Property Dashboard - 31 August 2022
The feature article of the week:
Below is our feature article for this week’s edition of the newsletter.
This is the article we found most interesting to read and the one we think is a “must read” for all our readers.
Key takeaways:
Jerome Powell (US Central Bank Governor) gave a speech at the 2022 Jackson Hole conference, which hosts economists, central bankers and policymakers from across the world.
Some interesting quotes from Powell:
“Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy”
“While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
“Longer-term inflation expectations appear to remain well anchored … But that is not grounds for complacency, with inflation having run well above our goal for some time.”
Our Take:
Here Powell is re-iterating that rates are going higher AND will stay higher. He is basically responding to those who think that rates will start to fall later this year and in early 2023, letting them know that this won’t be happening.
Here Powell is basically saying that he knows of the collateral damage higher rates will have (like on property prices). He is trying to explain that even if a recession happens or asset prices fall, he is willing to accept this if it means inflation is brought under control. The key message here is that the FED is more afraid of inflation getting out of control then they are a recession.
Here Powell is stressing just how committed the FED is to raising and then keeping rates high.
Here at Aus Property, we think Powell has put himself in a corner where he has to keep raising rates regardless of what the data is telling him.
The tie back to Australia comes from the AUD/USD exchange rate. If the US continue to raise rates and Australia don’t, the value of the Australian dollar will fall and domestic inflation will start to get out of control.
This basically means the RBA will need to respond to higher US rates with higher AUS rates.
We all know what this will mean for the property market.
Other Mainstream media 📰
Point of no return: crunch time as China tries to fend off property crash (The Guardian)
Housing collapse “single greatest risk” to Australia’s economy (Macrobusiness)
Oracle Homes collapse leaves hundreds in the lurch, but what is the forecast for building a home? (ABC)
New home build costs blow out to $400,000 (The Australian)
Why should you care:
This week the Australian Bureau of Statistics (ABS) released the July dwelling approvals data.
This is a forward-looking indicator that gives us an idea of how much construction activity to expect over the next 12-24 months.
Construction makes up a large part of the Australian workforce, and a slowdown in construction activity is likely to impact employment negatively.
Our takeaway:
Dwelling approvals are down ~17.2% for the month of July.
We are now back to similar levels seen in 2019.
Further falls would take us to levels not seen since 2010-2011.
Our expectation:
We think the interest rate rises are starting to flow on into the property development sector, which is pulling back new project applications.
The declines are nothing we haven't seen before, but we expect this to get worse as interest rates continue to rise. We will be watching this dataset over the coming months. The lower it goes, the more of a warning sign this will be for the domestic economy.