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Empower Wealth Blog post by Empower Wealth

RBA Cash Rate November 2021: Lending Standards To Change?

It’s Melbourne Cup RBA Cash Rate Day folks! In the past, the Reserve Bank of Australia tends to change the rate on race day.

Did they change the cash rate as well this year?

Most definitely NOT.

They simply can’t afford to make any changes to the cash rate yet. Why? Tune in to find out more where Ben unpacks three key themes for this month’s economic update:

  • The global inflation rate and what are the Central Banks across the World doing?
  • Vaccine adoption rates leads to safer economic re-opening
  • New Property Listings Surge but there is more to this story

And here are all the time stamps!

00:33 – COVID-19 Update

World Economic Update Segment:

06:22 – United States: GDP Numbers
07:08 – United Stated: Consumer Confidence
07:50 – United Stated: Unemployment rate
08:52 – United Stated: Inflation
09:57 – China: GDP Numbers
11:31 – China: Property Market and the Potential Impact of Evergrande’s Collapse
11:31 – China: Property Market and the Potential Impact of Evergrande’s Collapse
13:54 – Europe: GDP Numbers
14:43 – Europe: Inflation

Australian Economy Segment

16:35 – The Cash Rate Announcement!
16:46 – RBA’s Bond Buying Program
19:43 – Inflation and what’s happening in recent weeks?
21:16 – What’s causing this inflation anomaly
22:47 – The relationship between real wage growth and inflation
27:47 – Unemployment
29:59 – Jobs Ads Data
30:41 – Consumer & Business Confidence
31:56 – Retail Spending

Australian Property Market Update

33:00 – Housing Lending
34:26 – Property Prices
36:00 – CoreLogic Hedonic Home Value Index
36:49 – New Listings & the Supply Story

The Rough Transcript

In my economic and RBA update for November 2021, I’ve got some interesting themes.

Firstly, why I think the RBA along with other world central bankers have an ace up their sleeve with tackling inflation. Second point, vaccination adoption is leading to a safer economic reopening, which is good news for everyone. And new property listing surge. But there’s more to this story if you hang around to the property update at the end of this overall economic update.

So, there is so much data to get through, so let’s get straight into it. I’ve been starting these last couple of months with my COVID data updates and it’s going to be no different this month. Because at the end of the day, if the reopening is a result of reduced infections, reducing hospitalizations, and most importantly, reducing deaths, which also means great economic prosperity for all. So let’s start with the global infections. We did see those numbers approaching 246 million COVID cases reported. Now that’s up from 235 million that I reported last month. Sadly, total deaths are now over five million people. So reflect on that everyone, five million people have lost their lives in this pandemic. So that is obviously terrible news. Total vaccinations administered at the time of recording are now closing in on seven billion doses. That’s up from 3.6 billion last month. And in terms of global population that is now fully vaccinated, we are now at 39% of the global population and that’s up from 35% last month. Now the rolling 28 days is where we start to see the impact that the vaccines are having right across the globe. So let’s start to think about those numbers, total infections, I’m sorry, are just under 12 million in the last 28 days. Now that’s down 2.5 million from 14.5 million infections from the previous 28 days. And that’s the benefit of the vaccine kicking in there.

Vaccines administered in the last 28 days over 610 million doses. Total deaths in the last 28 days is still a sad reading number of 197,000 people losing their life in the last 28 days. Now on a positive note however, that’s down from 235,000 in the last 28 days or the previous 28 days. So there is improvement happening here. In terms of global case fertility ratio we’re sitting at 1.68. Now from the total pandemic, remember that was around 2%. So, that is also coming down. So for every 100 people who are contracting the virus, sadly still 1.68 people around the world are still dying. Looking at the Australian data, and remembering we’re looking at this from a health point of view that rolls into the economic outputs and also the economic prosperity. If we can get people mobility safely, effectively, then obviously everyone benefits, and so does the economy.

So the rolling 28 days, the fatality rate is running in Australia at 0.68 of 1%. Now that is increased slightly from the previous 28 days reading of 0.59. So you’re probably asking, why is it that our fatality rate is gone up? Well, it’s a simple answer it to that. And that is when you start to look at the incidents rate. So we measure incidents rates per 100,000 people of population. What we did see was when New south Wales and Melbourne, so Sydney and Melbourne, basically had a spread of the Delta virus. We did see our incident rates per 100,000 move from 428 people to 670 people per 100,000 of that population. So simply that means that more people have had an infection of COVID, because we are no longer doing lockdowns and there was more of that spread.

Okay, so we also know that based on the hospitalization data, that 95% of the people who are presenting in hospitals are unvaccinated, and that’s potentially the reason why we’re also seeing higher death rates. So, that is the cause of the movement from the 0.59 fatality rate to moving up to 0.68. Now that number may also increase, given the reopenings and the whole concept that we’re now living with COVID. What we also then need to offset that against is what we are definitely seeing, as our vaccination rates are improving the contagion and the infections are actually coming down. So that’s a terrific sign that it also reduces the spread of the virus and also reduces hospitalizations and ultimately deaths from that. So we’ve got to be mindful of that as well. Now again, when you can comparing where Australia is sitting in regards to our overall fully vaccination rates from total population, we’re sitting at 65%, so we’ve still got some more work to do there.

And as that rate moves higher, that’s our counterbalance to the increased spread of the virus. So that’s what the data’s telling us in terms of how to best manage this. And that’s what we’re executing on. So Australia is going to hopefully mean no more lockdowns and obviously coming into our warmer months, hopefully less spread of the virus, which we’re now starting to see and what’s happening in Sydney. And so that’s only a positive sign as our two biggest centers are effectively moving to full vaccination rates in excess of 90%. And hopefully moving more towards that 95%, which is protecting themselves, but also the greater population. If you’re interested in following any of your COVID data, just for reference points, Johns Hopkins University and the New York Times vaccination tracker is where I’m pulling that data from.

Okay. Now turning our attentions to the world economic updates, I’m starting with the biggest economy in the world, the U.S. We did see the U.S. economy grew less than expected in the September quarter as supply chain issues and the pandemic throttled spending and investments. So GDP expanded by an annualized 2%. After recording a 6.7% result in the previous period, personal consumption tanked in the last quarter, rising only 1.2% compared to a 12% reading in the last quarter. And again, this has been thanks to the supply challenges and also mobility challenges as we did see a spike during the Delta strain over in the U.S. That’s now starting to settle down, so mobility is starting to improve, and that shows up in the October data that we’ve got. So consumer confidence rose in October following declines. Over the previous three months consumer confidence rose to a reading of 113.8 which was revised up from 109.8 in the September month. This was above consensus expectation of a reading of 108.

Now improved employment prospects, which I’ll get to in a minute, amid a recovery in the labor market and a fall in infections has boosted confidence and confidence has really been dented because of what we just talked about. Those virus Delta strain infections and also the concern around inflationary pressures. And that is one of the themes I’ll be talking about throughout the course of this update. The unemployment story or employment story is interesting. Initial unemployment claims fell to 281,000 in the week ending October 23. And this is versus 288 expected by consensus. But this is the story that I wanted to highlight about the U.S.

And that is that the real positive news on the jobs front is that the U.S. Bureau of Labor Statistics are reporting that over 10.4 million job vacancies that’s right, 10.4 million current job vacancies. Now this is the highest, one of the highest readings we’ve ever seen coming off a peak of over 11 million only a month or so ago. Now the long-term average for this particular reading of job vacancies normally sits at around four to four and a half million. So you are definitely seeing labor shortages. And that in effect is part of the wages story that we are going to see play out and what I want to talk more about in this update.

In terms of the inflationary story, the other big news globally, that we’re challenged by. So the core theme of this month’s presentation, I’m going to focus in on commentary from basically key economic commentators in the U.S. and also in Europe. Now the first one I want to talk about is treasury. Treasury, secretary, Janet Yellen, who also talked out her expected thoughts around price increases to remain high throughout the first half of 2022. However, she noted that she reflects temporary pain and she expects inflation to ease in the second half of 2022 as supply chain constraints and labor shortages start to subside. And again, I want to talk more about that when I talk about the RBA announcement.

Looking at China now. Now China was the pinup boy in terms of world economic powerhouse pretty much for the past decade and beyond, but we are now starting to see China’s story is losing momentum. So let’s take a look at some of the data. The GDP numbers on a quarter-by-quarter basis only grew by 0.2 of 1% in the September quarter. And this is on the back of power outages and shortages, continued supply bottlenecks in raw materials, sporadic COVID-19 outbreaks and tightening restrictions on the property markets, which I also want to talk a little bit more about when it comes to China. So this 0.2% gain was on the back of a 1.3% gain in the June quarter. Now compared to a year ago, GDP grew by 4.9% in the September quarter down from 7.9% in the June quarter. So momentum is really being challenged here.

So the broader challenges for the Chinese economy, these rolling outages and stoppages around energy and the costs associated with them with producing that energy, high commodity prices continuing to impact. And that has a flow on effect in terms of in inflationary outcomes for that. A slow down in control of the number of lockdowns. Starting, stopping, starting, stopping. And again, that inflationary pressure that we do see in terms of those inputs are also then being reflected in terms of their exports. And that is inflationary for the country’s that import those goods. And also that’ll start to show up in countries like Australia, where we start to have import inflation coming into those markets.

Now, the other big story here that I mentioned before was around the property story. Now, China has had an incredible boom, people moving into better property accommodation, and certainly property prices have reflected that over the past decade in terms of what’s happening in China. Now what the market is watching, and we’ve talked about this before, but this company called Evergrande, they have challenges around their $3 billion of debt that they have. Now, why we’re watching this is because this is almost a quasi read when it comes to the overall health of the Chinese economy, $3 billion in debt. Is this going to be a contagion that will see other developers start to be challenged in terms of servicing those debts? What happens to actual property prices themselves? What is the impact in terms of lending and defaults on the market? And then does that have that classic contagion effect into the wealth effect and consumer spending and consumer confidence? So watching this particular mega company and their debt and how they manage the repayments of those debt is really important.

Now, what we did see last week is they did make two repayments, two critical repayments. One surprise repayment in fact, as early as last week, where they did think that there may have been a default on one of those repayments. But that has not materialized. So now the markets are going to be looking at what to next? That has bought them some time. Potentially they’ll sell off some more assets and they’ll start to get that debt under control. The other thing we’re also going to be watching is, what will the Chinese government do here? Is this a situation of the risk that will then broadly spread across the property market? And so will the Chinese government step in to support them as they transition and sell some of those assets, so we don’t see a major disruptions to the markets and a consumer confidence issue across the broader Chinese market when they’ve already got those other challenges that we talked about in regards to energy supply and just general supply constraints and supply change issues that pretty much the world is starting to address at the moment. So it’s an interesting story, and one to watch in terms of the Chinese economy, and obviously the flow on effect to Australia in terms of iron ore prices, coal prices, and alike.

The other biggest group economy in the world is the European market. So let’s have a quick look at the GDP story for the September quarter. We saw GDP rise by 2.2% in what they call is their third quarter. They run a calendar financial year, which was above consensus of 2.1, so it beat consensus. And that was on the back of strong performances from France and Italy in those particular markets. On negative side thing for consumer conference that we saw consumer confidence slide to a negative 4.8 in October from a negative four in September, as the move back into the cooler months and the winter months of the year is putting fears around energy prices and heating costs and potentially increases of COVID cases, hospitalizations, et cetera. This is the long tail of the pandemic.

But on the back of those higher energy costs and heating costs, inflation again is the story of the day. So we did see inflation rise by 0.8 in October, to be 4.1% higher over the year to October. Underlying inflation was at its highest level since September, sorry, since 2002. It rose by 2.1% over the year to October, which was above expectations of around 1.9%. In another example of the central banks around the world trying to call the market’s bluff and maintaining their important signaling on lower interest rates for longer, the European Central Bank’s head, Christine Lagarde, pushed back on expectations of an ECB might raise rates before 2023, even though the latest reading on inflation does not support this view. She, again, reiterated that the current spike in inflation is unlikely the last. She describes the spike as largely transitionary in the UR area. She also vowed to continue to aiding the economy as the pandemic fallout lingers. But for now, again, the European markets are not agreeing with her and they are again forecasting changes to interest rates on the back of this inflationary story.

And that leads me into the conversation around inflation and what’s happening in the Australian market. Firstly, I’ll just acknowledge that the reopening of Sydney and Melbourne markets and the movement of people have led to a clear spending patterns increases in personal care clothing, hospitality. We’ll talk more to that, but we do think that that economic bounce will continue as those restrictions are eased. The RBA again today met and at their Melbourne Cup board meeting call it that the race that stops the nation and they’ve kept the cash rate on hold at 0.1 of 1%. So completely no surprises there, but the real interest lies in the bond buying program.

And to put this into context about how the market feels that the RBA has to move rates earlier than they’re currently anticipating, which we all said was not until 2024 when they get wages growth and they get the unemployment number down, they’ll start to move on that. Now here’s the context. The Australian physical bond yields spiked last week when the market digested the higher than expected the uninflation data for the September quarter. The three-year bond yield rose 10 basis points to 1.22, and the 10-year bond yield spiked 24 basis points to 2.09 last week. Now the three-year bond yield has risen more than 40 basis points since the publication of that underlying inflation data. And the yield on the April 2024. So to understand this, it’s a three-year bond, so that’s why they’re talking about what does the yield curve look like in 2024, 3 years from now, rose a further 0.78 of 1%, which is well above the targeted 0.1 of 1%, which is what the bond buying program is meant to do.

So what did the RBA do about it? They did nothing. They literally last week couldn’t match the market, and so the market moved that yield curve and they couldn’t do anything about it. So it would be interesting in terms of when we start to see the minutes of the RBA meeting today, in terms of what story they’re telling. So there will be more to add to that story in future updates that I supply to Empower Wealth, or also on The Property Couch Podcast. So stay tuned once we see their diagnosis there.

But ultimately this is now an inflection point for the RBA. And what do I mean by that? Well, firstly, if we think about fixed interest rates, if those yield curves are going up and that bank swap rate is going to get higher, then we’re going to see fixed rates for consumers starting to move higher. And they already have starting to move higher, so the window for fixing mortgages has been now. But I wouldn’t be too panicked about the variable rate. And this is again, just simply my opinion, but I wouldn’t be to panicked about that. Because my thesis of this conversation now comes into this idea of, what is the RBA going to do about tackling inflation and what are they going to do about their big agenda here, which is given that money is now cheap, they had an agenda to grow real wages, and this is their best opportunity to be able to grow those real wages, even on the back of the challenges that they’ve had now with inflation starting to show up in their numbers.

So let’s look at the inflation data first, and then I’ll come back in terms of how I think they’re going to counter these inflation numbers. So we saw inflation numbers released in the September quarter show that Australia isn’t immune to this growing inflation [inaudible 00:19:48] that is impacting economies around the world. The headline measure the CPI rose by 0.8 of 1% in the September quarter in line with consensus expectations to be 3% higher over the year. Now trimmed mean inflation, which is the measure that the RBA prefers to use, also rose 0.7 of 1% in the September quarter to a reading of 2.1% higher over the year. Now this was higher than consensus, which most people had 0.5 of a rise over that period. Now herein lies the challenge. The RBA wanted to have that trim mean inflation band between two and 3%, and it hasn’t been this high since 2015. Now the problem that they have with that is they were forecasting that they wouldn’t reach greater than 2% and to be within two to 3% until 2023.

Now we’ve also seen in the RBAs dialogue, and that is about consistently longer term in that bandwidth. This could be a temporary measure and we could see as the supply chain issues start to settle down that that inflation also starts to settle down. And this is what I’m referring to as the ace in their sleeve, and I’ll get to that. So we’re coming into the challenge that we’ve got now is what is causing this inflation. So let’s challenge or address that. The first thing is the housing boom is no doubt. We’re seeing all costs of materials, shortage of materials, that’s increasing input costs, fuel costs are going up as basically all prices and petrol prices continue to go up. As we see strong demand as as most world economies are coming out of their slow down through the pandemic. And we’re seeing these massive supply change disruptions that I’ve been mentioning earlier, which is contributing to that inflationary pressure.

In addition of that, we’re also seeing a situation where the numbers look a little bit worse than they actually are, and this is because of the base effect. And what I mean by that is when you look at the 2020 data, the September quarter data versus the 2021, there was a lower reading on inflation because the pandemic was playing a role there. So you’ve also got to factor that in into your calculations in terms of, is this a trend or is this just a one off event and will inflation come back to be under that 2% reading until such time as the broader economy, and there’s justification for that? So most economists still think that inflation will settle down as supply chain issues are addressed into 2022. And that’s obviously the messaging you’re hearing from the central bankers.

Now the ace up the sleeve is this story that I’m presenting in terms of my observation. And that is this, that we do know that for the last two decades we have seen the RBA being very challenged about lifting real wages and getting those numbers higher. Now, this is effectively a once in a generation time where they can use the stimulus and the incentives and the printing money and all of the work they’ve done in regards to building momentum for a strong economy on the back of record high savings and on the back of low immigration, where they have the best opportunity in decades to lift real wages across the middle and the lower middle class areas. So are they going to go after that? That is the big question. Well, I think they will go after that. And I think that there’s a really good reason why they should be going after that in this moment in time. And that is because we already know that there is a huge challenge around labor shortage.

We also, so once the economy opens up that labor shortage will continue to put pressure on higher wages. In addition to that, we’re also seeing that immigration has been curtailed. So we don’t have this flood of immigration coming in to also provide that human capital that businesses are needing. So we absolutely get a sense that we will see unemployment dip even further lower as we hopefully stay open and we stay on top of the health issues and we control the pandemic through vaccinations. And if that is the case, then this is the best time ever again for the RBA to be able to do that.

Now, of course, when you do lift real wages and when you have all of these demand pressures and cost pressures in terms of the input costs as you build your materials and your services and your products, that is naturally inflationary in itself. So the worry there is that we get some type of hyperinflation and the whole thing sort of crumbles in on itself. And that’s going to force the hand on the RBA to lift the interest rates, the cash rate as well. And that will then slow down that demand and bring inflation under control. But I’m hoping that they continue to tow their hard line until they start to see that wage growth coming through.

And even though it is inflationary the ace that they have up their sleeve and all the central bankers have up their sleeve is that they know one thing, the reason why they couldn’t get real wages growth over the past two decades has simply been around technology advancement. So technology advancement through things like automation, robotics has seen vast improvements in productivity and also production materials and the advanced problem solving that technology allows us to do without using those human capital inputs.

Now, the banks are going to realize that businesses will turn to technology once again to solve those problems, to reduce their business costs. And that will ultimately be good for inflation, that will bring inflation back in check over time. Now, depending on how much time that’s going to take, well, that is the $64 million question. The question is, will inflation get out of hand too quickly versus when they start to move the cash rate higher? And that is the conundrum that they’ve got. Because the signaling that they need to continue to do to the market is, we don’t want to move the cash rate, because we don’t want to stop business confidence. We don’t want to stop business investment. We don’t want to stop that job story. We don’t want to stop that immigration story of new arrivals coming in for the jobs, the pent up demand of jobs that are going to be here.

And that is a good news story for the broader economic benefit of the country as well. So if they get their timing right, which I believe they will, and they hold their line as long as they can and as low in terms of cost of finance, that is going to be a huge benefit and will set the economy up for a very, very prosperous time, as long as they can keep the inflation genie in the bottle. So, that is the big new story that we’re seeing here. And that’s really the challenge of the reserve bank over the next 12 to 24 months in terms of how that plays out. So it’s a massive agenda. This is a once in a generation time where they can really move real wages. And I think they want to, hopefully they’ll hold their line on that position. And then we’ll see those supply constraints and the supply change issues start to settle down as the world opens up. And inflation will start to reduce, which is a great news story.

Real wages, low inflation means ultimately that our money goes further. And that’s exactly what we want for every household in this country. Right so that’s my ace up their sleeve theory. In terms of the unemployment story, we did see labor force numbers for September paint a mixed picture. Naturally September were in big lockdowns. So there was a tentative sign of stabilization in the labor market in New South Wales, while Victoria obviously prolonged lockdown meant that we did see a big hit to jobs in Victoria. Across the country unemployment declined by 138,000, driven primarily by 122,800 jobs lost in Victoria. The unemployment rate edged up only 0.1 of 1% to a reading of 4.6%.

And again, we don’t really look at that number. We look at the participation rates and the hours worked, so let’s have a look at those, Petition patient rates sitting at 64.5%, which is the lowest reading since June of 2020. And that’s why the unemployment rate still has a four in front of it because people aren’t looking for work. They will hopefully start looking for work now that we’re coming out of the out of those lockdowns. But also, there are definitely some really positive signs in the unemployment data that came through. And the first one is in terms of the hours worked, which again is a better read of economic output at the moment, increased by 0.9 of 1% in September led by Queensland and New South Wales. Decline in jobs were also entire driven by part-time employment, which fell by 164,700. So the massive story here is full-time employment actually rose in September by 26,700 jobs.

The underemployment rate, which captures people who are employed, but want more work hours edged down by 0.1 of 1% to a reading of 9.2, while the under utilization rate edged up marginally at 13.9, following a sharp increase in August. So that’s basically still saying, we’ve got labor capacity there. We need to start using that. But again, I suspect once the economy opens and all of those people start taking up employment, we’re going to see the unemployment rate for quite considerably, so long as we remain open. In terms of the job ads we did see on Monday’s reading, yesterday’s reading, job advertisements in Australia rose by 6.2% month on month in October. And that’s shifting from a 2.8% fall in September. And it was the first growth in job ads in four months. So again, opening up the economies, we’re now starting to see those job ads start to materialize.

So we expect employment will recover and the reopening and economy will provide this relief for businesses. The unemployment rate is definitely going to start to fall below 4% by the end of 2022 is pretty much most people’s predictions. So that is a really positive story. In terms of consumer confidence, the weekly ANZ-Roy Morgan’s confidence index for consumers is reading about 106, so there’s more optimism than pessimism. Right now that’s also good news. In terms of business confidence there’s a really strong story here. Business confidence lept higher in September alongside progress in the vaccine rollouts and the release of the reopening roadmaps that we’ve seen. From governments, business confidence rose 19 points to a four month high to be plus 13, putting it back in very strong, positive territory and well above its long-term average. It’s the biggest monthly gain since mid-2020. The business conditions, however, fell 10 points to be only plus five alongside the lengthy lockdowns in New South Wales, Victoria and the ACD.

The conditions index is now just below its long-term average. We expect that to pop again. Business confidence is an encouraging sign, that’s what I was mentioning there in terms of around the confidence of willingness to hire and obviously willingness to invest, which is the two critical elements for economic prosperity. Retail spending, retail spending data for September, remembering that we’re in lockdowns, New South Wales, Victoria reopening, all of that sort of stuff, our retail sales surprise. And with the rise of 1.3% in a month to be 6.9% above the pre-COVID levels. The monthly index follows three consecutive months of falls as the Delta related lockdowns impacted sales across the country. Queensland sales increased strongly 5.2% to their highest levels, boosted by reopening of short lockdowns. In prior months sales also bounced back in new south Wales to 0.3% while the state was in lockdown.

Sales continued to fall in Victoria negative 2.1 and the ACT negative 12 as both remained in lockdown during September. Sales bounce back in most non-food categories in line with easing of restrictions. Sales, excluding food, rose by 3.6% in the month, back to the pre-pandemic levels. And post the reopening sales were expected to continue to bounce back as those restrictions get eased. Housing finance data that was released yesterday for the September 2021 seasonally adjusted. We did see total housing lending fall 1.4%, though the overall lending levels remain at very, very high rates, owner occupies housing fell 2.7% for the fourth consecutive of monthly fall as first time buyers basically have already got their funds and doing what they’re doing in terms of building their new houses. And the investor housing lending rose by 1.4%, continue its unbeaten period since October of last year, as the investors start to move back into the market.

We also saw in October the news that APRA introduce a serviceability buffer increase, moving the ratio from 2.5 percentage points to three percentage points. This effectively means it reduces the borrowing power by around 5%. So it is definitely a bit of a soft touch when it comes to impacting on the level of demand for housing. APRA has signaled that they do have potentially further work to do if required. And so we look forward to seeing the sort of tools that they’re proposing to use, because it’s a very delicate balance. You don’t want to basically stop housing and construction, because it will impact the broader economy. So you really want to basically try and get those levers right, which won’t do too much damage to the broader economy.

Property prices, again a very strong story here. The core logic data released yesterday shows that prices rose 1.49% in October around pretty much the 1.5% that we saw in August and September. Although it’s slowly starting to ease back from the March peak of this year, where we did see a reading of 2.8% for the month. Nationally home values are now 21.6% higher to the year of October with half of the capital city’s recording annual growth rates in excess of 20%. Again, the pace of growth is slowing. That is a good news story for a sustainable market. The first home buyers are out, general affordability is starting to bite in some marketplaces. Government incentives have been pulled back, such as home builder and some stamp duty incentives for first home buyers. And finally, obviously the modest tweak by APRA will also be playing on the psychology of the buyer as well.

What I take from that is this, what we will be seeing is the rising tide that’s lifting all ships at the moment will start to now move into markets within market story. And we’re still seeing some very strong demand indicators in certain property markets around the country. And so your job as an investor or a buyer is to potentially try to work out those demand and supply indicators, because there will still be some strong growth in terms of some of those markets around the country.

Taking a look at the broader markets, we’ll do a quick around the grounds. Sydney growth of 1.5% for overall dwelling prices for the month. Melbourne, just under 1%. Brisbane very strong at 2.45. Adelaide at 2%, very strong. Perth a slight decline of negative 1.1, Hobart very strong at 2%. Darwin 0.42. Canberra 1.94. So combined capital cities have a reading of 1.38, combined regional centers 1.87. Nationally there’s that reading of 1.49, just under 1.5. So we will start to see that story play out. Now, I also said at the start of my update, there was a story around new listings and the supply side. So I wanted to talk to that supply side story because it’s important, and that’s my theme for the property segment of this update.

So we did see nationally, CoreLogic counted a 47,040 newly advertised properties entering the market over the four weeks ending the 24th of October. Now that’s up 22.7 on last year and 5.2% above the five year average. Now, new listings are now 47% higher than their recent lows of four weeks ending September five. And you could almost put that in the Victorian camp in terms of basically their whole market being shut down and New South Wales or Sydney, even though you could transact, very difficult to get out and see those properties and transact as well. But what I said in terms of the intro of this story, there’s more to this. There’s more to these numbers. So, in terms of the total listings, we now have 141,786 listings. And that is still 20.8% below the listing numbers of last year and on a five year measure it’s 26% lower than the five year average. So whilst it’s great to see these new properties coming on board, it is also meaning that we still have historically low levels.

So what’s my reading on that? Stock levels, whilst improving, are still not at the levels that we are going to allow the market to come back to equilibrium anytime soon. This means generally speaking that prices are going to continue to rise through 2022, especially on the back of improving economic conditions. Hopefully we see that wages growth coming through. And finally, the immigration story as we start to open up, which we’ll then see obviously vacancy rates, rental demand, just general accommodation demand are starting to be tighter and tighter. And so it’s for this reason that I eagerly await the paper that APRA is going to release around what other tools or what other thinking they have around what to do with the property market in terms of ensuring financial stability in the lending space, because property is making up a big aspect of the lending that’s going on at the moment.

So there are going to be some interesting ideas I suspect in that paper, but it’s going to be very, very delicate in terms of what they need to do. So if they’re seeing property prices are starting to come down, that’s a good news story for them. Hopefully they won’t have to do too much radical adjustment. But it also could mean that we might see some more attention being put on in terms of treatments around investments, around maybe loan book growth for investors and those types of things. To just slow down the amount of investor activity that might be coming into the market in light of this, the smaller increases that we’re seeing in terms of owner occupied demand and so forth. So that’s go going to make for some interesting reading when we see that discussion paper released some point in this month or hopefully before the end of the year.

So as I close out this month’s economic update, these are the summary of my thoughts. Wages growth is coming, and the RBA hopefully will get their wish in terms of delivering on that whilst also looking at inflation. Inflation will also be present. So we need to understand that it’s going to be around, but hopefully they can use technology as their driving force in terms of being able to curtail the inflation pressure. Also, when we start to see immigration start to roll in, so that’s going to reduce labor shortages and hopefully those supply chain issues that we’re seeing globally will start to organize themselves out.

And finally, when it comes to the property stock story, just be mindful that you’re going to have to start measuring demand and supply at that sort of market level. Because there will be seriously some unbelievable opportunities again in 2022 when it comes to the property market. The next 12 to 18 months is going to be an interesting time indeed.

So lot to cover off in November, it is always the case, it’s on the back of quarterly data that comes through for the September quarter. A reopening of the economy, so it is interesting times. So I’m hoping you hung around till the end, because there’s a lot to consider there, but it really is now in the sort of RBA’s hands in terms of how they start to think about their levers and what they’re going to do, whether they’re going to hold firm and keep the cash rate lower for longer to allow for that wages growth to start to materialize. And then confidently predict that inflation will start to ease over time. So there you go. So until next month, my final update. December will be my final economic update for the year. Knowledge is empowering, but only if you act on it.

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