By Leith van Onselen RBA deputy governor, Phil Lowe, gave a speech yesterday afternoon to the Commonwealth Bank of Australia's 7th Annual Australasian Fixed Income Conference, whereby he expressed overwhelming frustration that the prolonged period of record low interest rates had not generated genuine productive investment, and had instead been channeled into existing assets, like property, inflating values: Interest rates are as low as they have ever been in most advanced economies... This shadow has created a difficult environment for savers and those managing savings. Perhaps at the risk...
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Australia’s world-leading property addiction

ScreenHunter_4503 Oct. 15 07.54 By Leith van Onselen Capgemini and Royal Bank of Canada (RBC) has released their 2014 Asia Pacific Wealth Report, which reveals that Australia's high net worth individuals (HNWIs) have the biggest appetite for residential property in the world despite increasing concern that there might be a property bubble developing in Australia: At 33.1%, the allocation by Australian HNWIs to real estate was the highest in the world [global average 19.5%], though it represented a drop from 40.6% a year earlier. Record low interest rates in the country could be sowing fear of a property bubble, explaining...
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Links 22 October 2014

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: How oldies are killing the world economy - and could yet rescue it - The Telegraph What do pros really think about the market - Humble Student Why the low volatility anomaly should persist - Monevator Why regulating high frequency trading is so difficult - Dealbook North America: U.S. to ease repurchase demands on bad mortgages - LA Times Fannie Mae will buy 97% LTV mortgages - Housing Wire Fannie, Freddie to accept lower down payment mortgages - New Moving Markets How Much Will Student Debt Drag on Housing? - Wall Street Journal Why...
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China to drop coal tariff in FTA

ScreenHunter_4595 Oct. 21 14.58 By Leith van Onselen The Australian is reporting that China will exclude Australia from its proposed 3% tariff on coking coal and 6% tariff on thermal coal if a free trade agreement (FTA) between the two countries is concluded: “We want to see our way through it and the answer that we agreed upon was the free trade agreement,” Mr Hockey told The Australian. “Once we get a free trade agreement it will be abolished. “The quicker we get an FTA the quicker the tariff will go.” Prime Minister Tony Abbott is hopeful of securing a free trade agreement with China by the time of the...
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TPP trade pact will challenge democracy

ScreenHunter_3418 Jul. 23 10.44 Cross-posted from The Conversation: As we approach the 10th anniversary of the Australia-US Free Trade Agreement (AUSFTA), its offspring, the Trans-Pacific Partnership (TPP), has entered its fifth year of negotiations. The TPP is a much bigger deal. It is being negotiated between 12 Pacific Rim Countries: the US, Australia, New Zealand, Canada, Mexico, Chile, Peru, Japan, Singapore, Malaysia, Brunei and Vietnam. Talks to try to reach the broad outlines of a TPP deal will be held in Canberra on October 19-24. Trade ministers then meet in Sydney on October 25-27. The AUSFTA prompted huge...
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The great Australian banking myth

ScreenHunter_06 Jun. 26 22.42 By Leith van Onselen The Drum's editor, Ian Verrender, has produced a great article slamming the banks' vocal opposition to stricter capital rules and debunking the claim that Australia's banked were not bailed-out during the GFC: Within days [of Lehman Brothers' collapse], the government shored up offshore Australian bank debt with a taxpayer guarantee... And so began the myth that the Australian financial system somehow was better and stronger than the rest of the world, that it alone survived the great global financial crisis where all others failed. It is a myth now being employed as...
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ANZ-RM consumer confidence dips

ScreenHunter_20 Apr. 10 19.28 By Leith van Onselen The ANZ-Roy Morgan Research (RMR) consumer confidence index fell in the week ended 19 October, falling 2.2 points (-1.9%%) to 111.6, taking it below its long-run average reading of 113.2 (see next chart). The overall fall in consumer confidence was driven by households having a more pessimistic take on their financial situation compared with the previous year and also being more downbeat about the economic outlook for the next five years. ANZ chief economist, Warren Hogan, continues to summon the confidence fairy and wealth effect from rising housing prices, even...
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NZ immigration booms as Kiwis desert Oz

ScreenHunter_4586 Oct. 21 09.25 By Leith van Onselen Statistics New Zealand has today released its permanent & long-term migration figures, which revealed that New Zealand net migration is at record highs as Kiwis continue to return home from Australia: The unadjusted figures for the September 2014 year showed New Zealand's highest-ever net gain of 45,400 migrants. Until the August 2014 year (43,500), the high was 42,500 in the May 2003 year. Over the last 20 years (December 1994–2013 years), New Zealand's annual net inflow of migrants has averaged 11,700. The highest-ever net gain of migrants was driven by...
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Stokes rightly sees WA headed for 1991 recession

kerry-stokes3 From the SMH comes a blunt assessment from Kerry Stokes that Western Australia is headed for a recession: "They [BHP and Rio] are pretty big smart cats," Mr Stokes said. "Frankly if you can sell something at $80 a tonne that cost you $20 a tonne you might want to sell as much as you can. I understand that. That means everybody else who competes has got to get a whole lot more efficient." ...Mr Stokes offered a blunt assessment of the state's economic climate. "We are in a really tough period," Mr Stokes said. "Probably, this is as tough as I've seen since 1991. People are saying to me how...
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PBO declares budget emergency

ScreenHunter_3902 Aug. 22 15.25 By Leith van Onselen Parliamentary Budget Office (PBO) chief, Phil Bowen, has issued another warning that that Federal Budget is facing an $18 billion black hole by 2024 because of the Senate's reluctance to pass key Budget measures. From The Australian: Mr Bowen stood by his call for a “buffer” in the nation’s finances to prepare for a global downturn but said he did not seek to inject “panic” into the savings debate. “I don’t think I am in a position to say the global risks have increased,” he told a Senate hearing. “The global risks still are there. So I don’t pull...
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Links 21 October 2014

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: What is global market turbulence telling us? - FT Blog Five known unknowns about the future of the global economy - Washington Post The 1987 Crash and a Dose of Perspective - Wall Street Journal Signs of an oversold share market - Short Side of Long A smarter way of reaching for yield - Humble Student Bond trading is becoming increasingly automated - Dealbook Here's who should be happiest about falling oil prices - Quartz How will the Saudis react to lower oil prices? - Econbrowser North America: Is mortgage credit too tight?  -...
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ANZ is wrong on bank capital

ScreenHunter_4572 Oct. 20 10.36 By Leith van Onselen ANZ Chief, Mike Smith, has warned that Australia's Big Four banks risk becoming “globally uncompetitive” if they are required to raise capital levels to withstand external shocks. From The Canberra Times: Mr Smith said despite concerns around the housing market, there was no need to raise the amount of capital banks were required to hold as has been suggested through the Murray Financial System Inquiry. "The Aussie banks are now holding twice as much capital as they did [in 2007] courtesy of regulation that has been implemented since the crisis. "The question is,...
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