The Week Ahead: Aussie Housing And Jobs

This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies. For more info SHARE ANALYSIS: CBA

By Greg Peel

On Saturday I was chatting to an acquaintance who told of his son’s need to sell his house in Kellyville, Sydney, following his divorce. I expressed my concern that this particular area has been hard hit by rising interest rates. Having owned the house for four years, the son was confident of coming out ahead.

The RBA has intimated that it’s decisions to raise interest rates three times from August were done so in the belief Australia will not suffer any crippling mortgage default fall-out similar to the US. There is a great proportion of houses owned by higher-income investors, the RBA has suggested, and the areas of concern were restricted to the low-income south west “mortgage belt” in Sydney and its equivalent in Melbourne. But it had always seemed to me the real problem areas would ultimately be the “aspirant” areas of Australia’s capitals – those areas where the McMansions stand boldly one metre apart on freshly kerbed and treeless streets. Kellyville in Sydney is one such area.

And so it was I opened my Sun-Herald on Sunday to read the story of one street alone in Kellyville where in the past ten months four houses, purchased for between $800,000 and $1m, had been sold by the mortgagees for $400,000-600,000. An estate agent commented that the houses were never worth that much to begin with. It had only been encouragement from the commission-earning mortgage agent that made the difference. Ten months ago the RBA target rate was 6.50%, and now it is 7.00% – with upside.

House prices are rising again in Australia on aggregate, but most of the rise is attributed to the Johnny-come-lately capitals. Sydney’s rise is modest, and Perth has stagnated. Rising house prices are just another arrow in the RBA’s quiver of reasons to raise rates. On Monday this week we learn the December housing finance figures, which followed hot on the heels of the August and November rate increases. We also learn the January employment numbers, which are again likely to show one very important reason the RBA is moving further into the area of restrictive policy.

Along with the housing finance number on Monday, the January job ads figure from ANZ is released, as is NAB’s monthly business survey. The RBA will also release its monthly Statement of Monetary Policy, but little divergence is expected in this document from the previous statement accompanying this month’s rate rise. Although some economists expect the RBA to raise its inflation forecasts once more.

On Wednesday the Melbourne Institute consumer confidence number is released for February, and Thursday brings consumer inflation expectations and the January jobs data.

Over in the US, there remains talk of an emergency Fed rate cut ahead of the scheduled March meeting, although doubt has been introduced given recent inflation talk from at least two FOMC members.

Tuesday sees the January US budget statement, while Wednesday brings December business inventories. Wednesday also sees the release of the all-important January retail sales figure. If last week’s release of US same-store sales figures are any indication, this number won’t be pretty. Thursday sees the December trade balance, and then Friday brings January industrial production and capacity, the February Empire manufacturing index and Michigan University consumer confidence measure, and the TIC flows for December, which is the measure of investment in/outflows in US dollar assets.

The UK cut its rate by 25bps last week, ahead of Tuesday’s January CPI. The EU held fast, so its fourth quarter GDP on Thursday will be interesting. Japan’s fourth quarter GDP will also be revealed on Thursday, and then the BoJ will make its rate decision on Friday (no change from 0.5% expected).

On the stock market front, Australia’s result season gets into third gear this week, with highlights including Commonwealth Bank ((CBA)) and Rio Tinto ((RIO)). For a full reporting schedule, refer to the FNArena calendar.

Click to view our Glossary of Financial Terms