Market Wrap November 2020

11/12/2020
Posted in Wealth
11/12/2020 Level One

Markets

  • Market Performance – ASX200 rose 10.2% in November – its best month in 32 years.
  • Global – in the US the S&P500 index rose 10.9% in November.
  • Gold – dropped $119.30 to $1,762.55.
  • Iron Ore – rose to an amazing $130.50/ton.
  • Oil – rose to US$47.59/bbl up $10.13 in the month of November.

 

Property

  • Housing – National CoreLogic dwelling prices rose 0.7% month on month in November with houses gaining more than units and regional areas outpacing capital cities.
  • Auction Clearance Rates – have been steady at 77% (previously 76%).
  • Residential Building Approvals – rose a strong 15.4% in September and an additional 3.8% in October.
  • Finance – home loans rose again in September 5.9% month on month. This brings home loan approvals (excluding refinancing) to a 25% increase year on year.

 

Economy

  • Interest Rates – were cut to 0.10% on 3 November – the lowest on record.
  • RBA – announces it will buy $100 billion of government bonds to lower rates for longer.
  • Retail Sales – continued their climb up 1.6% in October.
  • Bond Yield – Australian 10 year government bond yields fell to 0.79% in September but rose slightly to 0.83% in October and rose slightly to 0.90% in November. US 10 year government bond yields remained unchanged at 0.85%.
  • Consumer Confidence – Westpac Melbourne Institution consumer sentiment surged 18% in September, 11.9% in October and rose again 2.5% in November to a 7 year high!
  • Exchange Rates – the Australian Dollar rose against the US Dollar to AUD73.7 cents.
  • Business Conditions – rebounded to 1.5% in November from 0.2% in October.
  • Employment – October saw 179,000 new jobs created in Australia well ahead of expectations and the unemployment rate rose (less than expected) to 7.1% as many business’ entitlement to JobKeeper 1.0 ceased.
  • New Motor Vehicles – sales in Australia increased 12% year on year in November, coming off a negative 1% in October. This is the first positive monthly increase after 31 consecutive negative months.
  • GDP Growth – bounced strongly by 3.3% in the September quarter. While good news domestically the US GDP growth bounced 7.4% and the UK 15.6% for the same period.
  • Chicago Purchasing Managers Index (PMI) – remained strong in October at 61.1 indicating a strong economy bouncing back from COVID-19 lows. The index dropped to 58.2 in November as the economy looks to be slowing down.
  • US Unemployment – job numbers rose by 245,000 in November and the unemployment rate dropped to 6.7%.
  • COVID-19 – 3 Vaccines have been announced and distribution will commence in December in some countries.

 

Comment

Residential Property Prices to Rise

Predictions abound that housing prices will rise over 2021 and 2022.

Such forecasts are based on the several key tailwinds, namely:

  • Record low interest rates;
  • Pent-up demand;
  • Increased savings rates;
  • Government support – both State & Federal.

With interest rates at a record low repayment affordability has increased significantly.

You can obtain finance on a 3 year fixed interest rate loan for less than 2% per annum.

The RBA having lowered rates to just 0.10% have also entered into QE by buying government bonds and stating they intend to keep rates low for at least 3 years even if inflation does raise its head.

So people can borrow with the comfort that rates will most probably not rise for 3 years and possibly a lot larger. This will apply to both fixed rate and variable rate loans.

During 2020 social distancing and lockdown rules have basically curtailed economic activity in a way we have never witnessed before.

Young couples or singles wanting to buy their first property have been unable to do so because of those restrictions.

Similarly, those wanting to upgrade to accommodate a growing family or those wishing to relocate for family or employment reasons have been denied this opportunity during 2020.

As a result, there is significant pent-up demand now coming into the system and pushing house and unit prices up.

With Australians effectively locked up in our own country as the Morrison government imposed an overseas travel ban, combined with lockdown laws generally, many people have been saving (if they still have a job) money they would otherwise have spent.  Australia’s current saving rate is at a record high as a result.

The cost of overseas travel is significant. Those who have saved these funds during 2020 and will possibly do the same in 2021 have in some cases turned those funds into an opportunity to upgrade their current residence or buy something bigger.

Similarly, those who were saving for a trip may now find they have enough for a deposit on a property.

In addition to the factors outlined above both State and Federal Governments have implemented housing support policies which include significant stamp duty concessions as well as cash hand-outs to assist certain buyers and first home buyers in particular.

The Federal Government even has a scheme whereby they will guarantee up to 15% of the 20% deposit most banks require for a first home buyer loan.

This enables many to enter the property market for the first time with as little as a 5% deposit.

So, as you can see those tailwinds when combined should push the property market forward over the next few years.

There are 2 key headwinds that this view may encounter. The first is the advent of a major COVID19 outbreak in Australia without an effective vaccine available and the other is an absence of immigration for an extended period. The RBA has conservatively forecast that net immigration is likely to be negative for the next 2 years because of COVID19 and obviously the rollout and effectiveness of various vaccines around the globe will take time and not be without its difficulties and delays.

 

Sources: UBS, Westpac, S&P Dow Jones Indices, ABS, US BLS, CoreLogic, Morningstar.
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