Value Investing Is Back. But for How Long?
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    HOUSE MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $1,603,134 (+0.55%)       elbourne $989,193 (-0.36%)       Brisbane $963,516 (+0.83%)       Adelaide $873,972 (+1.09%)       Perth $833,820 (+0.12%)       Hobart $754,479 (+3.18%)       Darwin $668,319 (-0.54%)       Canberra $993,398 (-1.72%)       National $1,033,710 (+0.29%)                UNIT MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $748,302 (+0.18%)       Melbourne $497,833 (-0.44%)       Brisbane $540,964 (-1.56%)       Adelaide $441,967 (-0.38%)       Perth $442,262 (+1.33%)       Hobart $525,313 (+0.38%)       Darwin $347,105 (-0.72%)       Canberra $496,490 (+0.93%)       National $528,262 (-0.02%)                HOUSES FOR SALE AND WEEKLY CHANGE     Sydney 10,189 (-104)       Melbourne 14,713 (+210)       Brisbane 7,971 (+283)       Adelaide 2,420 (+58)       Perth 6,383 (+298)       Hobart 1,336 (+6)       Darwin 228 (-12)       Canberra 1,029 (+8)       National 44,269 (+747)                UNITS FOR SALE AND WEEKLY CHANGE     Sydney 8,795 (-1)       Melbourne 8,207 (+293)       Brisbane 1,636 (+1)       Adelaide 421 (-4)       Perth 1,664 (+15)       Hobart 204 (-1)       Darwin 404 (-2)       Canberra 988 (+12)       National 22,319 (+313)                HOUSE MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $800 (+$5)       Melbourne $600 ($0)       Brisbane $640 (+$10)       Adelaide $600 ($0)       Perth $660 ($0)       Hobart $550 ($0)       Darwin $700 ($0)       Canberra $690 ($0)       National $663 (+$2)                UNIT MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $750 ($0)       Melbourne $590 (+$10)       Brisbane $630 ($0)       Adelaide $490 (+$10)       Perth $600 ($0)       Hobart $475 (+$23)       Darwin $550 ($0)       Canberra $570 (+$5)       National $593 (+$4)                HOUSES FOR RENT AND WEEKLY CHANGE     Sydney 5,364 (+80)       Melbourne 5,428 (+4)       Brisbane 4,002 (+12)       Adelaide 1,329 (+16)       Perth 2,113 (+91)       Hobart 398 (0)       Darwin 99 (-5)       Canberra 574 (+39)       National 19,307 (+237)                UNITS FOR RENT AND WEEKLY CHANGE     Sydney 7,687 (+257)       Melbourne 4,793 (+88)       Brisbane 2,098 (+33)       Adelaide 354 (-11)       Perth 650 (+5)       Hobart 135 (-1)       Darwin 176 (-9)       Canberra 569 (+14)       National 16,462 (+376)                HOUSE ANNUAL GROSS YIELDS AND TREND       Sydney 2.59% (↑)      Melbourne 3.15% (↑)      Brisbane 3.45% (↑)        Adelaide 3.57% (↓)       Perth 4.12% (↓)       Hobart 3.79% (↓)     Darwin 5.45% (↑)      Canberra 3.61% (↑)      National 3.33% (↑)             UNIT ANNUAL GROSS YIELDS AND TREND         Sydney 5.21% (↓)     Melbourne 6.16% (↑)      Brisbane 6.06% (↑)      Adelaide 5.77% (↑)        Perth 7.05% (↓)     Hobart 4.70% (↑)      Darwin 8.24% (↑)        Canberra 5.97% (↓)     National 5.84% (↑)             HOUSE RENTAL VACANCY RATES AND TREND       Sydney 0.8% (↑)      Melbourne 0.7% (↑)      Brisbane 0.7% (↑)      Adelaide 0.4% (↑)      Perth 0.4% (↑)      Hobart 0.9% (↑)      Darwin 0.8% (↑)      Canberra 1.0% (↑)      National 0.7% (↑)             UNIT RENTAL VACANCY RATES AND TREND       Sydney 0.9% (↑)      Melbourne 1.1% (↑)      Brisbane 1.0% (↑)      Adelaide 0.5% (↑)      Perth 0.5% (↑)        Hobart 1.4% (↓)     Darwin 1.7% (↑)      Canberra 1.4% (↑)      National 1.1% (↑)             AVERAGE DAYS TO SELL HOUSES AND TREND       Sydney 29.7 (↑)      Melbourne 30.9 (↑)      Brisbane 31.2 (↑)      Adelaide 25.1 (↑)      Perth 34.4 (↑)      Hobart 35.8 (↑)      Darwin 35.9 (↑)      Canberra 30.4 (↑)      National 31.7 (↑)             AVERAGE DAYS TO SELL UNITS AND TREND       Sydney 30.0 (↑)      Melbourne 30.5 (↑)      Brisbane 28.8 (↑)        Adelaide 25.2 (↓)       Perth 38.3 (↓)       Hobart 27.8 (↓)     Darwin 45.8 (↑)      Canberra 38.1 (↑)      National 33.1 (↑)            
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Value Investing Is Back. But for How Long?

A bounce in bond yields is good news for dividend payers.

By James Mackintosh
Wed, Feb 2, 2022 10:04amGrey Clock 3 min

Value investing—buying stocks that are cheap on measures such as earnings or book value—is having a renaissance. Up to last Thursday, large value stocks beat more expensive “growth” stocks by the most of any 50-day period since the technology bubble burst in 2000-01, with the exception of the post-vaccine rebound early last year.

The big question for investors: Does this mark the rebirth of what was a dying strategy? Or was this just another spasm, already fading as technology stocks rebound?

The answer depends in large part on the role of rising Treasury yields. Bond yields have leapt since early December, as expectations grew that the Federal Reserve would raise rates aggressively this year to tackle inflation. That coincided with a tumble in growth stocks, dragging the Nasdaq index to within a whisker of a bear market, down almost 20% from its November peak.

One interpretation is that the leap in yields was the pin that pricked the bubble in growth stocks, shocking investors out of their lazy assumption that Big Tech just always went up. For hard-core value investors (and after years of underperformance, they have to be hard-core), this marks the moment when the purchase of cheap stocks can return to its rightful place as a leading strategy.

Cliff Asness, founder of quantitative fund manager AQR, thinks it is plausible that the bond-yield rise was the shock that changed investor views on growth stocks. “It’s a catalyst not because of solid economic reasons but because catalysts for when irrationality will blow up are behavioural magic, not economics,” he argues.

I think this explanation works for the truly speculative growth stocks. A cluster of wildly expensive crypto, clean energy, meme stocks and SPACs have been deflating since early last year, when bond yields also soared. They plunged again as yields jumped this year, with the Ark Innovation exchange-traded fund—which holds many highly speculative stocks—falling 34% this year to Friday’s low. (By Monday’s close it was up 17% from that low.)

The link between bond yields and speculative growth stocks is clearly extremely loose, because their price is dominated by sentiment—Mr. Asness’s “behavioural magic”—not by spreadsheets of discounted cash flow.

Larger stocks can, of course, be dominated by sentiment too, as shown by the involvement of huge telecom, media and technology stocks in the dot-com bubble of 2000. But most of the time there is a tighter focus on the outlook for earnings and the discount rate.

It is that discount rate that provides the alternative interpretation for why growth stocks sold off as bond yields rose: mathematics. The valuation even of highly profitable companies such as Microsoft is high because they are expected to keep growing earnings at a high rate for a long time, and those far-in-the-future earnings are worth more today when the discount rate, based on bond yields, is lower. As that discount rate rises, those future earnings should be worth less to an investor.

In the bond market, this idea is known as the duration of a bond, the average time it takes for the cash from it to add up to the price you pay for it. The longer it is, the more sensitive the price is to changes in the yield. One example: The price of the 30-year Treasury bond fell more than 10% from its Dec. 3 high to its mid-January low, as its yield rose just 0.5 percentage point, because the low yield meant it had an exceptionally long duration of 23 years.

Something similar happened to stocks this year. The longer their duration, the more they fell, using the dividend yield as a simple proxy for the duration.

Because growth stocks have the highest duration (the lowest dividends), and value stocks the lowest (the highest dividends), value had a wonderful time. As bond yields have pulled back a bit, or at least their upward climb has been interrupted, growth stocks rebounded.

The trouble with this explanation is that the link between bond yields and bigger gains for value stocks isn’t super strong, and changes over time. Even in the past year, long-dated bond yields and a pure measure of value stocks only moved together about 30% of the time, and that relationship has been weaker recently.

Partly that is because other things matter too; most important, the market’s assessment of the economy’s strength has a big effect on value stocks.

But markets move with the heart as well as the head. Mr. Asness is right that sentiment matters, and it may be turning back in favour of value, helped by the math. I think bond yields are a bigger factor. If I’m right, the danger is that the Fed, geopolitics or supply problems might lead yields to pull back, and value’s recent strength evaporates.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: February 1, 2022.



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New research suggests spending 40 percent of household income on loan repayments is the new normal

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Requiring more than 30 percent of household income to service a home loan has long been considered the benchmark for ‘housing stress’. Yet research shows it is becoming the new normal. The 2024 ANZ CoreLogic Housing Affordability Report reveals home loans on only 17 percent of homes are ‘serviceable’ if serviceability is limited to 30 percent of the median national household income.

Based on 40 percent of household income, just 37 percent of properties would be serviceable on a mortgage covering 80 percent of the purchase price. ANZ CoreLogic suggest 40 may be the new 30 when it comes to home loan serviceability. “Looking ahead, there is little prospect for the mortgage serviceability indicator to move back into the 30 percent range any time soon,” says the report.

“This is because the cash rate is not expected to be cut until late 2024, and home values have continued to rise, even amid relatively high interest rate settings.” ANZ CoreLogic estimate that home loan rates would have to fall to about 4.7 percent to bring serviceability under 40 percent.

CoreLogic has broken down the actual household income required to service a home loan on a 6.27 percent interest rate for an 80 percent loan based on current median house and unit values in each capital city. As expected, affordability is worst in the most expensive property market, Sydney.

Sydney

Sydney’s median house price is $1,414,229 and the median unit price is $839,344.

Based on 40 percent serviceability, households need a total income of $211,456 to afford a home loan for a house and $125,499 for a unit. The city’s actual median household income is $120,554.

Melbourne

Melbourne’s median house price is $935,049 and the median apartment price is $612,906.

Based on 40 percent serviceability, households need a total income of $139,809 to afford a home loan for a house and $91,642 for a unit. The city’s actual median household income is $110,324.

Brisbane

Brisbane’s median house price is $909,988 and the median unit price is $587,793.

Based on 40 percent serviceability, households need a total income of $136,062 to afford a home loan for a house and $87,887 for a unit. The city’s actual median household income is $107,243.

Adelaide

Adelaide’s median house price is $785,971 and the median apartment price is $504,799.

Based on 40 percent serviceability, households need a total income of $117,519 to afford a home loan for a house and $75,478 for a unit. The city’s actual median household income is $89,806.

Perth

Perth’s median house price is $735,276 and the median unit price is $495,360.

Based on 40 percent serviceability, households need a total income of $109,939 to afford a home loan for a house and $74,066 for a unit. The city’s actual median household income is $108,057.

Hobart

Hobart’s median house price is $692,951 and the median apartment price is $522,258.

Based on 40 percent serviceability, households need a total income of $103,610 to afford a home loan for a house and $78,088 for a unit. The city’s actual median household income is $89,515.

Darwin

Darwin’s median house price is $573,498 and the median unit price is $367,716.

Based on 40 percent serviceability, households need a total income of $85,750 to afford a home loan for a house and $54,981 for a unit. The city’s actual median household income is $126,193.

Canberra

Canberra’s median house price is $964,136 and the median apartment price is $585,057.

Based on 40 percent serviceability, households need a total income of $144,158 to afford a home loan for a house and $87,478 for a unit. The city’s actual median household income is $137,760.

 

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