Weekly Reports | Jun 03 2022
Weekly Broker Wrap: house price decline begins, geopolitical tensions spark food crisis, Australian packaging producers underinvest in capital.
-Anticipated house price declines begin, experts predict a -15% drop ahead
-Food insecurity looks to increase as geopolitical tension impacts food imports
-Capital expenditure underinvestment by Australian food packaging could lead to competitive disadvantage
By Danielle Austin
House prices decline, soft building approvals suggest risk to construction industry
The -0.3% decline in national house prices in May looks to be just the start of house price declines according to analysts from Morgan Stanley, who predict prices may fall by a further -15% over the next eighteen months. It marks the first decline in house prices since September 2020, and while prices remain 11.7% higher than they were a year ago it is the view of the Morgan Stanley analysts that it is no coincidence the first decline in national house pricing in more than two years has coincided with the first cash rate hike in more than a decade.
Morgan Stanley predicts the cash rate will rise to 1.75% by December, noting imminent rate hikes will have a direct impact on loan serviceability costs and warning investors to expect a -5% decline in house pricing in 2023 and a further -10% decline in 2024.
Declining house prices could also indicate further risk for the construction industry according to the broker. Noting forward building approvals have softened significantly, down -2.4% month-on-month and -32% year-on-year in April, Morgan Stanley anticipates approvals will decline further as house prices fall. While around 230,000 construction projects remained in the national pipeline at the end of 2021, Morgan Stanley highlighted risk around the completion of these projects as costs increase and prices decline, with risk to construction activity translating to risk to the 9% of the workforce directly employed by the industry.
Food import constraints could drive global food crisis
With constraints on global food exports, analysts at ANZ Bank are anticipating food protectionism to increase and food insecurity to worsen, driving a global food crisis that will be detrimental to the United Nation’s goal of zero hunger by 2030.
According to ANZ, the Russia-Ukraine conflict is a major driver of an ongoing global food crisis. Grain exports in particular look to be a challenge, with both Russia and Ukraine major grain exporters having supplied 30% of global wheat supply in recent years. Coinciding with a series of poor grain harvests, particularly in North and South America, inventories of the soft commodity are precarious. With the conflict impacting energy and fertiliser availability, ANZ anticipates another challenging grain harvest ahead.