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  • Craig James, Chief Economist Twitter: @CommSec IMPORTANT INFORMATION AND DISCLAIMER FOR RETAIL CLIENTS The Economic Insights Series provides general market-related commentary on Australian macroeconomic themes that have been selected for coverage by the Commonwealth Securities Limited (CommSec) Chief Economist. Economic Insights are not intended to be investment research reports. This report has been prepared without taking into account your objectives, financial situation or needs. It is not to be construed as a solicitation or an offer to buy or sell any securities or financial instruments, or as a recommendation and/or investment advice. Before acting on the information in this report, you should consider the appropriateness and suitability of the information, having regard to your own objectives, financial situation and needs and, if necessary, seek appropriate professional of financial advice. CommSec believes that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made based on information available at the time of its compilation, but no representation or warranty is made as to the accuracy, reliability or completeness of any statements made in this report. Any opinions, conclusions or recommendations set forth in this report are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed by any other member of the Commonwealth Bank of Australia group of companies. CommSec is under no obligation to, and does not, update or keep current the information contained in this report. Neither Commonwealth Bank of Australia nor any of its affiliates or subsidiaries accepts liability for loss or damage arising out of the use of all or any part of this report. All material presented in this report, unless specifically indicated otherwise, is under copyright of CommSec. This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399, a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. This report is not directed to, nor intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in, any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or that would subject any entity within the Commonwealth Bank group of companies to any registration or licensing requirement within such jurisdiction.

    Economics | February 11 2020

    Average mortgage hits $500,000 First home buyers at 8-year high Consumer sentiment; Business survey; Lending  Home loans: The value of home loans rose 4.4 per cent in December with owner-occupier loans up 5.1 per

    cent and investor loans up 2.8 per cent. The average new mortgage stands at a record $497,900.  Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.6 per cent to

    107.8 points. Sentiment remains below both the average of 114.1 points held since 2014 and the longer term average of 113.1 points since 1990.

     Business survey: The NAB business confidence index rose from -2.5 points to -0.8 points in January. (The long-term average is +5.8 points). And the business conditions index fell from +2.7 points to +2.6 points in January. (The long-term average is +5.7 points).

    The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The business survey has broad implications for investors and the economy. The lending figures have implications for builders, housing-reliant businesses, finance providers, retailers, and companies dependent on consumer and business spending.

    What does it all mean?  Both consumer and business confidence are treading water, just below longer-term averages. Aussie consumers

    are confident on the outlook for their own finances (the outlook for finances is at a 17-week high). It’s just that they worry about the economy. Drought, bushfires, flood, coronavirus are all weighing on consciousness. The low level of the Aussie dollar also isn’t helping the consumer mood. And businesses are similarly in ‘wait and see mode’.

     While the consumer and business surveys provide no guidance for interest rates, the home loan market is motoring. More loans are being taken out by investors and those wanting to buy homes to live in. The share of first-home buyers is at eight-year highs while the number of first-home borrowers is at decade highs. Upward pressure exists on home prices, serving to keep the Reserve Bank on the interest rate sidelines.

     Since the election the average new home loan has lifted by around $60,000 or 16 per cent. Rate cuts and increased buyers enthusiasm for property have driven the gains. But with wages growing at a 2.2-2.3 per cent annual pace, affordability constraints may soon temper the optimism.

    What do the figures show? Consumer sentiment  The weekly ANZ-Roy Morgan consumer confidence

    rating fell by 0.6 per cent to 107.8. Sentiment remains below both the average of 114.1 points held since 2014 and the longer term average of 113.1 points since 1990.

     Three of the five major components of the index fell last week:  The estimate of family finances compared with a year

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    Economic Insights. Average mortgage hits $500,000

    ago was down from +9.8 points to +6.5 points;  The estimate of family finances over the next year was

    up from +23.1 points to +27.8 points;  Economic conditions over the next 12 months was

    down from -14.4 points to -17.9 points;  Economic conditions over the next 5 years was up from

    -3.8 points to +1.3 points;  The measure of whether it was a good time to buy a

    major household item was down from +27.8 points to +21.4 points.

     The measure of inflation expectations was down from 4.2 per cent to 3.9 per cent.

    National Australia Bank Business Survey - January   The NAB business confidence index rose from -2.5 points to

    -0.8 points in January. (The long-term average is +5.8 points). And the business conditions index fell from +2.7 points to +2.6 points in January. (The long-term average is +5.7 points). The survey was conducted in the period January 21-February 3, 2020 across 400 firms.

     The rolling annual average business confidence index fell from +1.6 points to 1.2 points. The rolling annual average business conditions index eased from +3.9 points to +3.6 points.

     Key Components: The index of trading conditions fell from +5.8 points to 4.6 points; employment fell from +4.3 points to +0.8 points; profitability rose from +1.0 point to +1.8 points; forward orders rose from -1.4 points to -0.6 points; stocks rose from -0.6 points to +0.2 points; exports were steady at -0.6 points.

     Inflationary indicators show modest price and wage pressures: The monthly reading of labour costs rose at a 0.9 per cent quarterly rate in January after a similar rise in December. Purchase costs rose at a 0.7 per cent quarterly rate (previously +0.5 per cent). Final product prices rose at a 0.5 per cent quarterly rate (previously +0.3 per cent). Retail prices rose at a 0.3 per cent quarterly rate (previously +0.5 per cent).

     Capacity utilisation rose from 80.9 per cent to 81.3 per cent, above the long-term average of 81.1 per cent.  The proportion of firms reporting that they did not require credit rose from 40 per cent to 50 per cent.  NAB reported: “The picture painted by the first survey of 2020 is broadly similar to that at the end of 2019. While

    there has been no significant deterioration in overall terms – despite some state and industry evidence of a bushfire impact – the survey continues to suggest very little / to no growth in the private sector.”.

     “Transport & utilities saw a sharp increase in the month with construction and finance, business and property also up. The other industries were weaker, particularly wholesale and manufacturing. In trend terms, the services sector continues to have strong conditions, while goods distribution including retail and wholesale remain weakest. “

     “Conditions were weaker in Vic, NSW and WA in the month, while SA, Tas and Qld all saw improvements. Overall, in trend terms, conditions remain most favourable in Tas followed by Vic and SA. The other states are below the national average with WA weakest at -2 index points. “

    Lending  The value of total new home loan commitments to households rose by 4.4 per cent in December to be up 14

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    Economic Insights. Average mortgage hits $500,000

    per cent on a year ago. The value of new owner occupier home loan commitments rose by 5.1 per cent to be up 17.9 per cent over the year. And the value of new investor home loan commitments lifted by 2.8 per cent to be up by 4.9 per cent over the year.

     The number of owner occupier construction loans rose by 5.1 per cent (value up 5.6 per cent); loans for purchase of newly- erected dwellings rose 5.6 per cent (value up 5.0 per cent); loans for purchase of existing dwellings rose by 2.9 per cent (value up 5.4 per cent).

     On first home buyer activity, the Bureau of Statistics reported that “the number of owner occupier first home buyer loan commitments rose 6.2 per cent in seasonally adjusted terms; the number of first home buyer loan commitments for investment purposes accounted for 5.4 per cent of all first home buyer commitments, in