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Finance Market Update – 19 July 19





In this important update we will take a snapshot of where we are, because in all likelihood the same time next year we will be in a very different situation, so it will be fortunate to have this to refer back to, to know how we got there and how different it all looks. We cover a lot of points in this update, definitely worth the read.


While many of the following points will paint a cautious and somewhat pessimistic perspective, ultimately I am a believer that the Australian economy is overall in good shape, and that only a significant external event like a recession in the US, Japan or China, or drastic drop in commodity prices would propel us into a recession otherwise before the timer was due. The key positive forces informing this view are consumption, (planned) infrastructure / fiscal spending, a resilient currency and continued price buoyancy in the housing market.


Having said that, we have had 28 years without a recession, a wonder of developed nations the world over, and we face significant challenges, besides the below are entitlement and complacency in our culture, un productiveness and weaker competition in spaces like science and technology than we should have.


Hopefully this snapshot will not only be an interesting comparison to make next year to see how things have changed, but also informative for you to what is occurring right now.

Household Wealth


As at the time of writing and for the first time in history, the average household wealth in Australia surpassed the $1 Million mark. The Bureau of Statistics states this is mainly due to ballooning property prices and rising superannuation balances, both of which are tied to asset classes (stocks and property) that are vulnerable to downturns which means this average amount could be lower, or higher, in a year or twos time. My estimation is that it will be roughly the same. Worth noting here that in the 90’s around 44% of people owned their homes outright, with no mortgage, today that number has dropped to 29.7% according to the Australian Bureau of Statistics. Fewer people own more expensive homes.

Cash Rate


The Reserve Bank of Australia (RBA) lowered the cash rate in two consecutive 0.25bps cuts in June and July 2019 to a historical low of 1%. Their main reasons where to get unemployment down, boost spending and support the economy. For myriad reasons including housing debt, inflation, international macro-economic factors (US v Sino trade war), GDP, wage growth, unemployment, and limitations of monetary policy effectiveness (during a recession), I suspect we will have a new historical low this time in 2020.

Mortgage rate ranges


These are ranges of currently available mortgage interest rates. It will be interesting to see where they are in 2020. My assertion is that they will soften.


**80% LVR, $800k loan, 30-year term, fixed terms 1-3 years, used for each example below**


- Owner Occupied Home Loans


o Principal & Interest,

§ Variable, 3.18% - 3.44%

§ Fixed, 3.17% - 3.29%


o Interest Only,

§ Variable, 3.94% - 4.24%

§ Fixed, 3.72% - 3.89%


- Investment Property Loans


o Principal & Interest,

§ Variable, 3.59% - 3.74%

§ Fixed, 3.59% - 3.69%


o Interest Only,

§ Variable, 3.97% - 4.20%

§ Fixed, 3.69% - 3.89%

Market capitalisation of big banks


‘Market Capitilisation’ is a rough measure of how “big” or valuable a company is and is calculated by multiplying the share price by the number of total shares. I’m putting this in the list because the Australian banks are addicted to property lending. It drives the majority of their income and profit and is where the majority of their risk is as well. Depending on what happens in the property market could very well dramatically impact the value and how “big” the big banks are. I’ve written before about how the big banks generate big profits. Numbers as at 18th July 2019.


- CBA, $144.12 Billion

- Westpac, $96.30 Billion

- NAB, $77.67 Billion

- ANZ, $76.82 Billion

- Macquarie, $43.37 Billion

Clearance rates


As of the middle of July 2019 clearance rates nationally and in Sydney are the best they have been in a year, being 55.5% and 77.2% respectively. This is a clear sign of confidence rebounding in the property market, and it effectively normalising, likely due to the certainty around negative gearing and capital gains tax, as well as the mini credit crunch ending as banks start to lend more. It is likely the clearance rate in Spring and Summer 2019 will be up on the previous year and correlate with upwardly correcting house prices.

Housing supply


According to the Urban Developer Institute of Australia, 194,000 multi-unit dwellings (units, townhouses) are being developed, albeit at different stages, and due to finish at some point in the next few years. This will add even more (vacant) apartments to areas already experiencing a compression in rental prices, and yield, across Sydney. Data from Domain states in Gladesville in June 2019 there were 168 rentals being advertised vs 116 in 2017 which is a 44% jump. In Ryde the 2017 listings were 232, in 2019 it swelled to 499, a massive 115% increase in supply. It is likely this will not ease, and many more apartments will either be sold or tried to be rented out, adding even more stock to the market, which will add downward pressure on prices, both rental and value, in the short to medium term.

Aussie Dollar


As at mid-July 2019 the AUD is sitting around 70 cents to the Greenback for most of the year, briefly exceeding that in January reaching 81 cents and hitting a fresh low of 68 odd cents a few weeks ago. Changes in the US cash/interest rate, commodity prices, China demand and other currency (notably JPY, USD, NZD) movements will we likely see our dollar fluctuate more, but I expect it to remain relatively steady for the remainder of the year, and firm to a higher price next year.

Prime Minister


Over the past decade Australia has not had a sitting Prime Minister endure a full four-year term. Scott Morrison is currently PM, after winning in a ‘miracle’ election against Labor who thought they had an unlosable election in front of them. The Liberal-Coalition government will still be in power for the next four years, but will ScoMo still be at the front? My guess is yes, which would be welcomed if not only to have an elected PM make it through four years for the first time this millennium.


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