Property Dashboard - 16 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:
Distress in the Chinese property market could impact other sectors reliant on a buoyant construction industry inside china, one of those being commodity markets.
One of the three areas Fitch highlighted was the steel industry.
Fitch noted that many small steel producers “have been operating at a loss for a few months and could face liquidity issues if China’s economy remains lacklustre, especially given the high leverage in the sector.”
Fitch said construction accounts for 55% of steel demand in China
Our Take:
The natural question to ask would be - Why does this matter?
This is because China is Australia's largest two-way trading partner in goods and services, accounting for nearly one-third (31 per cent) of our trade with the world. One of the industries most reliant on Chinese demand is the mining industry which is also the most significant contributor to Australian GDP making up 11.5% of our GDP.
Problems in China and especially in the Chinese construction materials supply chain will impact demand for Australian commodities and other Australian exports.
A slow down in china, almost by default, could cause a recession in Australia. This will reduce demand for our exports putting downward pressure on the AUD/USD exchange rate, which will put even more pressure on the RBA to increase the cash rate.
This may put the RBA in a position where it needs to increase rates going into recession.
Other Mainstream media 📰
Receivers put $30m of Remi Capital sites on the market (AFR)
Investors brace for years of slow housing market recovery (AFR)
Half a million homeowners will struggle to pay a 3pc rate increase (AFR)
ABS revealed grim new statistics as the RBA lifts interest rates, again (News.com.au)
When will interest rates in Australia peak? Economists weigh in (News.com.au)
Victorian house price record smashed twice in a week as Toorak mansion fetches $80m (The Age)
Why should you care:
The three charts above track credit growth across the Australian economy.
This shows the amount of new money flowing into the three categories listed above: “Owner-Occupier housing”, “Investor housing”, and “business.”
We did a deep dive on why credit matters in a previous article which you can view here: What do bond yields mean for the property market?
Our takeaway:
Owner-occupier lending seems to have peaked in 2021 and is now moving lower.
Investor lending growth seems to be topping out at near 5-year highs.
Business lending remains strong and will be the key to watch in the coming months.
Our expectation:
We think that changes in credit ultimately guide property prices.
Once lending growth starts to slow, our internal view is that property prices will begin to follow.
The lending indicators are looking OK so far, which is why we think home prices are holding up relatively OK despite the cash rate increasing rapidly.
We think the lag between the cash rate changes and impacts on lending will be between 3 and 6 months.
We will be monitoring this data very closely.