(Bloomberg) — Australia’s A$7.1 trillion ($5.2 trillion) housing market is facing the ultimate stress test — the first recession in almost three decades — and passing with flying colors for now.
Economists had predicted property prices would tumble 10% or more as Covid-19 swept Australia; now, they’re scrambling to reverse those forecasts to gains of 5-15% in the next couple of years. Policy makers have switched from worrying about plunging prices to being on guard for excessive exuberance.
A recent Saturday auction at the Sydney suburb of Forest Lodge — around 2.5 miles from the city center — captured the bullish mood. About 30 people gathered in front a four bedroom Victorian terrace up for auction. The bidders — ranging from younger professionals to middle-aged people — kicked off at A$2.4 million and moved up in increments of A$10,000, then A$5,000, until the hammer came down at A$2.74 million.
It’s a dynamic that’s emerging in other countries as low interest rates fuel asset prices. While the housing strength is good news for the economy’s recovery, to housing bears — who have been proved wrong time and again for a generation in Australia — further gains risk fueling the bubble that is destined to pop one day, leaving a trail of bad debts.
The lending books of Australia’s banks are among the world’s most exposed to mortgages, with housing loans at the major four banks equating to about 75% of the nation’s approximately A$2 trillion gross domestic product. The statistics office estimates the value of the nation’s residential dwellings was A$7.1 trillion in the June quarter, when the weighted average prices in capital cities rose 6.2% from a year earlier.
Behind the bonanza are interest rates at levels unseen in Australia before. Three of the nation’s four big banks are offering fixed-rate mortgages below 2%, and HSBC Holdings Plc. is offering 1.88%, according to Mortgage Choice Ltd.. a broker. That’s been facilitated by the Reserve Bank of Australia cutting its interest rate to 0.10%, as well as its bond-buying and bank lending programs that aim to lower borrowing costs across the economy.
“It’s not a place I think anybody thought we would be,” said Susan Mitchell, chief executive officer of Mortgage Choice. “There’s a lot of stimulus. I’m a bit worried about prices spiking up.”
Safe as Houses
RBA modeling found that even in a scenario where the economy contracted by 20% and unemployment soared to 20%, banks still wouldn’t breach minimum prudential capital requirements. “The likelihood of a major bank failing is very low,” it says.
The RBA has made clear that reducing unemployment is its priority for now, rather than worrying about asset prices. Governor Philip Lowe has said the absence of population growth — with international borders still closed — changes housing market dynamics and he doesn’t think an unsustainable increase in housing prices is likely.
Yet there are tools should the situation change.
“We know from the experience of recent years that the macroprudential instruments can curtail the growth in debt in a stabilizing way. So it’s an issue we’re watching carefully, but I’m not particularly worried about it at the moment,” Lowe said during a panel at the Australian’s Strategic Forum 2020 on Wednesday.
By contrast in New Zealand, where some regions are recording double-digit house price gains despite the worst recession in a century, economists expect loan-to-valuation ratio restrictions will be put in place early next year.
Fiona Guthrie, chief executive officer of Financial Counselling Australia, worries more people will end up finding themselves under financial strain from easier finance rules.
“Weaker lending standards mean people will be loaded up with as much debt as possible,” she said. “There is significant profit to be made in pushing borrowers to the edge.”
Yet, much like the uneven nature of the economy’s recovery, the housing market strength isn’t uniform. Many people living in inner city apartments in Sydney and Melbourne are looking for more space.
“The virus has become a catalyst for change that is seeing us refashioning our homes and rethinking where we want to live,” said John McGrath, chief executive officer of real estate agent McGrath Ltd.
The result has been a collapse in rents and flat prices — with more to come as apartment blocs are still under construction. That’s unlikely to hurt Australian banks, which have steered clear of developers after a recent period of over-building. But it does impact mom and pop investors.
In addition, there are households still on deferred mortgage repayments because they lost their job in the Covid lockdown. When these are scaled back and loan holidays end sometime next year, they could be forced to sell.
World-champion kite surfer Ewan Jaspan is among the sea changers. Being in a trendy St Kilda flat 24/7 with limited outside space in Melbourne wasn’t ideal, so he and his girlfriend decamped to tropical Queensland. Initially the plan was to stay for two or three weeks. That was a few months ago.
“A lot of people are working remote anyway, so why would I be in the city in a tiny apartment when I could have a garden and outside space and be at the beach?”
©2020 Bloomberg L.P.
Remarks by President Trump on the Economy – Whitehouse.gov
James S. Brady Press Briefing Room
12:31 P.M. EST
THE PRESIDENT: Well, thank you very much. And I just want to congratulate everybody. The stock market, Dow Jones Industrial Average just hit 30,000, which is the highest in history. We’ve never broken 30,000. And that’s despite everything that’s taken place with the pandemic. I’m very thrilled with what’s happened on the vaccine front. That’s been absolutely incredible. It’s — nothing like that has ever happened medically. And I think people are acknowledging that, and it’s having a big effect.
But the stock market has just broken 30,000. Never been broken, that number. That’s a sacred number: 30,000. Nobody thought they’d ever see it. That’s the ninth time since the beginning of 2020, and it’s the 48th time that we’ve broken records in — during the Trump administration. And I just want to congratulate all the people within the administration that worked so hard. And most importantly, I want to congratulate the people of our country, because there are no people like you.
Thank you very much, everybody. Thank you.
12:32 P.M. EST
China’s Li Sees Economy Returning to ‘Proper’ Range Next Year – Yahoo Canada Finance
The Canadian Press
NEW YORK — Best Buy Co. reported fiscal third-quarter results that blew through analysts’ expectations as the nation’s largest consumer electronics retailer enjoyed surging demand for items like home theatre and appliances that help people learn, cook, work and connect in their homes during the pandemic.
The Richfield, Minnesota-based retailer, said that third-quarter profits rose 33% while sales were up 21%. Sales at stores opened at least a year rose 23%, while online sales in the U.S. surged 174%.
Still, shares fell 5% in Tuesday morning trading as Best Buy warned that sales could slow down during the current quarter as the number of virus cases surge.
“As we start the fourth quarter, the demand for the products and services we sell remains at elevated levels, but similar to last quarter, it continues to be difficult for us to predict how sustainable these trends will be,” Matthew Bilunas, Best Buy’s chief financial officer, told analysts during the call. “In fact, we are seeing COVID cases surge throughout the U.S. and Canada at a time of significant holiday volume through our stores, online and supply chain. “
Bilunas also noted other factors such as potential government stimulus, the risk of continued high employment and the availability of inventory like computers to match customer demand.
Best Buy joins big box stores like Walmart, Target, Home Depot and Lowe’s in reporting strong fiscal results. Unlike mall-based stores and other businesses that sell non-essentials, big box retailers were allowed to stay open during the lockdown in the spring and have all seen their dominance increase as consumers focus on necessities and home-related activities.
Before the pandemic, Best Buy had expanded its services to such options as at-home consulting and same-day delivery. It also sped up its online shipping. But the pandemic has forced Best Buy to adjust its operations and launch new shopping experiences that provide more convenience and safety for customers.
Early fall, Best Buy began using 250 of its stores as fast-shipping hubs for online orders. It’s now adding 90 more locations during the holiday period. It says its goal is to have all 340 stores ship more than 70% of its ship-from-store units during the holiday quarter. It’s also testing new store formats as it transforms locations to fulfilment hubs.
For example, in four Minneapolis locations, Best Buy reduced its square footage for shopping to 15,000 square feet from an average of 27,000. The product assortment on the sales floor will still include the primary categories these locations featured before the remodel, but instead the focus will be on the most popular items, the retailer said. The remodels will result in increased space for staging product for in-store pickup and to help ship-from-store transactions, as well as provide the ability to stage inventory for items that may not be on the sales floor.
Best Buy reported fiscal third-quarter profit of $391 million, or $1.48 per share, compared with $293 million, or $1.10 per share, in the year-ago period. Earnings, adjusted for restructuring costs and amortization costs, were $2.06 per share.
The results exceeded Wall Street expectations. The average estimate of 11 analysts surveyed by Zacks Investment Research was for earnings of $1.76 per share.
The consumer electronics retailer posted revenue of $11.85 billion in the period, also beating Street forecasts. Eight analysts surveyed by Zacks expected $11.02 billion.
Shares fell $6.69 to $1150 in late morning trading. Shares have increased 39% since the beginning of the year, while the S&P 500 index has increased 11%. The stock has increased 69% in the last 12 months.
Elements of this story was generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on BBY at https://www.zacks.com/ap/BBY
Anne D’Innocenzio, The Associated Press
German economy grew by 8.5% in third quarter, but recession fears grow – The Guardian
BERLIN (Reuters) – Germany’s gross domestic product grew by a record 8.5% in the third quarter as Europe’s largest economy partly recovered from an unprecedented plunge caused by the first wave of the COVID-19 pandemic in spring, the statistics office said on Tuesday.
The stronger-than expected rebound was mainly driven by higher household spending and soaring exports, the office said.
“This enabled the German economy to make up for a large part of the massive decline in gross domestic product caused by the coronavirus pandemic in the second quarter of 2020,” it added.
The reading marked an upward revision to an earlier flash estimate of 8.2% growth, and followed a 9.8% plunge in the second quarter.
The outlook is clouded by a second wave of coronavirus infections and a partial lockdown to slow the spread of the disease. Restaurants, bars, hotels and entertainment venues have been closed since Nov. 2, but shops and schools remain open.
Chancellor Angela Merkel and regional state premiers are planning to extend the “lockdown-light” on Wednesday until Dec. 20, according to a draft prepared for their meeting.
A contraction in the service sector is expected to weigh heavily on gross domestic product in the fourth quarter, while lockdown measures in other countries are likely to hit export-oriented manufacturers as well.
DIW economist Claus Michelsen said a decline in economic output was therefore on the cards, with initial estimates indicating a GDP drop of around 1% in the final quarter.
“Germany and many important trading partners are likely to slide back into recession,” Michelsen said.
(Reporting by Michael Nienaber and Rene Wagner; Editing by Riham Alkousaa and EKevin Liffey)
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Remarks by President Trump on the Economy – Whitehouse.gov
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