Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email pete@allenwargent.com

Saturday, 25 February 2017

Deuces are wild

Wild Sydney Saturday

Very busy in Sydney today, in spite the atrocious end-of-season weather, with prospective property purchasers and the traditional tyre-tickers out in force alike. 

Can't say for sure what's going on across the wider Sydney market, but in the eastern suburbs and inner west auctions were packed out with some seriously cashed up buyers and bidders.


Unlike in the United Kingdom where there are punitive inheritance taxes even for moderate estates, Australia has long since abolished its state and federal death duties.

It shows. 

There are some seriously cashed up buyers around in markets that have experienced strong price gains like Sydney, with dozens of bidders registering at auction, even for properties selling in the $3 million plus price bracket.

And accordingly there were some monster auction results east, west and north of the City today: from Marrickville to Maroubra to Mosman, from Drummoyne to Dee Why, to Bronte and Bondi.

Today's median auction price in Sydney was $1,420,000, some 18 per cent higher than a year ago. 

And here's that number in its historical context. 


Gulp.

Norman, Oklahoma, Lightning, Dangerous

Weekend reads: Must see articles of the week

All nicely summarised for you here at Property Update (or click the image below).


You can subscribe for the free newsletter here.

Friday, 24 February 2017

London & the post-crisis recovery

UK city prices +6.9pc

Hometrack's UK 20 Cities Index saw house prices rise by 6.9 per cent over the year to January 2017.

London prices were up by 6.4 per cent over the year - which is actually the city's lowest rate of price growth for 42 months for the capital, as the premium sector has slowed significantly in response to stamp duty changes and related headwinds.

Since 2009, London and Cambridge have led the way in terms of price growth, with the capital city returning to the top of the tree with 85 per cent price growth. 

Price growth has been over 75 per cent in Oxford and Cambridge. 

Regional cities are in many cases struggling to surpass pre-crisis highs - the contract with the south east of England has been remarkably stark - but some regional cities potentially have upside. 


Source: Hometrack

Price growth in Manchester increased to 8.3 per cent in the year to January 2017. 

London, Tower Bridge, Bridge, Monument

Perth unemployment rate above 7pc

Perth labour market deteriorates

Over December and January Greater Perth joined Greater Adelaide in the unenviable position of having  an unemployment rate which has breached 7 per cent. 

Smoothing the unemployment rate figures as an annual average shows that of the main capital cities only Perth is in an unemployment rate uptrend as the heady days of the resources boom recede.


Nationally annual employment growth has picked up a little over the past three months, albeit not by very much, with a shade over +90,000 positions added on a net basis for employment growth of +0.8 per cent. 

Having been on a storming run in 2015, annual employment growth has slowed right up in Greater Sydney to +21,000, with only Greater Melbourne adding any meaningful figure to its workforce at +85,000. 


In aggregate, in fact, the rest of Australia has added no net new employment at all over the year to January 2017, which is a rather underwhelming statistic to say the least!

Regions struggling

CoreLogic released some telling research today which showed that while capital city land values have continued to rise, regional land values in Australia are falling, down by some -8.5 per cent in 2016, noting that:

"Capital city dwelling values are rising while many regional areas are experiencing value falls."

According to CoreLogic the capital cities seeing the greatest increase in land values over the year were Sydney (+20.5 per cent), Hobart (+13.1 per cent), and Melbourne (+9.5 per cent). 

On the other hand land price falls were notched in regional New South Wales (-2.4 per cent), regional Queensland (-11.5 per cent), regional South Australia (-5 per cent), regional Western Australia (-2.3 per cent), and regional Tasmania (-3.0 per cent).

With lot sizes having decreased, on a rate per square metre basis some massive regional falls have been recorded in 2016, including -24.9 per cent in regional New South Wales, -34.8 per cent in regional Queensland, -13.2 per cent in regional South Australia, -12.5 per cent in regional Western Australia, and -17.9 per cent in regional Tasmania.

The gap between capital city and regional prices has thus continued to widen to reach its greatest ever gulf. 

You can read CoreLogic's findings in much more detail here

While it's important not to generalise too much, it is the case that many regions of Australia saw employment bolstered through the resources construction boom up until 2011-12, a trend which then retraced after the commodity price cycle peaked. 

To look at Townsville as one example of a region which saw employment trends follow this pattern, total employment picked up strongly and peaked at 125,500 in 2011, subsequently declining by more than 25 per cent before stabilising. 


While the picture seem to have improved of late, with an unemployment rate of 12 per cent across the region to date there remains too much slack in the labour market to force wage increases. 


Recent research by SQM Research showed that the rebound in commodity prices may have helped mining town property markets through their nadir after a diabolical run. 

Handshake, Hand, Give, Business, Man

First homebuyers look to Brisbane

Reported n the Brisbane Times today (click image below).

iSentia hosed

Gosh, iSentia (ASX: ISD), a struggling value stock I looked at previously here didn't please the market through reporting season.

The company posted an EBITDA loss after restructuring, with ongoing concerns over its content marketing division.


Before reporting ISD had been trading at around $2.80.

ISD closed at $1.66 yesterday down from $4.95 in late 2015.

Firefighters, Fire, Flames, Outside

Earnings up, not a lot

Earnings trudge on

Average weekly earnings for males working full-time increased by only 1.8 per cent in the year to November 2016, according to the Australian Bureau of Statistics (ABS).

Thus earnings for men working full-time increased faster than inflation, but not really by much. 


Although coming from a substantially lower base, average earnings for females working full-time are faring relatively much better, increasing by 3.3 per cent over the year to November. 


Since May 2012 on these measures full-time total earnings have increased by 15 per cent for females compared to only 12 per cent for males. 

This in part may reflect that women have historically been paid and promoted far less than men, and in professional and services roles this imbalance is being addressed, albeit gradually.

Furthermore wages growth in male-dominated industries such as the mining and resources sectors has been very sluggish over the past year

Public sector wages rising faster

It was also notable from the ABS release that public sector earnings are rising at a considerably faster pace than in the private sector, with ordinary time earnings up by 3.4 percent and total earnings up 3.3 per cent for full-time employees.

This is likely to be good news for inhabitants of Canberra, where ordinary time earnings are on average higher than anywhere else in the country!  

Piecing all of this together, over the year to November 2016 full time adult average weekly ordinary time earnings ("AWOTE") increased by 2.2 per cent to $1,533.10, as reported by the ABS.

Meanwhile the full-time adult average weekly total earnings in November 2016 was $1,592.40, which was also a rise of 2.2 per cent from the same period last year.

Mining states

The original figures - not seasonally adjusted - can naturally be a little volatile at the state level.

What they do show, however, is that male total earnings for full-time workers are still on average highest in the resources states of Western Australia and the Northern Territory, reflecting that solid bonuses can be earned in this sector, while fly-in fly-out workers (FIFO) may be well compensated for their time spent working remotely.  

This trend has persisted is in spite of the mining industry recording the weakest year-on-year growth in wages



The wrap

Overall, it's clear that while real earnings are still rising in Australia, the gains have been relatively moderate of late.

At the present time, therefore, the prognosis appears to be best for households with two incomes given that female full-time earnings are rising at a more sprightly pace than their male equivalents. 

What's more, it's in the public sector and in the services sectors such as healthcare, social assistance, education and training that the fastest wages and earnings growth in taking place.

The outlook for resources regions is in many instances bleak by comparison. 

Dollar, Money, Earn Money, Internet

Thursday, 23 February 2017

Declining mining CapEx still hurting WA

CapEx still weak

Total private new capital expenditure declined by another 2.1 per cent in seasonally adjusted terms in the December quarter to $27.6 billion. 

Capex has declined by 15.5 per cent over the year following slight revisions to the prior quarter. 



Mining investment continues to plunge, now down to $9.4 billion from a quarterly peak of $24.3 billion in the second quarter of 2012, with yet further drops expected. 

There have been some moderate improvements in manufacturing and services capital expenditure respectively, although to date these have been relative chicken feed compared to the smashing falls in the mining sector. 



The decline in mining capex continues to hurt Western Australia, where total quarterly capital expenditure has fallen from $15.8 billion in the December quarter in the heady days of four years ago to just $7.2 billion, with further declines in the post. 


Despite the gloom in Western Australia, nationally the decline is now in all likelihood far closer to the end than to the beginning.

In fact, in other states capital expenditure is generally tracking reasonably well, if not swimmingly. 

The first estimate for total capital expenditure - which historically has always come in low - was an uninspiring $80.6 billion for 2017-18, which was a disappointing 3.9 per cent below the corresponding prior year estimate. 

This was a clear-cut miss against market expectations.

Notably the first estimate for "other industries" - essentially services  industries- was 8.3 per cent higher than in the prior year at $46.8 billion. 

However, the first estimate for mining capex remained a painful 20 per cent lower year-on-year, which really is another huge decline given what has already gone before! 

The wrap

There is some grounds for optimism here given that services investment is now steadily increasing. 

Despite this, mining capital expenditure still has some way to decline, particularly in Western Australian and the Northern Territory. 

How you experience 2017 and 2018 will largely depend on whether or not you live in Western Australia or in a resources region. 

The services industries, at least in the most populous capital cities, look set for a mainly positive year ahead. 

Gold-Construction, Australia

MOAR apartments...

Glut

The Meriton Tower is the tallest building in Brisbane presently, but it won't be the tallest building in the city for too much longer.

The new SkyTower at 222 Margaret Street will go taller again at 274 metres and comprising some 1,119 apartments. 

Mostly one- and two bedroom affairs, apartment prices commenced at around $425,000.

About 20 per cent of the apartments sold have reportedly gone to offshore buyers. 

The SkyTower will only be the tallest building for a short period of time itself, until a new development at 300 George also goes all the way up to 274 metres, which is presently the building height limit for the Brisbane CBD due to aviation restrictions. 

Property developer Billbergia and AMP Capital are behind the Skytower project, with Hutchison acting as the builders. 

Mining cliff all but finished

Construction flat in Q4

Engineering construction declined by a further 2.2 per cent in seasonally adjusted terms through the December quarter to be 18.6 per cent lower year-on-year at $19.3 billion.

As you can see in the chart below, engineering construction - mainly related to resources projects - peaked at the heady levels of nearly $35 billion back in 2012, but has been retracing ever since. 

The quarterly decline was more or less offset by a 1.3 per cent increase in building work done to $26.7 billion, leaving total construction work done in the fourth quarter all but flat at -0.2 per cent.

Mining cliff nearing the end

In Western Australia engineering construction declined once again to $5 billion in the fourth quarter, down from as high as $12.6 billion only six quarters ago.

WA still has a bit further to fall on this measure, though probably not all that much now, particularly given the enormous rebound in iron ore prices.

Iron ore projects pump out high volumes and reserves tend to be depleted quickly, and as such further investment will be required in existing projects in the Pilbara.

This is one reason why the chart below now appears to be flattening out.

Another reason is that in all of the other densely populated states, including Queensland, engineering construction is no longer in decline. 

It's now 4.5 years since mining investment peaked, with engineering construction down by a punishing 44 per cent from the September 2012 peak. 


In all other states and territories engineering construction work is now flat or positive, although to be fair activity in the Northern Territory will decline a bit further at some point as the Ichthys project investment spend dries up. 

All of this in part explains why the Reserve Bank of Australia is so apparently upbeat in its outlook - within a year engineering construction will have completed its retracement, and thus will stop acting as a drag on the economy for the first time in years.

Building work flourished in 2016

Total building work done has powered higher through this cycle, largely driven by residential construction in the largest capital cities rather than non-residential projects.

The rolling annual figures do now look peaky, though. 


Although the value residential construction work done increased again by 5.7 per cent in 2016, it seems likely that the top will soon be in.

Looking specifically at the construction of attached dwellings (being townhouses, units, and apartments) this sector was still going like the absolute clappers at the end of 2016, particularly in Sydney and Brisbane. 


That said, the top may soon be in here too, with Melbourne apartment construction work done having already apparently peaked back in the June quarter of 2016. 

The wrap

Overall this was a fairly flat national result for construction work done, which as ever masks divergent underlying trends.

Construction work done will be a moderate drag on GDP growth for the fourth quarter.

Although the economy may record a weak result for real GDP growth, at least as importantly nominal GDP and gross national income are set to record a storming run thanks to the commodity price rebound.

The good news is that after 4.5 years resources construction activity at long last looks to be approaching the end of its sweeping downturn. 

However, while residential building approvals suggest that housing construction will remain solid for the next year or perhaps longer, apartment construction in particular looks likely to fall sharply sooner or later.

Excavators, Site, Vehicle

Wednesday, 22 February 2017

Wages growth still stuck in a rut

Wages growth in a rut

Private sector wages grew by just 0.4 per cent in the December quarter, while public sector wages grew by 0.6 per cent, according to the Australian Bureau of Statistics (ABS). 

Over the year private sector wages growth of 1.8 per cent was well behind the 2.3 per cent growth seen in the public sector.


Nationally across all sectors annual wages growth remained stuck at 1.8 per cent, equalling the record nominal low seen in the preceding quarter. 


Mining struggles

Perhaps not surprisingly the weakest wages growth was seen in the mining sector at just 1 per cent in 2016.

The strongest wages growth was seen in services sectors such as healthcare and social assistance (2.4 per cent wages growth in a strongly expanding workforce), and education and training (2.4 per cent). 

Manufacturing wages grew by 1.8 per cent, as did wages in the construction sector. 



Reflecting the weakness in the mining sector, Western Australia had the weakest growth in wages in 2016 at 1.4 per cent. 

Improving Tasmania moved to the top of the pile with wages growth of 2.4 per cent, while conditions have also improved a little of late in New South Wales (2.1 per cent) and Queensland (2 per cent).



It's interesting to note that over the history of the data series - and particularly through the resources boom - Western Australia has posted by far the strongest increases in wages, and thus some mean reversion may be in play. 


Despite annual wages growth of only 1.8 per cent, wages growth continues to outpace inflation, and as such real wages have continued to grow. 


Overall, a weak result as widely expected, but the huge rebound in commodity prices together with some other brighter data suggest that the nadir of the quarterly wages growth cycle may soon have passed.

Picture by Ryan McGuire