Barack Obama will be the next President of the United States of America. Thought we’d mention it just in case you had missed the news. Everyone is falling over themselves to love or be loved by him.
This morning we read from the UK that the PM and Opposition Leader were arguing over who is the prettier, and that Obama would love one more than the other. We can be certain that Rudd and Turnbull will put on a similarly embarrassing show…
Housing Goes from Bad to Worse
Back to more important things. The economy and the markets. We mentioned earlier this week that September Building Approvals numbers were scheduled for release yesterday. The data showed what can only be described as a further slump in the housing market.
The number of private sector housing approvals fell to 7,774 on a seasonally adjusted basis. That is a 16% decrease from September last year.
Not surprisingly this has resulted in the value of approved building projects falling by about 20% since the peak last year to $2.7 billion.
Interestingly, the value of ‘alterations and additions’ to residential buildings remains fairly constant. The value actually increased in September compared with August. It seems people are choosing to improve their existing homes rather than move to a new one.
However, that doesn’t really help much. As can be seen from the graph above, the small increase in values comes nowhere near the drop in value of new homes. Based on these numbers, the value of new home approvals has fallen by $800 million in twelve months. That is 50% more than the entire sum spent on alterations and additions.
It is a perfect illustration of the consumer not spending. Now replicate those figures across other industries. We have seen US auto sales collapsing this week. General Motors reported a 45% drop. Ford reported a 30% drop in sales.
Of course a house and a car are big ticket items. But it will have a trickledown effect to other significant purchases. What about televisions, fridges, lounge suites? They are all items that very rarely stop working completely. Twelve months ago people may have considered buying a new fridge to replace the one they’ve had for ten years. Now they may think, “Well, we’ve had it for ten years and it still works, why bother changing?”
From an investing point of view the key is to try and look past the immediate horror stories to find investments that can weather the storm and re-appear on the other side.
Cheers.
Kris.
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