May – Jay Wu Report
I hope this newsletter finds you well. I wanted to share some insights with you about the current state of the Australian property market and recent market movements in the ASX 200 and S&P 500.
Economic Indicators – Australia (Latest data VS Previous)
- CPI (7% vs 7.8%)
- Unemployment rate (3.5% vs 3.5%)
- Interest rate (3.85% vs 3.6%)
- Gasoline price ($1.27 vs $1.22) USD/Liter
Jay Wu’s Top 5
- JP Morgan acquire First Republic bank for $10.6 Billion USD
- RBA rate pause in April but surprise hike in May alongside with US FED
- China reopening trade weaker than expected, Iron ore price dropped
- Warren Buffet adds more position on 5 Japanese trading houses
- Gold closes in to all time high price at $2075
Real Estate Market
Rebound continues in April
The Australian property market has shown strong resilience in the face of economic challenges, with national home values rising by 0.5% in April 2023. Sydney has continued to lead the way with a 1.3% increase in home values, followed by Perth with a 0.6% increase and Brisbane with a 0.3% increase. One of the key drivers of the rising property values has been the record number of migrations in recent times. Many people have fast-tracked their purchasing decisions due to the difficulty in finding rental accommodation, contributing to the rising home values. Additionally, many prospective vendors are sitting on the sidelines, keeping inventory levels below average and providing sellers with some leverage at the negotiation table.
The current situation of rising home values and increasing interest rates is similar to that of the mid to late 2000s, when the mining boom was underway and net overseas migration was surging. This led to a significant increase in housing demand. Consistent low listings volume has been another key factor in supporting house prices, with the total national listings volume still 22% below the five-year average. However, demand has stabilized close to the five-year average, although it is still 28% lower than the peak demand in late 2021.
Looking ahead, it remains to be seen whether the current strength of the property market will continue. While low interest rates and strong demand are providing support, potential headwinds such as tighter lending standards could have an impact. Nonetheless, the Australian property market has demonstrated its resilience time and time again, and it will be interesting to see how it continues to evolve in the months to come.
Brisbane property market showed signs of steady growth, with home values rising by 0.3% following a 0.1% rise in March. Despite the ongoing pandemic-related economic challenges, the market has continued to demonstrate resilience. Advertised listings remained scarce, tracking 39% below the five-year average. The median house price in Brisbane currently stands at $781,881, while the median unit value is $498,374. These prices are still relatively affordable compared to other major cities in Australia, making Brisbane an attractive location for homebuyers and investors alike.
The median on-market time for Brisbane properties was 28 days, indicating that homes are selling quickly in the current market conditions. The rental market in Brisbane is also extremely tight, with a vacancy rate of only 1.1%. With good level demand and limited supply, home values are likely to remain stable and may even increase in the near future. If you’re looking to buy or invest in property in Brisbane, now may be a good time to take advantage of the current market conditions.
Financial Market
Choppy market, difficult market to find direction
The ASX 200 saw a positive month of April, with a 1.8% increase in value. However, the recent decline in iron ore prices has been a cause for concern. In terms of sector performance, real estate, information technology, and industrials were the top performers, with increases of 5%, 5%, and 4% respectively. Conversely, the material sector performed poorly due to lower iron ore prices and drops in big miners’ share prices.
In the US, the banking sector has experienced continued turmoil. Several banks have fallen, including Silicon Valley Bank, Signature Bank, Silvergate Bank, and First Republic Bank. Additionally, Credit Suisse from Switzerland has also experienced fallout. These developments have raised concerns about the stability of the banking sector and its impact on the broader market.
Another potential issue that could affect the market is the US debt limit. If the debt limit is not raised, it could lead to a black swan event that could cause the market to retest the October low. Investors are keeping a close eye on this situation, as any negative development could trigger market turbulence.
Overall, the market remains volatile, with both positive and negative developments impacting various sectors. It is important for investors to stay informed and vigilant to make well-informed investment decisions.
Summary
The property market appears to be stabilizing, with many people believing that the rate hike is coming to an end and that inflation has peaked. This has led to more positive buyer sentiment, driven in part by record low unemployment rates and listing volumes, as well as record high migration. National dwelling prices are holding steady. However, it is important to note that interest rate hikes can take around six months to take effect in the economy, which means that many families have yet to feel their impact. The second half of the year may prove to be a true test for Australian families’ finances, as many fixed interest rates are set to expire, which could have an impact.
Meanwhile, the financial sector continues to see bank collapses, which is a warning sign of the health of the global banking system. This is occurring alongside ongoing conflicts in Ukraine, the South China Sea, and global debt issues. It is possible that we could enter a long period of economic stagnation at the macro level. However, the financial and property markets may experience a strong rebound in the short to medium term. In this environment, it is important to exercise caution and not put all your eggs in one basket when making investment decisions.
If you have any further questions or would like to discuss your personal situation in more detail, please do not hesitate to contact me on 0402 686 929 or jaywu@aumr.com.au