Kochie’s Weekly Market Update: Consumer confidence and control on property investors

economic-update-Nov-29

Hey gang, get up to speed on this week’s financial trends with my market updates.

A lot happening this week when it comes to the future of your money.

As you all know I’m a natural optimist and I have been very positive about the economy. I still am… buuuttt, I must admit I’m a little concerned at how soft the economy is looking going into the summer holidays.

I have to stress there is absolutely no sign of an economic recession. But things are looking a touch slow and I reckon the Federal Government needs to stop being so bloody-minded about protecting the Budget Surplus. A deficit isn’t bad as long as the money is being used to boost the economy rather than being wasted.

These are the 3 things which have concerned me this week;

1) Consumers Remain Gloomy

The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.8 per cent to 106.8 points. It was the biggest weekly fall in two months. Sentiment is below both the average of 114.3 points held since 2014 and the longer term average of 113.1 points held since 1990.

The figures are based around asking consumers 5 important questions about their finances.

. The estimate of family finances compared with a year ago was down from +10.9 points to +10.8 points;

. The estimate of family finances over the next year was down from +25.8 points to +20.3 points;

. Economic conditions over the next 12 months was down from -9.4 points to -10.6 points;

. Economic conditions over the next 5 years was down from +0.8 points to -3.8 points;

. The measure of whether it was a good time to buy a major household item was down from +21.1 points to +17.1 points;

. The measure of inflation expectations was steady at 3.8 per cent.

2) Construction Work Is Slowing…and that’s where lots of jobs are

. Construction work done fell by 0.4 per cent in the September quarter… the 5th straight decline. The value of construction work done is down by 7per cent on a year ago.

. Residential building fell by 3.1 per cent in the September quarter… the 5th straight decline. Work done is down 10.6 per cent over the year… the biggest annual fall in 18 years. 

3) The Reserve Bank Governor Reluctant To Go “Unconventional”

Reserve Bank Governor, Philip Lowe delivered a major speech during the week where he said;

. He was reluctant to cut official interest rates to negative… like some countries have done… to stimulate the economy. But did say they could cut rates from the current 0.75 per cent to as low as 0.25 per cent.

. If the RBA was to stimulate the economy they would look at buying Government Bonds.

. Low inflation and low wage growth is now the norm and we better get used to it.

Will Regulators Reintroduce Control On Property Investors

According to RiskWise Property Research group, Sydney and Melbourne were highly likely to be the top performing markets in Australia next year, well ahead of any others.

And it could spark the reintroduction of macroprudential measures by APRA if ‘speculation’ by investors rises and increases the risk to the financial stability.

“New peaks are expected in Sydney and Melbourne with additional peaks reached thereafter more frequently until the market reaches a new tipping point,” according to RiskWise.

“This is the point where consumer confidence in relation to house price materially decreases, houses are severely unaffordable for owner-occupiers and investors’ out-of-pocket expenses will mean they are beyond their tolerance point especially with low rental returns.

“Obviously the key question is when the new tipping point will be. We’re not expecting one in 2020 but without regulatory intervention there will be one.”

Since moving through a trough in May, the value of new owner-occupier home loan commitments has increased by 17.3 per cent through to the end of September and the value of investor loan commitments is up 8.4 per cent.

Population growth continues to be strong in Sydney at 1.8 per cent, and unemployment sits at 4.3 per cent. In Melbourne population growth is 2.5 per cent (the highest in the country), and unemployment 4.8 per cent.

The latest ABS data on new housing credit also shows a sharp rise in the value of home loan commitments, driven by a surge in owner-occupier lending as well as a smaller rise in investment lending. 

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