Recession over - Things looking Up!

Sorry yes my mistake, I’m only going off a friend that has recently done a split 2 townhouse dev and spent $760k on the build, both are 25 squares so works out to be just above $1550sqm.


What would you consider the build cost to be on this?
50A Reed Street, Spotswood, Vic 3015
https://www.realestate.com.au/sold/property-townhouse-vic-spotswood-127496666

 

He was confident that following the first 10m vaccines from Pfizer arriving in Aus early mar (that will go to high-risk, old, young, front line/ healthcare workers) that the subsequent vaccine shipments will be enough for broad based vaccinations. Aus gov is likely to have travel bubbles outside of NZ (which is already in progress) to Singapore, Japan, Thailand and Vietnam but this will take time. Forget being able to visit Europe/ USA/ India anytime soon unless critically-important.

Also that the gov is very likely to introduce home-quarantine for returning travellers with ankle bracelet or like from beginning of Jan 21 together with lifting arrivals quote for int travellers. Migration to return to pre-covid levels 2022. Int students will be able to arrive in droves mid next year.

 

It might be possible to achieve that for a simple sub-division (2 new units) on a flat piece of land but I am sure it will be exclusive of consultants/ councils etc. My smallest project is 6 so the costs associated with consultants, council, cutting/ retaining walls, landscaping, services, body corp etc have added to the turn key cost. I also upped the finish to better stone bench tops, high spec wooden floors, taps, carpets, kitchen appliances, heating/ cooling systems, video intercoms, auto-gates etc so the initial headline $1600 psm went close to $1800 psm (just for the build inc landscaping).

 

I went out to five agents last night with a general Enquiry of my brief for the Inner West/North - every single one came back with a long call or email. One from Kensington seemed reasonably upbeat but another from North Melbourne said if there’s a deal in front of them, they do it. He really felt it was quite slow. Like to hear others thoughts on sentiment?

 

The last of the Big 4 updates its forecast for prop prices from 'drop' to 'strong rise'

ANZ scraps its 'too pessimistic' house price call

ANZ has scrapped its forecast for a pandemic-linked 10 per cent drop in house prices and says a jump in sentiment based on stimulus measures and record-low interest rates will curb the decline, and could even result in "modest" price growth this year.

It expects strong growth next year – housing prices in Perth are likely to jump 12 per cent, Brisbane 9.5 per cent and Hobart 9.4 per cent. Sydney prices are expected to rise 8.8 per cent – close to the national average – but Melbourne prices will lag, with 7.8 per cent growth.

 

This is why it's important to look behind the headline prediction numbers. Similar to during the GFC, stimulus and government intervention was underestimated. Not to say it couldn't have gotten worse, but human nature focuses on the negative in a crisis.

 

Was this before or after yesterday’s strong employment numbers?
Likely he wouldn’t have had time to update & forecast and presentation pack anyway, but unemployment peak seems higher and the 2021 GDP lower than market expectations.

Of course it’s one forecast & one (group’s) opinion, so like every other forecast they are wrong 1 minute after completion as another factor changes!

 

House prices on track for record high by February

National house prices are on track to recover losses suffered in the pandemic and hit a new high by February if the current level of growth is maintained, the latest CoreLogic property price index says.

Australian property prices rose for the second consecutive month in November, rising 0.8 per cent. It follows a 2.1 per cent drop in home values between April and September.


Across the capital cities, Canberra and Hobart led the charge with prices increasing 1.9 per cent in November, followed by 1.4 per cent in Hobart, 1.3 per cent in Adelaide and 1.1 per cent in Perth.

Melbourne had a turnaround from October's falling prices with property values rising 0.7 per cent last month. Values increased 0.6 per cent in Brisbane and rose 0.4 per cent in Sydney.

 

I know right! Let's see how many retain there jobs after job keeper ends so we see the real picture...

 

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Starting to look good for the next 6 months..

 

We are now fast approaching booming prop market nationally and it looks likely that RBA (as per below) will have a hands-off approach this time- It might lead to bubble-like conditions in another 2-3 years but this new boom cycle will create enormous wealth for prop investors.

The job seeker is expected to roll on until the end of next year, the int rates expected to remain at current levels until next 4/5 years and with the vaccine almost at the door, and with o/s students and immigration likely to be kick started H2 of next year, this is likely to be one of the biggest prop boom cycles.

'They will never let a housing crash happen'

The voter-wary federal government sees housing as an asset class too big to fall and will likely extend the JobKeeper supplement again next year to shore up the market, leading to price gains of up to 9 per cent in 2021, says property research company SQM Research.

The most likely scenario next year is that the government extends JobKeeper for another six months to September to prevent distressed sales by owners, leading to gains of up to 12 per cent in Perth, 11 per cent in Sydney and 10 per cent in Adelaide, SQM says.

NoCookies | The Australian

The Reserve Bank has rejected suggestions it should be keeping the heat out of the housing market as it pours billions of dollars into quantitative efforts to keep the cash rate low and turn around the nation’s economic retreat.

As housing prices have started to recover from COVID-linked hit to the economy, Reserve Bank governor Philip Lowe signalled ultra-low interest rates would stay in place even if a housing bubble started to return.

The combination of strong federal and state government stimulus designed to buoy the housing market and low interest rates have already helped to push prices into positive territory in all capital cities last month.

Australia’s home price growth expected to be 'brisk' as recession ends

Australian economists and property forecasters are predicting faster than expected growth in house prices in 2021, following news on Wednesday that Australia’s recession was technically over.

Australia’s economy grew 3.3 per cent in the September quarter, according to the latest gross domestic product (GDP) figures from the ABS.

Corelogic House prices on track for record high by February

 

Or Not?

 

Important we remember that a recession is two consecutive periods of neg growth. If that was -20% and then the next quarter is 1% up on the lower base its not still a "technical" recession but the economy its still down. Growth is up 5% !! And the growth looks impressive but its like walking the foothills of Everest inst finishing the climb yet. I wouldnt be celebarting a good +ve number without comparing to a pre-COVID base. Its voodoo maths like Trump uses. For the simple folks. It sounds great but isnt. Erverytime I hear Josh Frydenberg speak he qualifies to mention that. But media skip over it. Its still a potential warning indicator. I have noted a lot of property market types are talking things up more than data truly indicates. Vested interest perhaps.

And these data / stats are averages. There will be some who are doing really well now. And others terribly afflicted. Pockets of property will do above norm and pockets will perform badly. Property seems to be well performing based on a low base of sales due to very low supply. But some areas are over supplied and not showing any reversal from being down (ie Sydney & Melb metro apartments)

The word "boom" is not one I would race to use at present. Booms also occur when a bomb drops.

One risk is taking on loans at record low rates and slightly eased lending restrictions. In time (3 years ?) rates will have only one way to go and this could really bite those heavily leveraged with property. So tread water for three years and then some could face crippling changes. I would avoid breaking out the streamers and whistles for now.

I look at the US markets and am stunned to so see record Dow highs. Their economy is stuffed yet that happens. It has all the hallmarks of correction and that will spook in a huge way if it happens...when it happens. There seem record number of people chasing things up especially with ETFs and many are using property equity. They will be first bitten. Most have never seen a market truly correct...And I'm not referring to the March covid dip

I hope I will be so wrong.

 

I sat through 2 presentations last week and this week from Ric Deverell Chief Economist of Macquarie and Bill Evans, Chief economist for Westpac. Bill has been on the mark (like Christopher Joyce) on over a dozen indicators since he started providing bi-monthly presentations since mar. On bonds, AUD-USD, int rates, prop markets, commercial inv, investor sentiment etc.

Without going through line by line detail, the consensus was that resi prop is now extremely well-placed to go into a long term (3-4 years) growth - nationally. Led primarily by Perth and followed by Adel, Bris, Syd and Mel.

They had a lot of data for cc transactions and the massive uplift. Consensus was that Jobseeker etc will stay until end of next year that our recovery will keep on surprising with the rapid turn around that interest rates are not going any where for 5 years and that with humungous liquidity by the central bank and gov, the repayments on over $600b of borrowings are still less than what we were paying in int payments 5 years ago.

Aussie households have been sitting on $100b worth of savings (incremental) and the 'time to buy' property on the sentiment index has never been better- since 1985.

So it is a given for any investment that we tread with caution before investing. I was a bear on prop throughout 2018 and until first half of 2019 and then again in early part of this year but I have to admit that in my 20 years of prop investment, I have never witnessed more broad-based consensus amongst everyone (banks, RBA, gov, forecasters, int banks, regulators et al) around where the prop prices are heading - and which is now evidenced by latest data.

The arrival of vaccine globally is going to light the rocket in coming months and next year. Bill and Ric however both believe that wages-growth is one area which is likely to remain subdued and will add a bit of dampener otherwise the stars are aligned!

I see this in many markets I am invested in but I didn't believe cherry-picking that data would assist the broader picture I am referring to- some of the markets I now have exposure to are up over 5% within the last 2/3 months.

Overall the sentiment is turning massively as we speak.

 

Compared to the GFC, it seems that this time governments and central banks are willing to err on the side of doing too much, to avoid doing too little. This might make the market overshoot in the medium term. But if those assumptions hold (vaccine is effective, jobkeeper extended to end of 2021 and rates stay low) the short to medium term look good.

 

I used to work with economists when I was with a major bank Treasury. Economists were wrong 90% + of times with predictions. I recall one bank even kept a log of who picked certain estimates and nobody was a good at it. ANZ put it into a chart and gave it to clients and all it showed was predictions didnt work. Currency, rates, GDP and more. I also question what a new normal "growth" looks like - 3% ? With such low inflation and rates I wonder how many buyers see growth and think double digits when they should expect small growth. At 3% its two years to merely cover the duty etc then allowing for a rate rise say 3+ years cashflows could go from hero ot zero fast as global rates rise on recovery. My other fear is how all this covid will be paid for. Taxes have to rise in the future.

 

NoCookies | The Australian

"A revival of the great Australian dream is underway, as take-up of $1bn worth of COVID-19 HomeBuilder grants surges well ahead of initial forecasts and new home loan approvals hit record levels.

Figures obtained by The Australian show uptake of the government subsidy has already exceeded the initial Treasury estimate of 27,000 by December 31, and is expected to hit 40,000 — 50 per cent higher than forecast — by the end of the year.

The unexpected demand for the grants — designed to prevent a collapse in the housing market during the pandemic — emerged as official data revealed the highest level of first homebuyer loan commitments since 2009, at the height of the global financial crisis..."

and


"The ABS said first homebuyer loan commitments for October were the highest since 2009, when first homebuyer grants were tripled under the former Labor government as part of the economic stimulus response to the GFC.

“The total value of new loan commitments for housing and the value of owner occupier home loan commitments each reached record highs in October 2020..."

 

So what happens if the next 3,4 5 years worth of o/occ buyers all buy now to take the advantage of the grants , and there are few buyers coming through after that? How is momentum maintained?
Do we have sufficient numbers of investor buyers able to replace them or follow them , to maintain the momentum?
Do we have sufficient new migrants able to replace them or follow them, to maintain the momentum ?

What happens when the deferrals end? Right now the number of deferrals is decreasing and 2/3 of borrowers are back on track . But that leaves 1/3 of deferrals at risk. What will that mean ? Will 7-10% of mortgages ultimately become delinquent? Will none? Will 15-20% be the real figure 6 months after the safety nets are withdrawn in March?
Absolutely everything happening right now is happening because fake money is on tap and reality is being suspended. When that changes - if that changes - it follows that much else could also change : or not.

Believing events of this magnitude can occur and the result = beer and skittles is unrealistic in my view.

 

If a recession and falling prices is held off until the medium term, at a time when covid is largely resolved with vaccinations, then that will be a great outcome. The 'unreal' stimulus was to counter the 'unreal' situation of covid. A recession in a more normal environment would hurt a lot of people, but without the 30s depression connotations.

 

All valid points!

I would think that the significant uptake of home builder grants is essentially a response/ catchup to almost 9 months of well-below-average home buying from FHB and whilst it's true that the grants will bring forward some buys, we need to see that at a macro level. It is likely that we will see the trend in dropping home ownership stabilise (or even improve).

The level of $100b in incremental savings by households, the int rates (not going anywhere for the next 5 years and likely 7+) at 2%, vaccine now firmly on the horizon, best buying-sentiment on westpac home buyer sentiment index since 1985, tapping into super, expectation of o/s students & migrants coming back from apr/ may next year and the additional liquidity pumped into the system are sufficient to highlight a sustainable uplift in dwelling values for the next 3 years.

We have never ever had a 'perfect' alignment of stars when prop speculation would make 100% sense and this ain't so either however this is as-close as it ever gets. The wage growth is a dampener and a major headwind. But never in history have we also seen the level of returns one gets from leaving cash in the bank accounts.

Investors are expected to return in droves H2 next year as the responsible lending law changes affects investor borrowing in second half of next year.

Finally, Australia is not doing this 'fake' liquidity pumping in isolation. The whole world is doing this so perhaps this is the new normal. People in 70s thought that the fiat currency will be worthless and gold will remain the standard as it had for centuries prior and in these times, this is the new normal.

I recall you were very adamant that there was absolutely 'no way' prop prices could rise in 2019 and they had a long way down for years before they could move upwards, yet we saw what the markets did from apr 19 onwards and well until covid came into the picture with almost all of the losses from 2017 onwards recovered during that 10 month stint.

I remain very bullish now on prop and believe we will see strong gains of c10% next year and similar for the following 1-2 years.