16 January 2017

Over the past week Australian shares were 0.6% lower. Shares in developed countries were 0.3% higher with the US market 0.1% lower. Shares in emerging markets gained 1.7%. The Australian dollar was 2.8% higher at 75.02 US cents. The 10 year bond yield in Australia was 0.01% higher at 2.69% while in the US, the 10 year bond yield closed the week 0.02% lower at 2.40%. The oil price lost 3.0% to 52.37 US dollars per barrel.

At Mine Wealth + Wellbeing we invest for the long term. We recognise the importance of good insights into the economic outlook for Australia and the rest of the world. The central banks around the world have large teams of economic researchers and their opinions are well researched and generally lack bias. For this reason we monitor what they are saying very closely.

The Reserve Bank of Australia produces a Statement on Monetary Policy four times a year and each one is well worth reading. As an example, consider the recent commentary in the November Statement on Australian housing.

“As expected, private dwelling investment was strong over the year to the June quarter. The value of residential building approvals has reached record levels as a share of GDP and the amount of work in the pipeline has edged higher. Accordingly, dwelling investment is likely to contribute to growth for some time yet. However, the large amount of work in the pipeline raises concerns that some locations could become oversupplied, particularly in inner-city areas where a lot of high density housing is planned. This could lead to settlement failures by off-the-plan purchasers and a general reduction in rents and prices.

Conditions in the established housing market have eased relative to a year ago, although some indicators suggest that conditions may have strengthened over recent months. In particular, housing price growth has picked up noticeably in Sydney and Melbourne, where auction clearance rates have also increased to high levels. However, the number of auctions and housing market turnover more generally are lower than they were last year and properties are, on average, taking longer to sell. While housing credit growth has also declined over the past year, loan approvals data suggest that lending to investors has increased a little over recent months. Housing market conditions remain weak in Perth, where prices of both apartments and detached dwellings have declined further over the past year.

The bold text highlights the current situation where property has become a major contributor to economic performance. The underlined text highlights multiple areas of risk which we need to monitor.

Signing off
David Bell

Past performance isn't necessarily an indicator of future performance.
All data sourced from Bloomberg.