August – Jay Wu Report
Welcome to the August edition of our monthly newsletter. As we step into the heart of the year, we’re excited to present you with the latest insights into the ever-evolving real estate and financial market.
Real Estate Market
Mixed signal at the cross road
In the past month, the national home value index has showcased a steady rise of 0.7%, marking the fifth consecutive increase in 2023. This consistent growth has accumulated to an impressive 4.1% so far this year. However, despite this upward trajectory, it’s important to note that national home values are still trailing 5.3% below their peak recorded back in April 2022.
A notable observation has been the recent shift in momentum. While the market has been enjoying a series of rises, the rate of growth has started showing signs of moderation over the past couple of months. This suggests a potential transition towards a more stable phase.
Sydney’s housing market has experienced a notable deceleration. The growth rate in this city declined from 1.8% in May to a more subdued 0.9% in July. In contrast, Brisbane’s market has been a standout performer, with a robust 1.4% increase in housing values during July, leading the pace of gains among the capital cities.
A crucial factor in understanding the current market dynamics is the listing numbers and inventory. While Brisbane’s listing volume has shown improvement, it’s important to note that it remains nearly 23% lower compared to the same period last year, and a substantial 41% below the five-year average. The trend is consistent across capital cities, where advertised stock levels remain 18% below last year’s figures and 23% below the previous five-year average.
In terms of sales activity and buyer sentiment, national sales have surpassed the previous five-year average over the rolling quarter, with capital cities leading the way with a remarkable 5.2% increase. It’s worth noting that buyer activity remains robust, even in the face of the highest interest rates since 2012. Sentiment levels, although holding around the lows of the Global Financial Crisis, have not deterred buyer interest.
As we look ahead, the real estate market is approaching its busiest season. This anticipation comes with the potential for a spike in listing numbers, which might have implications for home values. Despite the challenges posed by higher interest rates, buyer activity remains resilient, indicating a strong market appetite. Looking further ahead, borrowers might start feeling the impact of rate hikes in the coming months as variable rates adjust following cash rate changes.
In conclusion, the national real estate market is displaying a diverse range of dynamics. While the growth of national values has shown signs of moderation, Brisbane continues to be a standout performer. The current low listing numbers are playing a role in maintaining home values, but the upcoming surge in listings could introduce new variables. The market remains active, even in the context of higher interest rates, and we’re keeping a close eye on the evolving rate landscape and labor market conditions for future insights.
Financial Market
Strong rally in July, correction in August?
In July, the ASX 200 surged by 2.9%, while the Small Cap index excelled with a 3.5% rise. Positive momentum was evident in 8 out of 11 sectors, led by Energy’s impressive 8.8% return due to rising oil prices. Financials (4.9%), IT (4.5%), Real Estate (4.1%), and Utilities (4.0%) also contributed to the upbeat trend. However, Healthcare (-1.5%) and Consumer Staples (-1.0%) sectors saw declines.
In comparison, Australian equities fell behind the U.S. market, where the S&P 500 gained 3.2% due to technology stocks. The U.S. rally extended to the Russell 2000 small cap index, which surged by 6.1%. European and Japanese equities rose modestly by 1.5%, while other Asian markets drove the MSCI Asia ex-Japan index up by 5.4% in anticipation of China’s stimulus measures.
Global equities’ recent rally has been fueled by re-evaluated valuations, but this leaves the market exposed to potential pullbacks if sentiment shifts or earnings outlook worsens.