Andrew Bell’s Market Wrap: Federal and State Budgets Are On Track To Return To Surplus

MARKET WRAP
Issue 22  |   October 11th, 2018  |  Federal and State Budgets Are On Track To Return To Surplus

I have 3 pieces of news today relevant to the real estate market. The first: – Standard and Poor’s, a global credit-rating agency, has withdrawn its threat to downgrade Australia’s AAA rating, accepting that both the Federal and State Budgets are on track to return to surplus. The decision means that Australia is one of only 10 countries with an unqualified AAA rating from the three major rating agencies, Standard and Poor’s, Moody’s and Fitch.

Most important to real estate is that Standard and Poor’s are satisfied that the softening in the real estate market remains ‘orderly’ and will not cause much damage to either consumer spending or to the banks.

The latest data out shows that mortgage arrears have moved ever so slightly off their record lows, showing that 0.6% of all mortgages are 90+ days in arrears. That is an incredibly low number. Most markets are now recording modest price softening after many years of strong growth. We are in a typical stage of a real estate cycle. Moody’s Analytics released their forecast stating that while growth is forecast to be subdued relative to previous years, the forecast is for a relatively mild downturn with national house and unit values returning to mild positive annual growth by the middle of 2019. Moody’s Analytics forecasts are based on an econometric model which uses Core Logics hedonic index data as the base to forecast from. Their upbeat assessment of dwelling values is based on rising business investment, particularly in the non-mining sector, a rise in infrastructure spending, and above trend jobs growth and ongoing low interest rates. Their forecasts are that by the end of 2019 every capital city except Hobart will return to positive annual growth in house values. Of course these predictions are in contrast to a small group of very negative people who decade after decade predict the worst possible outcomes.

There is quite a bit of attention on household debt at present, but the Reserve Bank in their most recent report said there is no crisis imminent.

Some really good news to support our balance in supply and demand is that apartment construction has fallen at its fastest pace in almost 6 years as developers are responding to this stage of the real estate cycle, as well as softer investor demand off the back of tighter credit controls. The measure of apartment-building activity in the latest Performance of Construction Index shed 3.9 points to 32.8 in August. A reading below 50 indicates contraction, which of course is what has been happening, and that should take away any concerns people have about oversupply in the apartment market as we move through 2019 and 2020. There is also some softening in house building as well and both these are vital developments in our current cycle.

Finally, new listings of resale properties coming to the market have been contracting. There is almost a catch 22 situation that develops here where when there are fewer properties on the market it gives potential buyers with houses to sell fewer opportunities to buy, and so they don’t sell their properties and this is when we tend to have this constant contracting. Again, this is a good sign for the market as there is no indication of any oversupply but rather an increasing undersupply. For those thinking of selling it is an excellent time because many people are finding a shortage of stock in the price or property categories that they are looking for. This probably explains why we are having record numbers of sales prior to auction as buyers are rushing to lock up whatever listings are close to their preferred criteria.

We will keep an eye out for all the varying reports from credible sources and keep you fully informed as we move forward.

Until next fortnight, stay safe.

Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group

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