Iron Ore Boom Feeds Housing Boom  

• Money raining down on Perth
• Frydenberg’s dreams come true
• Plus, now come the money men…

Callum Newman

Dear Reader,

You don’t need me to tell you that iron ore just keeps flying higher. It breached US$210 last week.

And that’s for the standard 62% index. The really good stuff is going for even more.

We don’t need to dwell on what this means for BHP, Rio Tinto, and Fortescue. They’re raking it in.

Of concern for us today is what effect this will have on the Aussie housing market.

The link between the two might not seem clear. But we’ll explore the implications in today’s Daily Reckoning.

The obvious connection is Perth.

The mining boom in Western Australia is becoming so prodigious that rents and house prices will respond as the high wages and company profits shower down on the place.

But we have to go much deeper than that. The roaring iron ore industry is upgrading the government finances.

This is giving Treasurer Josh Frydenberg much more ammo to spend than he would have dreamt of this time last year.

And tomorrow we have the federal budget to appear. Already the handouts and boondoggles are being leaked, teased, and tested.

What do we see?

There’s going to be more billions in infrastructure money to go with the previously announced $100 billion.

We have more First Home Buyer Deposit guarantees and an upgraded limit to the super-saving scheme to help them save.

And I believe there’ll be added incentives for baby boomers to downsize from their current homes and put the cash in super.

All seem reasonable at first glance. All will inflate the housing market even more.

The consequence is predictable. Investors will pour back into the market chasing the gains.

We’ve seen an inkling of this already with the latest credit statistics. I expect it will become a flood in time. 

There’s plenty of runway left in markets like Perth and Darwin. Perhaps Sydney and Melbourne, not so much.

Now we need to observe the money men getting involved.

What’s this?

From The Australian:

‘The nation’s non-bank lenders are preparing for a new round of monster funding deals, even after the sector has raised billions of dollars just in the past week.

‘Amid the heady combination of a booming housing market and an insatiable appetite from large investors, non-bank lenders have raised more than $5bn through residential mortgage-backed securities (RMBS) in just over a week, including a record-breaking $2bn bond from Firstmac.

‘While most of these lenders typically do a couple of issuances a year, all signs are pointing to a bumper 2021, with even bigger deals likely before the year is out.

‘Indeed, the sector is on track for having one its best years for fundraising since the global financial crisis, where at its peak more than $55bn flowed into RMBS deals.’

All this credit is mostly designed to cater to the areas of the market currently locked out of the property party: the self-employed, the retired businessmen, those with an irregular pay cheque or work history. 

The big banks do not cater to this market well and there’s a profitable niche to fill it.

And so, it will be filled. One new float you might like to keep an eye on is the return of Pepper Money.

This is a non-bank firm being relisted on the ASX after being in private hands for a few years.

I’m not saying buy it when it starts trading. I’m saying keep an eye on its quarterly reports and investor updates.

It will likely be a good way to keep a pulse on the property market. Resimac Group Ltd [ASX:RMC] is another one you can watch out for too.

Make no mistake, however. As far as the Aussie housing market goes, it’s onwards and upwards.

Regards,

Callum Newman,
Editor, The Daily Reckoning Australia

PS: Don’t forget to check out the latest presentation from my colleagues Ryan Dinse and Greg Canavan. One of the things I’m tracking is for cryptocurrencies to leach into the housing market.

Ryan and Greg are imploring everyone to listen that cryptos are leaching into EVERYTHING. Make sure you see what they’re saying now by going here.