Rental price confusion

One of the more credible arguments for falling house prices last year after the CV-19 shock was that new supply would continue to come online while population growth (or at least a sizable chunk of it) ground to a halt as overseas migration ceased amid lockdowns.

Yet, rental indicators haven’t been a disaster by any means. There have been some localised pockets of distress – in the likes of Sydney and Melbourne CBDs around international student hubs, but no broad crunch for landlords. Vacancy rates have kept generally low – particularly outside Sydney and Melbourne. The internal migration trends (tree and sea changes) have led to crunches in regional towns, pricing many locals out of the market.

Private sector data provider CoreLogic indicated rents surged by 3.2% in the March quarter (4.1% in regional markets and 2.9% in combined capitals). Rental growth has been explosive in the formerly morose Perth and Darwin markets, however it was strong across all capital cities, even Melbourne (1.0% quarterly increase) and Sydney (2.8%). So these migration reliant markets, with an increased exodus, have seen strong price and rental growth! What gives? Wage growth is still painfully weak and new residential building hasn’t fallen off a cliff just yet.

Enter official CPI data from the ABS for the March quarter. Broad inflation increased by 0.6% on the quarter to be just 1.1% higher than in March 2020. No pressure on the RBA to wind back its stimulus just yet.

However, in the case of rents, at the national level, they were – wait for it – unchanged! And compared to the March 2020 quarter, the average renter was getting a 1.4% discount if these numbers are to be believed.

A remarkable difference to the 3.2% quarterly increase by respected CoreLogic.

SQM Research shows rents at the national level trending higher now, although Sydney and Melbourne have been weak; particularly the latter. Melbourne rents have been falling this year according to SQM, which would make sense given the aforementioned population trends. As a result, there’s a bit of uncertainty as to how exactly rents are moving.

What seems reasonable to conclude is cities ex Sydney/Melbourne are seeing rental increases combined with strong price appreciation due to other factors as well (lower rates, fiscal incentives and easier lending practices).

An extremely hot property market does not seem likely to abate any time soon!

Rental price confusion

Crypto mania

2021 has been crypto’s year. Not just Bitcoin, basically the whole crypto eco-system has moved substantially higher, blowing past late 2017, early 2018 highs.

That’s no mean feat, as it was a long, dark, cold winter for crypto after that previous high. I know it as I bought BTC for the first time basically at the peak in 2017 (circa A$25k). The market lost around 80% of its value thereafter.

Bitcoin price (USD)

Staggering returns could have been made buying cryptocurrencies in the COVID-19 panic just 12 or 13 months ago. How things have changed? Many cryptos are up over 10 times over this period.

The scale of these returns has made the sharemarket look stale and boring in comparison. CBA, BHP etc are great stocks, but simply not capable of generating these kinds of returns. That begs the question, is investing in shares old news?

Most likely not. However, the key question is to what extent crypto will become mainstream. How big will the crypto market be? And the secondary question for the crypto investor, why my cryptocurrency over the countless others which exist? These are not easy questions to answer. But if the crypto ecosystem continues to grow, most cryptos will grow with it (a rising tide lifts all boats).

A diversified portfolio should have a range of asset classes, and there’s no reason why shares and crypto cannot coexist together.

Until next time.

Crypto mania

House prices surge in March

CoreLogic’s monthly indices showed Australia’s housing market was a runaway freight train in the month of March. The five-city capital index rose by an astonishing 2.8% on the month. Even 2.8% quarterly growth would be very strong (over 10% per annum) which shows just how hot the market is. Auction clearance rates are through the roof, stock is down and a sense of fear of missing out (FOMO) is in the air. I keep using that phrase, but it is accurate.

There’s a question now whether policymakers should again be leaning against house prices. Aside from any risk of systemic proportions, the cost of shelter is becoming an increasingly acute social issue; adding to a sense of hopelessness and despair among our youth, many of whom have struggled with less freedoms and the usual enjoyments of young adulthood (parties, formals, busy nightclubs, big events etc). This has led to a staggering mental health crisis which is heartbreaking ( https://7news.com.au/the-morning-show/gus-worland-talks-mental-health-during-covid-and-the-alarming-rate-of-suicide-in-australia-c-1221236) and should influence policy debate.

Sydney was the biggest winner in March up 3.7%, while Hobart was up by over 3% as well. Very healthy gains were seen across the board reflecting low interest rates and fiscal stimulus.

There has been a lot of talk about rising bond yields lately, which has checked the gains of the sharemarket. Logically, higher rates should affect property prices as well. It may take some time for mortgage rates to be adjusted, but the move higher in bond yields is substantial enough, that if sustained, could provide a handbrake on the market. Now could be a good time to fix and lock in lower rates if you think inflation risk is real.

Until next time.

House prices surge in March