UBS does the outrageous Australian stimulus boom!

Via the excellent George Theranou at UBS:

Mar-21 home prices surge 2.6% m/m, fastest since 1988; sales spike ~43% y/y

CoreLogic dwelling prices boomed 2.6% m/m (sa, 2.8% nsa) in Mar-21, the strongest in 33 years since 1988 (after 1.7%); to be up 6.1% y/y (after 3.9%). Prices are a record high level, & up 7% since the COVID trough in Sep-20. By city, Sydney is now strongest (3.5% m/m, 5.3% y/y); but regional areas also lifted further (2.4%, 11.4% y/y). Houses remain stronger (2.9%, 7.3% y/y), but units are also now picking up (1.8%, 2.2% y/y). Supply is very low, with new listings in March 25.5% below the 5-year average – but demand is strong, seeing sales jump ~43% y/y – which is obviously pushing up prices. Feb home loans -0.4% m/m, but still +75% vs May; as investors return strongly Home loan values in Feb-21 surprisingly edged back by 0.4% m/m (UBS: 4.0%, mkt: 3.3%), but followed an upwardly revised spike in Jan-21 of 10.5% (was 8.6%), to a record high level; and Feb remains up an incredible 75% in only 9 months since the COVID trough in May-20. Importantly, this broadened from still strong owner-occupiers (-1.8% m/m, +77% since May) – including first home buyers (-1.6% m/m, +59%) – to investors returning strongly in recent months as well (+4.5% m/m, +70%).

Job vacancies at record high; should see rapid re-hiring post-JobKeeper impact

Job vacancies increased strongly again in the Feb-21 quarter by 13.7% q/q (after 23.3%), to another record high level; and lifted 26.8% y/y, (the fastest since 2010, after 12.0%). The RBA’s preferred metric of job vacancies as a ratio of the labour force also leapt higher to a record high of 2.1%, which is >40% above the average since 2009. Hence, at face value this implies an incredibly tight labour market, that is historically consistent with an unemployment rate of ~4%. Given JobKeeper just ended in March, looking ahead we still expect employment to decline by ~100k in Q2, seeing unemployment temporarily increase by ~¼%pt, or up to ½%. However, we still expect rapid ‘re-hiring’, given record job vacancies, and see unemployment drop back in 2H-21 to below its current 5.8% by end-2021, and decline further to ~5% by end-2022.

Feb retail -0.8% m/m, but on lockdowns; still +9.1% y/y; Mar should rebound

Retail sales in Feb-21 fell back by 0.8% m/m (revised up from the preliminary -1.1%), after rising 0.3% in Jan-21; moderating the y/y to a still strong 9.1% (after 10.6%). However, the decline in Feb was driven by temporary lockdowns in both WA (-5.4%) and Victoria (-3.0%), while most other States rose. Combined with an ‘extra’ ~$200bn in deposits since Feb-20 (worth 10% of GDP), this suggests retail should rebound in March, and see Q1 close to flat q/q. Meanwhile, car sales are also tracking to be down q/q. Finally, the Feb trade surplus fell to $7.5bn (albeit after a record $9.6bn). Hence, there remains significant downside risk to our Q1 real GDP forecast of 1.2% q/q (and +0.4% y/y).

Unless regulators tighten, home prices could spike further to ~15% y/y ahead

Overall, with recent APRA comments suggesting regulators are unlikely to implement macro-prudential tightening near-term (albeit we still expect a shift later this year) – & the RBA reiterating commitment to YCC (which helped lower 3-year fixed mortgage rates to <2%), & no rate hikes for years – we still expect a housing ‘up-crash’, with: 1) prices booming ~10% y/y; 2) dwelling commencements surging towards 230k in 2021, & 3) housing credit picking up to ~6% y/y by end-21 (was ~4% previously). However, we now see upside risk of prices to ~15% y/y, unless regulators step in. While the end of HomeBuilder (and other fiscal stimulus measures) in March should see some moderation of demand ahead, if the Australian Government also repeals responsible lending laws (as they have flagged), it would provide a further impulse to housing.

David Llewellyn-Smith
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    • NoodlesRomanovMEMBER

      Sigh… yep. Middle class PAYG essential worker here. Will be tax time shortly, another opportunity for the hand in my back pocket to slide a finger in while it’s there. Medicare levy? Ok. Medicare levy surcharge? Um what now?

  1. Jumping jack flash

    It really looks like they missed their opportunity to rebuild the debt economy.

    By now we needed to have had the rumblings of CPI driven by debt spending on the back of leveraged COVID stimulus, and certainly no wage theft, but instead we have the opposite. We will be doomed to resume to slow decline of 2019 untill all this and more is performed again, and with no justification.

    • Andrew Veniamin

      Looks like some economies held back during the pandemic and will spend big coming out of it – while others spent big during the pandemic and will have little left coming out of it.

      Australia in the latter category I think should do well as it might be able to ride the coat tails of other countries “post” covid stimulus ?

      • Jumping jack flash

        Yes i still hope the trillions of US stimulus can do something to grow the global debt pile at the correct rate to avoid deflation and collapse, but I’m a bit sceptical.

        Part of me is still hopeful but it certainly won’t be as effective for us as our own leveraged stimulus spending should have been.

  2. Andrew Veniamin

    The job vacancies has some interesting positions. Almost everyone I know, and those I talk to who own a business have been really struggling to hire. I know its a cliche but its absolutely true – people have been living on Job Keeper and just not working.

    I wonder how fast those jobs will evaporate when it ends, if it has anything to do with the large number etc.

    • Jumping jack flash

      We are looking to hire 2 “engineers”. And by that i mean glorified technicians who can use solidworks and be prepared to work for rather little.

      The problem is that nobody will be happy with the amount of debt they will be eligible for when working for the money we’re going to offer. And that’s the whole problem.

      Joshy boy tried to fix this with “irresponsible” lending but was shouted down. Its not irresponsible at all, it is simply making more people eligible for the debt they absolutely need, using the incomes that business owners are prepared to pay, while there’s not adequate CPI to justify wage increases.

      • You dont need Australian debt piles, you just need more laundered money flooding Australians shores competing with people who have to earn a wage and finance the house.

        You get your solid works engineer for illegal wages and Australia flips another asset to a foreign buyer who didn’t have to earn it.

  3. Badly directed stimulus writ large!

    And what happens when all these FHB that have been bought forward are no more, and with savvy (?) investors returning despite many renters becoming FHB & and no new blood will rents fall again? Over the weekend I noticed several newly done up (brand new kitchen, laundry & bathrooms, everything replaced with designer gear, thanks to government stimulus no doubt) rentals in old blocks, now asking higher prices (I think as more like brand new blocks). Maybe the returning Aussies will provide enough demand to keep it all going, but you’d have to think new FHB will bye thin on the ground for second half of year. So either going to be an election while the economy is popping or more stimulus if the ladies are still pissed at LNP

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