Since January last year I’ve hammered the same point: the stage was set for an Aussie property rebound.
We’re starting to see that really show up in the headlines now.
On Monday we discovered that the auction clearance rate in Sydney and Melbourne was above 75% for the last week.
That’s even with the number of property listings doubling.
In one sense you can say that was no surprise.
Here’s why. November’s credit figures showed a big rise in credit going to owner occupier borrowers.
December’s credit figures came out this week and dollar figure was even bigger again.
It’s back to spewing out at levels not seen for three years.
Macquarie Group [ASX:MQG] is cashing in as best it can on this dynamic.
It said yesterday it grew its mortgage book 11% over the quarter.
The rest of the group results weren’t quite so flash.
The latest results from CBA landed this morning. It would be premature for me to make any sweeping statements yet.
More mortgage debt to pump property market higher
I can see that new lending for home loans for the half year was $53 billion to home buyers and $19 billion in business lending.
It’s a predictable but sad bias in the Australian banking system.
We get higher house prices but less productive investment to create high paying jobs in value-adding industries.
I was listening to the Ross and John breakfast radio show this morning.
They were musing about whether the average mortgage of $500,000 now is affordable.
(The Australian Bureau of Statistics says that’s the average size across the nation — somewhat distorted no doubt by Sydney and Melbourne.)
John Burns wondered about what Australia makes anymore now that the car industry is gutted.
He put his finger on what’s left: shipping natural resources out of the place.
That’s a bit simplistic, but the basic tenet isn’t far off the mark. Australia’s top exports are all commodities.
That market can run for a long time, but won’t last forever. In the meantime, Australia is producing jobs, but a lot of them bring modest wages or are part time.
That’s not to say the uber bears on Aussie property are right. Mortgages and house prices are high.
But two working adults often service these loans, and mortgage rates are at historic lows.
This leaves the share market in an interesting place.
The future: murky as always
We know the next release of general data will contain a hit from the coronavirus.
But it appears the market is already shrugging this off, too.
I stuck my neck out last week and suggested the market would start rising again after the spook. It’s moved up since, if in a modest way.
Last year was more straightforward in calling the market up.
The unexpected rally in iron ore had to show up in improved earnings for the big miners like BHP, Rio and Fortescue. And rates went down at the same time.
We don’t have such an obvious tailwind this year except continuing low interest rates. But that’s a thin reed on which to base an investment plan.
That’s why the credit figures are now so important. Rising credit is bullish for the economy overall.
But left unsaid in the data on new loans is what is happening with old loans.
The RBA’s latest statement on monetary policy makes it clear: people are devoting extra income to paying down debt.
That leaves the Australian domestic economy in low gear.
That’s not to say you can’t find winning stock ideas. JB Hi-Fi is an example of that currently (not one of mine by the way).
But most of us own a basket of stocks that represents the Aussie market.
That has a better chance of lifting strongly if the pie is growing for everyone.
You could argue the latest beating in the Aussie dollar at least gives the natural resource sector a kick.
Their income is in US dollars, so that can work for them on the currency front.
But the market’s view of China is now less positive that it was to start the year.
The coronavirus injects a high level of uncertainty to the outlook for now.
Mind you, it’s possible that the coronavirus demonstrates the resilience of China in time.
Imagine, for a moment, the coronavirus cools down. Chinese data has a modest dip for a quarter, then powers on.
We could find the market becoming more bullish on China than at the start of the year.
Take that idea with a grain of salt. It’s a scenario only.
But it pays to think of opposite scenarios to the view generally assumed to be correct.
Only time will tell here.
That’s why we do Profit Watch every day.
The world shifts every hour of every day. Today’s crisis or difficulty can be tomorrow’s opportunity.
PS: In a brand-new report titled ‘Where to Invest in Australian Real Estate in 2020’, I reveal the secret that very few real estate investors know about the REAL driver of property values. View it here.