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Co-founder & CEO of AllenWargent property advisory & buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.
4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.
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Actual total Building Approvals dropped to 16,538 in October in original terms, well below the monthly peak of 22,969 seen last year, and down -23 per cent from the prior year comparative figure.
This was the fifth monthly fall in the last six months in seasonally adjusted terms, and the trend result has now declined for 5 consecutive months.
House approvals have held up relatively well, but a massive ongoing plunge in Perth has pulled down the national result.
Unit approvals experienced a very significant decline almost everywhere except Canberra, with huge year-on-year drops in Sydney, Melbourne, Brisbane, Adelaide, and Perth in October.
After several false starts, the decline in annual unit and apartment approvals is now certainly underway.
Urbis had already reported this week that hundreds of apartment approvals in Brisbane will be shelved until the next cycle or canned completely, and this decline in approvals mirrors the inevitable forthcoming fall in apartment construction.
Totting it all up, the thin green line shows the size of the drop in unit and apartment approvals, which came in at a walloping seasonally adjusted -42.6 per cent lower than a year ago for the month of October.
In October itself there was a -24.8 per cent seasonally adjusted decline in unit approvals, following on from a similarly large -18.1 per cent decline in September.
In annual terms attached dwelling approvals have declined from a record high peak of 122,100 to 115,300, with plenty more to come here.
High rise giveth...& taketh away
The number of flats of four or more storeys approved has now declined by 10 per cent from the peak.
In fact, this sector alone has almost entirely accounted for the boom in dwelling approvals, and now, correspondingly, the numbers are set to go into freefall.
Although there is still a high volume of work in the pipeline, it's clear to see that apartment construction will need to fall, and fairly soon.
Unfortunately last month's record spike in non-residential approvals - presumably driven by Packer's latest Barangaroo adventures - was not replicated this month, with the value of non-residential approvals all but halving month-on-month, from $5.4 billion to $2.8 billion.
In rolling quarterly terms, last month's epic Packer-inspired spike means that the total value of approvals over the last quarter is at a record high.
Already, however, there are reports of apartment projects being delayed, so it seems unlikely that the residential sector can contribute much more to growth in the economy.
Overall, although it could take a little while, it seems that it won't be too long before residential construction will switch from being a driving force for the economy to becoming a headwind.
The second estimate of US GDP for the third was revised up to an annual rate of +3.2 per cent, well up from the +1.4 per cent result in the second quarter, reported the US Bureau of Economic Analysis.
Meanwhile consumer confidence hit its highest level in 9 years, although it's unclear how this separate survey will respond to the election result going forward.
Note that the Yanks report GDP rather differently to Aussies, reporting an annualised growth rate based on the quarterly result.
Over the first three quarters of 2016, the average quarterly annualised growth rate was +1.8 per cent, which is a bit lower than the equivalent of +1.9 per cent seen across the four quarters of last year.
It looks as though 2016 will be end up being somewhere similar to the prior year in terms of real GDP growth.
The annualised result for the third quarter was the best in the two years since 2014, buoyed by consumer spending, an an uptick in certain types of exports, while business investment and home building were revised up.
The revised result beat expectations and suggests that reasonable momentum in the economy held up through the third quarter.
With the 'labor' market approaching full employment and inflation and earnings rising, it's expected that rates will be hiked.
In turn the Aussie dollar is now buying less than 75 US cents.
Home prices recover, at last
Elsewhere, it was reported that the famed US Case-Shiller index now records house prices as having finally moved above their 2006 peak.
It's been a heck of a long time coming after the crash!
Case-Shiller's index enjoyed a spectacularly bubbly run over the two decades running up to 2006, with prices all but quadrupling over that time, but it's been a very different story since the sub-prime crisis erupted.
Nationally prices moved +5.5 per cent higher over the year to September 2016 to be up by +37.9 per cent from their trough.
And nationally prices at long last eclipsed the previous peak seen in July 2006, albeit very marginally.
The 20 City Composite index was up by a slightly less impressive +5.1 per cent year-on-year, unchanged from August, while the 10 City Composite Index was up by just +4.3 per cent.
As you can see from the chart above, in aggregate the top cities have struggled to recover to their respective pre-crisis peaks.
In fact, only 7 of the 20 cities have reached new highs, but the cities which experienced the greatest booms (Vegas, Miami, Tampa, Phoenix) remain well off the pace.
The better performing cities over the year to September included Seattle (+11 per cent), Denver (+8.7 per cent), and Portland (+10.9 per cent).
AS such, the recovery in US house prices has been very mixed, with some cities faring much better than others.
There are only ten US cities with a population of above 1 million, but dozens of cities with a population of around half a million or more, contrasting with Australia's focus on a handful of (more or less) monocentric cities.
Of course, new borrowers in the US have been enjoying record low rates, a dynamic which has been shifting rapidly in November as markets reprice expectations.
APRA released its quarterly property exposure figures today for the period ended 30 September 2016.
If there has been a slowdown in lending, sheesh, it's hard to make out from the chart.
Total domestic residential property exposures increased by +7.9 per cent from a year ago to a new high of $1.46 trillion.
Exposures are now some +130 per cent higher than they were in 2008.
The growth in exposure to investors has been stopped in its tracks, however, with new loans to investors down 14 per cent from a year ago.
However, owner-occupier loans stepped in to breach the gap, with exposures rising by +12.9 per cent over the year to September, and the value of new loans to homebuyers rising by some +14 per cent.
In short, lenders have switched focus from investors to homebuyers.
The regulator has taken a number of measures to limit riskier lending.
For example, loans of 90 per cent or higher loan-to-value ratio (LVR) are now just 8.5 per cent of the market, down from 22 per cent in 2009.
Thus, most borrowers are using substantial deposits, whether borrowed from parents or from existing loans (some may even be saving deposits, who knows?!).
Low-doc loans and loans approved outside serviceability are also now a small segment of lending.
There has been a sharp pullback in the number and value of interest only loans over the past year, with this sector of the market dropping by 15 per cent from a year ago.
Buried in the small print there were some upward revisions to previously reported interest only loans reported by one institution.
While exposures to investors has decreased, there does not seem to be much clarity surrounding the categorisation of outstanding loans (as evidenced by previous revisions), and as such in aggregate there may be more investors in the market than implied.
The average loan size over the year increased from $244,000 to $255,000.
If there's one thing that almost everyone seemed sure about, it was that a Trump election victory would leave to a surge in gold prices.
In fact, back in July, it was even said that gold prices could be sparked into a huge boom if Trump was successful, perhaps up to US$1850/oz and beyond.
Since the surprise election result - which a lot of people now appear to be arguing wasn't that big a surprise - the gold price has shunned previously strong technicals, and instead retraced to well below $1200, before staging a recent fightback.
The price closed at a 10-month nadir of $1180 a few days ago following a batch of stronger economic data (including positive spending by US companies and decent labour reports), well down from a pre-election high of $1337.
Bullish gold price predictions had assumed volatility, unpredictability, and ultimately weaker economic growth over time due to Trump's parochial nature.
It's still very early days, of course, with the election result only a matter of weeks old, and disruption to trade and the economy remains in play.
But why have markets reacted this way initially?
In part, perhaps, because markets are now assuming that the Federal Reserve will still hike in December (100 per cent priced in) and again in 2017.
And market participants are also assuming that the Trump effect will include an infrastructure spending splurge plus rising inflation, with the US dollar surging to a 14-year high.
I've read various arguments about where the technical support points are for gold, but they mostly sounded like BS.
The implicit assumption is that higher inflation and rates are a negative for gold, which does not pay a yield.
That's a valid point, but it's also worth noting that US stock market valuations are at perilously stretched levels too.
With the price way below its 2011 high of above $1900 gold will be an interesting one to watch if political events in Europe tee off, or if the new year in the US gets off to an unpredictable start once Trump hits his straps.
A relatively quiet start to the week, but there's a blitz of Australian news due out across the next four days, so stay tuned.
Sydney recorded a preliminary auction clearance rate of 82 per cent (CoreLogic) on Super Saturday, with Domain reporting a figure of 79 percent.
The median auction price, admittedly a crude market measure if ever there was one, came in at $1,270,000.
Smoothing the median auction prices of a 4pMA basis shows that over the past two months median auction prices have been tracking about 10 per cent or so higher than a year ago.
However, auctions only represent a part of the market, and in so,e secondary areas auctions have become less common as sentiment has tailed off, resulting in considerably lower volumes overall than a year ago.
This is consistent with moderate year-on-year median price growth for Sydney as a whole, but with a number of prime location areas still firing, in particular on the lower north shore, northern beaches, and in parts of the eastern suburbs.
An oversized 2 bedroom, 1 bathroom unit on Crows Nest Road close to Waverton station sold for a thunderous $1.35 million at auction on Saturday.
At the beginning of this cycle in 2012 roughly equivalent units sold for just under $800,000.
The Housing Industry Association (HIA) sees housing starts dropping very significantly over the next three years, driven downwards predominantly by reduced multi-unit construction, forecasting a sharp "slowdown in activity".
Over the year to September 2016 building approvals totalled some ~238,000 as I looked at in more detail here, so although on balance likely, these results are not yet locked in.
Although the HIA forecasts are usually taken to be a given by market commentary, it is worth noting that as an industry body the HIA is unlikely to make overtly bullish forecasts for housing starts, and indeed it has consistently underestimated actual commencements.
For example, the HIA believed that housing construction had "reached the summit" in 2015, with its forecasts undershooting what actually happened this year by nearly 15 per cent.
Rewind to the respective 2014 forecasts and the HIA had predicted a downturn playing out by 2016, lamenting that policy failures would fail to see an increase in new home building in 2015 and 2016: "It is unfortunate that policy makers have failed to grasp the reform initiative
required to compliment record low borrowing costs and send new home building levels higher in
2015 and 2016".
The forecasts released in that year undershot by an even wider margin, at 16 per cent.
Go back to 2013 outlook, and although the HIA saw a "brighter year ahead" the 3-year forecasts were so wide of the mark that even a dart board would have been closer.
Step back further still to August 2012, and the HIA saw recessionary conditions facing new housing, just before the greatest construction boom on record: "Combine low confidence with very tight credit conditions and excessive taxation, and you have
the unpalatable recipe for the recessionary conditions facing new housing,” added Harley Dale.
“Leading indicators suggest this situation will persist well into 2012/13.”
Of course, forecasting almost anything three years out is virtually impossible, and as we don't know the counter-factual the HIA might justifiably argue that more upbeat projections might have resulted in complacency. The wrap The HIA sees housing starts declining from an unsustainably high ~230,000 over the 2016 financial year to ~172,000 by 2018/19.
The building approvals figures for October 2016 will be released on Wednesday.
The September figures hinted that trend approvals may now at last be beyond their peak.
This week the government tweaked the rules pertaining to foreign buyers of apartments, allowing non-residents to purchase new apartments that have failed to settle.
While this may be a technicality, it does demonstrate that Treasury has become well aware of settlement default risk, and as such is prepared to put in place combative measures.
According to Hometrack city level UK house price growth continued to track at +8.4 per cent in the year to October 2016.
The 20 cities index is thus outperforming Britain as a whole.
In London house prices were up by +9.1 per cent over the year to October to be a thunderous +86 per cent up from their post-financial crisis nadir.
London is now a two-speed market with premium properties failing to sell in the face of punitive stamp duties and prices in prime central London accordingly now flat at best.
However, outer London and properties in the lower price percentiles have seemingly remained fairly robust to date.
In adjacent Cambridge - the biotech capital and probably my favourite UK city - prices are up by 84 per cent.
I spent some time in Cambridge over the summer and the place was positively buzzing, so I wasn't at all surprised to see the famous old University city topping Grant Thornton's Vibrant Economy Index for 2016 as the best place to live and work.
Oxford was listed in second spot, and house price growth since the financial crisis has mirrored these rankings.
Price growth has clearly radiated out from the capital to Oxford and Cambridge, but with the honourable exception of Bristol few cities have seen any meaningful real price growth over the past decade, despite recovering from their lows.
The worst performing city in the index over the past year was Aberdeen, where house prices followed oil prices down to drop by -8.1 per cent.
Hometrack's full report can be found and downloaded here.
Australia's key export commodity iron ore had already experienced a studious rebound, up from below US$40/t at the beginning of the year to an average price of US$58/t in October (or about $A76/t in Aussie dollar terms).
Well, stop press, because the spot price and commodity futures action through the month of November has been nothing short of bananas.
The spot price closed on Friday at US$79.61/t for a colossal year-to-date gain of 82.7 per cent.
In Aussie dollar terms the spot price sits above A$107/t, which is actually higher than the monthly average price through the bubblicious past decade.
And futures are pointing to yet further gains on Monday.
I don't know anyone who believes that such prices can last, but on top of a coking coal price which all but quadrupled to blaze through $300 per metric ton on Chinese demand an supply restrictions, this will deliver billions to the budget for as long as it's sustained.
And with wages growth remaining weak, the budget needs all the help it can get if Australia's AAA rating is to be maintained as it has been since 2003.
The budget has an in-built or automatic repair mechanism over time - bracket creep - which happens as wages rise and more income earners are pushed into higher tax brackets.
This is still happening, of course, but more slowly than forecast.
Details as always from Scutty here over at Business Insider.
The Bank for International Settlements released its latest updated residential property price statistics this week.
On the "long series", being nominal prices tracking back to 1970, Australia's index continued to move moderately higher, up by 4 per cent over the year to June 2016.
This was well behind countries such as New Zealand which blazed another 14 per cent northwards, driven by an Auckland frenzy.
Of course, the long series figures are nominal and are not seasonally adjusted, but present a few mildly interesting insights into the twin dynamics of inflation and compound growth.
In Australia for example, home prices are more than 41 times higher than they were in 1970.
Australia did not introduce inflation targeting until mid-1993. Today Australia has a stated inflation target of 2 to 3 per cent, which is high in global terms.
Below I've thrown in a few of our rugby playing friends into the same chart.
Seen in this context, the Wallabies have seen their property prices increase far ahead of les Bleus since the financial crisis.
In fact, French property prices are 'only' 16 times higher than they were in 1970, although notably Paris is a very expensive city these days.
In Great Britain prices have stormed 52 times higher over the same time period, and in New Zealand - where Auckland prices in particular have gone into orbit over the last decade - prices have increased by an astonishing 61 times since the beginning of the data series.
Britain ran high rates of inflation too in the 1970s, while New Zealand was the pioneer of inflation targeting in adopting a formal target as early as 1990.
As in New Zealand, indexes have been skewed higher in recent years by strong capital city price growth in Great Britain (London) and in Australia (Sydney, Melbourne).
Strictly speaking the indexes aren't quite comparable since data coverage is slightly different in each country.
Mostly what these figures really tell us is the importance of picking inflation-busting assets.
The BIS methodology and data coverage is detailed here.
With South Africa running high rates of inflation over a long period of time, Springbok property prices are a monstrous 99 times higher than in 1970 in nominal terms.
"99", of course, is a number with special meaning for international rugby fans, particularly of Britain and South Africa!
Year-on-year employment growth has slunk back to +0.8 per cent, inflation is tracking well under the target range, and GDP looks likely to print flat-to-negative in Q3 2016.
And yet, in spite of all of this the cash rate futures yield curve is barely inverted.
That is, markets are buying the Trump effect and rising commodity prices meme, and now believe that the monetary easing cycle is over.
With the end of the mining cliff now in sight and the Reserve Bank reluctant to cut interest rates further, markets are betting that the combination of a lower dollar and looser fiscal policy will see us muddle through.
On the plus side, Sydney's unemployment rate continued its decline to just 4.58 per cent, while the unemployment rate in Greater Brisbane dropped to only 4.81 per cent in October.
In the context of the Reserve Bank's belief that 'full employment' is represented about an unemployment rate of about 5 per cent these are blindingly good numbers, but in Brisbane's case in particular they mask a good deal of underemployment and under-utilisation.
The unemployment rate numbers are a little volatile month to month, so below I have smoothed them on a 12mMA basis.
Generally the unemployment rate story has been one of a steady improvement.
Around the traps
Between the two of them Greater Sydney and Melbourne have added +115,700 jobs over the past year, which is comfortably greater than the national total of only +100,100.
For some reason employment in regional New South Wales has declined by -41,000 over the past six months (this is rather surprising, as generally speaking the state has appeared to be home to the strongest regional economies).
After years of stagnation, regional Victorian employment has now eked out a fresh high of above 700,000, in part due to solid year-on-year employment growth in Geelong.
But if Melbourne and Sydney have added nearly +116,000 jobs over the past year, how can it be that national employment growth has slowed to around only +100,000?
The annual weakness is accounted for by Perth (-21,000), and especially regional Queensland (-40,000), where employment growth has been absolutely crunched.
On the one hand, this may not be such a surprise, since we've known for a long time now that many of Queensland's resources economies are desperately weak.
On the other hand, 13 per cent of Queensland's labour force sample was rotated out this month, and the ABS noted a greater than usual movement in the characteristics between samples.
In other words, we should be a little bit cautious with the Queensland numbers until more information becomes available.
The recent weakness in regional Queensland employment is so pronounced that total employment is -26,800 lower than it was even half a decade ago in October 2011.
A very significant slowdown in employment growth, which will be mirrored by a weak GDP result for the third quarter.
Employment growth has been skewed for quite some time towards the largest capital cities.
Indeed, if you tot up all of the net employment growth over the past five years from Greater Hobart plus the regional areas of Tasmania, Queensland, South Australia, Western Australia, and the Northern Territory, the figure comes to a negative result of -13,700.
Over the same five years, Sydney and Melbourne have added +442,100 jobs on a net basis.
So much for the 'parasite' economies of MEL-SYD - what a daft argument - not only are these two cities alone accounting for most of Australia's services exports and attracting the bulk of foreign investment, they are now creating (more than) all of the jobs too, and as such the future tax take.
Melbourne in particular has been the king of employment and population growth over the past year.
Listings lowest on record says McGrath Huh, so much for the predicted 'disorderly rush for the exits'.
4.5 years of rising property prices later listing volumes and turnover rates have sunk to their lowest levels on record, as a percentage of total property stock.
Having executed its IPO, McGrath (ASX:MEA) provided the below chart as part of its Presentation to the 2016 Annual General Meeting.
Source: ASX: MEA
McGrath's diagnosis left little doubt as to the reason for this, being excessively high stamp duty costs.
It's a point I've visited here often before.
Stamp duty bands were designed with far, far lower dwelling prices in mind.
By consistently refusing to raise stamp duty and land transfer brackets authorities are effectively loading more and more up front tax on to property purchases (in addition to other taxes, such as rates and land taxes).
By effectively raising the stamp duty from a bit over 1 per cent of the purchase price three decades ago to around 4 per cent, the tax has gone from being a consequence or by-product of the transaction to an actual barrier.
Unfortunately, the high transactional cost of moving is predictably leading to 'asset lock in' and indirectly impacting labour force mobility.
Meanwhile investors remain wedded to their buy-and-hold strategies since if they choose to sell they get hit with capital gains tax (not that this stops unthinking 'think tanks' from campaigning for higher CGT).
As for non-residents, presumably some of them must sell but I've rarely come across it, probably because they purchase expensive new property and it can take years to break even on that type of stock with its inherent price premium (particularly now with the new levies on foreign buyers loaded on top of stamp duties, plus land taxes).
Asset lock in
Unsurprisingly capital city owners of houses now hold on to their houses for 10.7 years on average, way up from 6.7 years in 2005.
Owners of apartments now hold for 9 years, well up from 5.9 years in 2005.
The negative feedback look has become self-fulfilling, with so little stock available prospective capital city vendors are hesitant to list for fear of becoming locked out of rising markets.
Due to low listing volumes, McGrath implied that we can expect to see low transaction volumes in FY17.
Construction work done fell sharply in the third quarter to the extent that up to a thumping 0.7ppts could be swiped from GDP in Q3. Owch!
Engineering construction fell for a 12th consecutive quarter, down by -3.8 per cent, almost entirely driven by Western Australia, to be down by -23.2 per cent from a year ago.
Perhaps rather more surprisingly both residential (-3.1 per cent) and non-residential building work (-10.9 per cent) fell in the quarter too.
Overall, total construction work done declined by -4.9 per cent to $46.2 billion to be -11.1 per cent below a year ago. A weak result any way you look at it!
Engineering bottoms out (except WA & NT)
Contrary to the popular narrative engineering construction work is now actually rising again in New South Wales, Victoria, Tasmania, the ACT, and even in Queensland, where engineering construction essentially finished its correction all the way back in December 2015.
A key point highlighted both here and by the Reserve Bank is that Queensland is far ahead of Western Australia in terms of its economic transition, with the big declines happening between 2013 and 2015, while booming tourism and education arrivals will assist the Sunshine State's rebalancing greatly.
The reason for the national decline was all about Western Australia, where quarterly engineering work done has crashed from $12.4 billion in Q2 2015 to just $5.4 billion in Q3 2016 as mega-projects such as Gorgon and Roy Hill have transitioned towards the production phase.
The good news is that this means that the capex cliff has all but run its course, except in WA where activity has some way further to fall, and to some extent in the Northern Territory which still has one major gas project due for completion.
Sydney, Melbourne and Brisbane continue to enjoy the fruits of the building boom, although building work done declined somewhat in every sector in Q3 2016.
It's important to note that although all sectors saw a decline, this was from a very high base, and in annual terms building work done remains very high.
State versus state
New house building work followed recent trends in approvals to inch higher in New South Wales and Victoria, but was a bit weaker across a number of states, while house building is rather belatedly declining fast in Western Australia.
Building work done in respect of units and apartments declined everywhere except Queensland, though again it's important to note that the declines were modest and from record highs in the June quarter.
Looking at the chart in rolling annual terms puts s slightly different perspective on the widely reported 'decline'.
Outside WA, engineering construction is no longer in decline, although Ichthys LNG could slice another billion or so per quarter from construction work done in the Northern Territory upon its completion.
A point I have been highlighting for a long time now is that in Queensland engineering construction took most of its medicine some years ago now, and actually stopped declining in any meaningful way nearly a year ago now back in December 2015.
With the weakness in non-residential construction this quarter, nationally Q3 GDP could be an absolute stinker, with construction chiselling a big hole out of the quarterly result (although non-residential construction should follow approvals higher again in due course, especially in New South Wales once J. Packer gets cracking on his latest venture).
The residential building boom is operating at full capacity, and as such in aggregate has probably moved beyond its peak.
The Housing Industry Association (HIA) estimated that units and apartments construction will fall by 40 per cent from a record peak of 117,000 over the next three years, with housing starts having peaked this year at just under 230,000.
As ever, the HIA sees housing starts declining to just 172,200 by 2018/19.
Exports of Australian services have been growing faster than goods exports, growing by 10 per cent in 2014-15 and 9 per cent the year before that.
But which states account for the bulk of services exports?
In a nutshell, all but two thirds of services are accounted for by New South Wales (41.3 per cent) and Victoria (24.4 per cent).
Not only do the two most populous states account for most of the services exports, the growth rates are by a huge margin fastest in these two states.
Not to put too fine a point on it, Australia's economy would be toast without its two largest cities, Sydney and Melbourne.
And with the economies of Sydney and Melbourne holding the economy aloft in 2016, the figures this year will be even more skewed towards the big two.
We'd be stuffed without them, the state accounts showed as much.
As for what services exports comprise, the below pie chart reveals all, with travel for business, leisure, and education featuring very prominently (in fact, travel accounts for 89 per cent of Tasmania's services exports, for example).
Although China is the biggest consumer of Australian services exports, services trade is relatively speaking quite well spread across Hong Kong, Taiwan, New Zealand, United States, Canada, United Kingdom, Switzerland, Singapore, India, Japan, Korea, Malaysia, and a number of other Asian countries.
As such, exports are growing in a reasonably diversified and sustainable fashion, particularly into Asia.
Contrast this with goods exports, where until relatively recently just two countries have been accounting for around half of our exports.
Sydney and Melbourne - the twin heartbeats of Australian services exports.
I've spent some time in Britain this year, for personal reasons. The end of the summer was outstanding, inspiring some wonderful memories of childhood, and those long Pommie evenings of playing cricket and bunking off school to play snooker (ahh, the halcyon days!).
This week, though, we've had dreadful weather and flash-flooding, a timely reminder that not everything is always quite so great in northern England! And in turn I can look back at some of my past in the UK through a less rose-tinted lens.
School days weren't all amazing, of course, with teachers forever haranguing us to study harder, live better, and think of our futures (despite going to a Catholic Comprehensive school, I've never been particularly religious, so the transcendental message was a bit lost of me at times).
And then as we moved into the hedonistic teenage years, there were the silly things we did and said when drinking beer, the suboptimal relationship decisions, the hours after school stuck pointlessly copying out pages of the dictionary in the detention hall, my parents separating, and all the other less good stuff.
On not-so-bright days, I wonder what might have been achieved if I'd worked harder, or practised sport properly instead of treating it as a hobby filling time between visits to the pub. Regrets, I've had a few, and all that!
These are the two main ways in which we process thoughts about the past: nostalgia (past positive) or regret (past negative).1
Living in the now
If you've been reading this blog for a long time now, you may recall that I also spent some years living in East Timor, and absolutely loved my time there. Sometimes I wonder how and why I ended up back in Australia!
Being located relatively close to the equator the climate doesn't change a whole lot in Timor from day to day - depending on whether you're there in the wet or dry season the weather is either very humid or extremely humid, which tends to make each day feel rather like the next.
One of the things I adored most about living there most was learning the language. At school we were forever being instructed to learn languages by rote, how to conjugate Latin verbs in the imperfect tense (-bam, -bas, -bat, -bamis, -batis, -bant...shudder), or trying to recall how all the different cases and genders went in German (der, die, das, den, die, das, des, der, des...urgh).
Thankfully, Tetun-Dili, being a Creole, doesn't bother too much with all that. Although there are words for yesterday and tomorrow, most communication just happens in the present tense - say what you see! - which makes life a whole lot easier for a stumbling malae like me.
Timor-Leste is a safe and stable country these days. But back then the UN police were still in residence to ensure that a random event didn't spark a bit of lively behaviour, which is prone to happen in a developing country where people are focused on the present day, taking a more fatalistic view of life.
Given Timor's tumultuous history, you'd be inclined to focus more on the present than the future if you were born and raised there too.
Looking to the future
According to Professor Zimbardo of Stanford University, one of the key roles of parents and schools is to teach children how to be future- or goal-oriented, rather than focusing too much on living hedonistically like errant teenagers.
This is one of the reasons I railed against i-Phones for youngsters so much in my first book on personal finance. It wasn't so much that they cost a lot of money (although they can certainly do that), more that they promote a deleterious attitude of instant gratification.
That's the modern way, of course. Believe me, I've seen grown men office workers literally reduced to tears because an Excel document took more than 45 seconds to download (lol!).
Of course, being predominantly a dull Chartered Accountant and personal finance blogger, I am duty-bound to note that one of the essential keys to achieving financial freedom is to make sacrifices today for a more prosperous tomorrow.
Or in the good Prof. Zimbardo's language of time psychology, to live life in a goal-oriented manner, rather than operating in the present-hedonistic time zone. If pictures are more your thing, think more green, and less red.
Global debt super-cycle
Unfortunately for our struggling pollies, even as allegedly adult voters, as an electorate we frequently behave more like hedonistic teenagers rather than forward-thinking adults.
This makes it somewhat difficult to achieve longer term outcomes when the electorate needs to be placated and is so focused on living in the present-hedonistic time zone.
We're kind of OK with the notion of the Treasurer asking us to tighten our belts a bit in the future with a vague goal of getting the budget back to surplus by 2021, just as long as we don't need to sacrifice anything of value today.
Trouble is, we're just as reluctant to see debt paid down even when times are good. We can pay it off another time, in the future, when everything is 'just right'. But, of course, in the words of Ronan Keating, tomorrow never comes.
It's how the global debt super-cycle snowball began rolling more than sixty years ago.2
1- Endgame - The End of the Debt SuperCycle and How It Changes Everything(Mauldin/Tepper, Wiley, New Jersey, 2011)
We already know from the monthly Chart Packs that household debt as a percentage of household disposable income has now increased to above where it was in 2007.
However, the RBA points out that deposits have also increased markedly, to the extent that net debt has actually decreased to around 100 per cent of household income, some way below its peak.
Record buffers...in aggregate
Meanwhile aggregate mortgage buffers in offset and redraw facilities have increased to a record 17 per cent of all outstanding loans.
That's the equivalent of well over 2.5 years of scheduled repayments at current interest rates, which is frankly huge.
The RBA's research shows that mortgagees across all income brackets have forged ahead on repayments.
Overall, the net position looks healthier than the headline figures suggest, and shows that Aussies are not using their homes as ATMs as we were in previous cycles (cf. equity maate).
Unfortunately, there is a snag.
And that's that the folks with the big deposits are generally not the same people as those carrying the debt.
For that reason, although most households are managing their debt reasonably well at the moment, there is an inherent risk that if interest rates or unemployment rise, then the stability of the system may see its foundations shaken.
The figures show that homeowners should hope for interest rates to stay low for as long as possible.
If they do, the chart above shows that mortgage buffers will soon rise to the equivalent of 3 years of repayments - something that has never been seen before in Australia.
I feel like a one-man fact-checker today; not sure what's wrong with me.
A tagline that's been run with a lot in the media recently, including several times today:
"Sydney's population to grow by 2.1 million in 20 years".
When you think about the mathematics of that, though, it's highly unlikely, in my opinion.
The population growth of Greater Sydney is presently tracking at well under 100,000 per annum, so it would take one heck of an acceleration to get up anywhere even close to that kind of level.
In fact, I'd go so far to say as nearly impossible without a big shift in land management policy given that cyclical interstate migration to warmer and cheaper Queensland has been on the rise for some time now.
Going back to the source data, what I think has happened is that some journos have pulled the 2.1 million figure from the revised period 2011 to 2036, which was admittedly a big step up from previous projections (but actually relates to population growth figures from half a decade ago now).
If the middle series of projections does play out it would mean the population of Sydney growing from 4.68 million in 2016 to 6.42 million by 2036.
That's an increase of 1.74 million or ~87,000 per annum on average, which is more realistic.
I ran the middle series numbers below for you in a colourful columnar format (click to enlarge)!
I note that these figures are derived from the "main series" projections.
The "high series" data do indeed show Sydney's population exploding to 6.8 million by 2036, which would be an increase of 2.1 million.
By contrast the projected increase for regional New South Wales is relatively low, at just ~22,000 per annum over the next two decades.
In any event, any way you look at the Greater Sydney numbers they are huge, and with traffic worsening by the year it's no wonder that people place a premium on living close to the city and key transport links.
I do worry about some of those fringe housing estates, though...
The Daily Mail reported some weeks back that a Sydney house had increased in value by nearly $4 million, from $475,000 to $4.61 million since 2004, for a "900 percent return", although in truth the house hadn't actually traded in decades.
Leaving aside the bad maths, there's no doubt that this was a genuine mistake, derived from an earlier article Down Under.
But why, I ask, does the story remain live, even long after readers have spotted the error, thence to be replicated across other news outlets?
I mean, a house doubling in value over a dozen years is feasible enough, but a near-tenfold increase?
Take it down, guys!
Anyway, why would I even care about this? After all, the Daily Fail aka. the 'Hate Mail' is world-renowned for its publishing of beat-ups!
And indeed most British tabloids have been guilty of publishing untruths, from The Sun (Hillsborough), to the News of the World (all kinds of stuff)...heck, even one of the respected broadsheets once printed excerpts from Hitler's diaries, which of course proved to be a hoax.
I'm getting off track.
Well, I care to the extent that since I write reports concerning Australia's property markets for overseas clients, it becomes increasingly difficult to explain why such apparent anomalies aren't mentioned in my reports. Genuine mistakes are one thing. We all make plenty of them, and that's no biggie. More concerningly, however, today we got this from News: "A column in The Australian published on Wednesday cited a one-bedroom apartment in Melbourne recently selling for $161,000.
The asking price for that $161,000 apartment in the general market would have been in the order of $550,000, the column claimed.
“Clearly, one seller was sick of the fact that their apartment was not selling and simply put it on the market for sale to the highest bidder,” the column read."
A simple question, though: on what basis is an apartment that sold for $161,000 worth $550,000?
Because Gotti says so, in article lobbying for a relaxation of rules pertaining to Chinese investors?
What on earth am I to say when clients email to ask why leading media outlets are reporting that apartments are being sold for outrageous discounts of more than 70 per cent?
"Ah well, it's not to be taken literally, you see, someone just made it up..."?
Like a lot of CAs, during my training and exam years I worked as an auditor.
To me, unless you've got a genuine tin ear for credibility, the obvious thing to do if there is a wild outlier like this is simply to run an simple analytical review (i.e. sense-check it).
It's not as though it's a hard thing to do with a block of apartments.
Simply, find a list of similar apartments in the same block and see what they sold for.
As far as I can tell only one apartment in Melbourne 3000 sold for $161,000 in the time period referred to, and it wasn't languishing on the market not selling - it was listed for auction in October, and sold on the auction date in November.
I'll copy and paste the key information and you can decide for yourself about whether the one bedroom apartment was worth well over half a million dollars.
Actually at 17 square metres, it was really a bedsit, or a 'studio' in modern parlance (though actually about as appealing as a 14th century oubliette).
If you were being generous, I guess could call it a city crash pad.
Floor 'plan' (ha).
And what the other oubliettes in the block have sold for.
Hmm, $161,000 looks like a blinkin' good result to me!