Will the Price of Housing Continue to Surge in 2024?
By Dale Gillham |
Earlier in the month, the RBA increased interest rates again, putting further pressure on mortgage holders, but will this rate rise also impact the construction industry and new homes? As many building companies have defaulted over the past few years due to labour shortages and the price of building materials at record levels, it’s no wonder many Australians are worried about building a new home. As such, you would think the latest rate rise would spell disaster for the building industry.
What are the signs that housing will continue to rise?
I’m not surprised that many think the housing market is all doom and gloom, but is this negative perception about the future of the construction industry an opportunity in waiting? As they say, it is always darkest before dawn, so let’s look at some stats that make me think we might be about to boom rather than experience more doom.
Construction is important for Australia as it accounts for around 8 to 9 per cent of the nation’s GDP, contributing $4.04 billion to the economy as of the second quarter of this year. This is an increase of 2.02 per cent from the first quarter’s value of $3.96 billion, and importantly, this trend has seen a steady rise since a low of $3.4 billion back in 2020.
Corelogic’s Cordell Construction Cost Index (CCCI) tracks the cost of building a home, and as of the June quarter, it reported a growth rate of only 0.7 per cent, the lowest since September 2020. The CCCI also reported an increase of 8.4 per cent on a yearly basis; however, last year, it was an increase of 11.9 per cent, the largest annual index rise on record.
Migration remains high and will add to the labour supply in conjunction with the demand for new homes, so it will be interesting to see how this dynamic plays out. We know the government is ready to spend $254.8 billion on infrastructure over the next four years and has promised to build 1.2 million new homes. Given this, I suspect some big players in the industry are ready for the inevitable surge in construction, which is exciting for those looking to get into some good stocks.
Boral is Australia's largest listed construction materials company, with an international footprint from the US to Asia. The company stated on 11 November that it had upgraded its earnings guidance for FY24 from $270-300 million to $300-330 million. CSR is another big construction materials company also seeing record results, reporting half-year earnings of $165 million, up 18 per cent yearly.
All of this is good news, as it indicates there are multiple signs that the building and construction industry is finding its legs and while there are some challenges ahead, I believe there is a boom just around the corner. Given this, I recommend you get your boots on and hard hats out so you’re ready when the opportunities arise.
What were the best and worst-performing sectors last week?
The best-performing sectors included Real Estate, up 3.98 per cent, followed by Information Technology, up 3.92 per cent and Materials, up 3.11 per cent. The worst-performing sectors included Energy, down 1.88 per cent, followed by Communication Services, down 1.33 per cent and Financials, down 0.53 per cent.
The best-performing stocks in the ASX top 100 included ALS, up 13.04 per cent, followed by Block, up 8.97 per cent and Lend Lease, up 8.90 per cent. The worst-performing stocks included AMP, down 14.93 per cent, followed by ANZ, down 5.5 per cent and Bendigo Adelaide Bank, down 5.3 per cent.
What's next for the Australian stock market?
I said before that a week can be a long time in the stock market, and last week it proved why, given that the prior week looked very undecided and weak. At one stage last week, the All Ordinaries Index was up 2.2 per cent and had traded to its highest level in eight weeks. That was before it turned to trade down on Thursday and Friday to close the week up just 1.18 per cent.
So, is this the end of the bearishness for 2023?
While I am still cautious about getting too excited with the current rise, given the Australian market has been prone to false signals in the past few years, it is more likely that we will have a good year-end. In my last report, I mentioned that we still can’t confirm the down move is over, and for that to occur, we need to see the market rise over the coming weeks rather than fall. While I mentioned this was unlikely, it is not convincing that this is what unfolded.
Once again, this proves that while we can use our best efforts to determine where the market or a stock is heading, we don’t control the market, as it will do what it wants, hence my caution. While I have moved to being more positive, I am still being cautious. To remain positive, we need to see the All Ordinaries Index continue to rise into this week and beyond. The longer it rises, the more my opinion will change. For now, I will err on the cautious side and urge investors to protect their portfolios.
For now, good luck and good trading.
Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.