Pete Wargent blogspot


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Thursday, 17 January 2019

Earth to Martin Place

Inflation expectations collapse

Dear, oh dear...

The market may now be beginning to price in further interest rate cuts; alternatively mortgage serviceability buffers may be relaxed, presently being at a minimum of 7 per cent. 

The breakeven inflation rate, a bond market based measure of inflation expectations, momentarily touched a low of under 1.50 in June 2016, and we're now not far from that point again in January 2019. 

Not to be alarmist, but markets are nervously beginning to eye up the very cold snap the housing slowdown was designed to protect from. 

Wednesday, 16 January 2019


Cut ze rates

Financial markets will soon be pricing in another rate cut within 12 months.

Source: ASX

Generally rate cuts come in pairs, though (aka. the 'double tap').

Completions ahoy!

End of the boom

New attached dwelling commencements fell 8.4 per cent in the September 2018 quarter, and house commencements were down 4.2 per cent.

The smoother trend figures showed that commencements were still fairly high in the third quarter, but it's also likely that these figures have deteriorated a good deal in the months that have followed. 

Developers had made significant inroads into the pipeline by the end of September 2018.

The number of completions hitting the housing market was very high at the end of September, as evidenced in rising rental vacancies by the end of the calendar year. 

The data lags significantly, but at the end of September there were still some 225,000 dwellings under construction, including 157,000 attached dwellings, meaning that access to mortgage finance in 2019 will be critical (although even then conservative valuations could lead to a crash of settlement defaults). 

At the state level, New South Wales (66,000) and Victoria (50,000) still had a particularly high number of attached dwellings under construction. 

Mortgage lending has been tightened considerably in recent years to prepare Australia for such a time when "an unseasonal cold snap" one day arrives. 

Unfortunately, the unseasonal cold snap has now arrived - in no small part because of the weakened housing market - with Westpac reporting consumer confidence "evaporating" in December, the reading crunched 4.7 per cent lower to 99.6, representing negative territory for that survey.

Trying to be optimistic, there is still enough activity live and in the pipeline for the economy to come through this soggy patch relatively unscathed, but in my opinion that won't happen if established dwelling prices continue falling in Sydney and Melbourne. 

Tuesday, 15 January 2019

Sydney a tenant's market

New rentals ahoy

Sydney's apartment pipeline is now shrinking after its multi-year boom, but in the meantime there is plenty of new stock for tenants to choose from.

December is a seasonally weak month for the rentals market for obvious reasons, but Sydney had around 25,000 rental vacancies around Christmas according to the latest SQM Research figures, for a vacancy rate of 3.6 per cent (well up from 2.6 per cent for the prior corresponding period). 

Sydney's population is growing fast, but it's always going to take time to digest such a high level of rental supply coming all in a rush. 

At the sub-regional level, rental vacancies are especially high in the supply-responsive zones, such as within the Hills District of Sydney.

Source: SQM Research

Some of the suburbs where landlords are really likely to struggle have been flagged here often enough before, including as Wentworth Point (8.3 per cent vacancy rate in December). 

Despite the high level of supply unit asking rents increased in Sydney over the month. 

At the other end of the spectrum Hobart (0.4 per cent) had but a hundred or so vacancies, while Adelaide, Brisbane, and Perth have consistently seen vacancy rates lower than a year earlier, so these markets are tightening.

Melbourne will be interesting to watch in 2019, particularly as the first quarter of the year is likely to see a seasonal summer surge in Australia's estimated resident population of about 125,000, with most of the new arrivals heading to Sydney and Melbourne (in that order), before accounting for interstate movements.  

Flash uncrash

Dollar surges

Well the supposed 'recession indicator' that was the Aussie dollar flash crash didn't last long then!


Monday, 14 January 2019

Credit cards out of vogue

Peak credit card?

I stopped Tweeting credit card statistics a long time ago - too many inane and energy-sapping comments and people unable to see beyond their own narrative.

That is Twitter, what the hell am I saying?

Whatever, an unexpected reprieve today, as it's been a quiet start to the week and there were a few interesting points of note!

Unusually for Australia, the number of credit card accounts has actually declined to under 16 million, as more Aussies opt to cut up their cards.

The big drop at May 2018 was due to a change in data collection coverage, so that's nothing to get too aroused over, but since then there has been a steady decline of about 86,000 accounts (click to expand graphics):

Although credit card debt overall has moderated, the 'average' balance per card has increased simply because there are fewer credit card accounts than there were 18 months ago. 

There was no sign of a slowdown in total card transaction levels, indicating healthy levels of consumer spending, but credit card balances accruing interest have certainly eased in recent years. Indeed, in per capita terms, balances accruing interest are well down.

During periods of more elevated household financial stress (2007-8, 2012) than we have seen lately ~38 per cent of credit card limits were used, but we are now down to ~34 per cent.

Cards in the blender

The annual decline in credit card lending was the greatest in more than a dozen years - though this was more than offset by more consumers opting for debit cards and spending that way instead - while the number of credit card accounts has been in outright decline.

Overall, less credit card usage may be about what you'd expect to see with the trend unemployment rate of 5.1 per cent now at the lowest level since July 2011.

More consumers are also undoubtedly finding that tight mortgage lending criteria make holding spare credit card accounts more trouble than they're worth, while new regulations will additionally require that consumers prove they can repay the credit limit within a 36-month timeframe. 

Perhaps there's a bit of the Barefoot Investor effect kicking in as well, with a bit of that evil plastic ending up in the kitchen blender.

Quite possibly it's due to a combination of all of the above. 

Good to see!

How to join the 5%

How to join the 5%

Here's how (click image to watch).

Sunday, 13 January 2019

Black Friday boost

Spending moves to online

It's been suggested that the Christmas period was potentially a horror show for retailers - and we always enjoy a bit of a headline - but we'll have to wait for the official statistics to get confirmation of that.

Certainly there's been very little in the way of pricing power for retailers.

It also seems to me that there's a possibility of retailing trends changing faster than surveys can comfortably react (we've already seen recently how the internet has changed the relevance of some job vacancies surveys).  

Indeed, the ABS report for November 2018 showed one remarkable statistic, that online retail accounted for a record 6.6 per cent of total turnover, up from only 5.9 per cent in October, (and 5.5 per cent a year earlier) which, if sustained, is a remarkable rate of change. 

Black Friday boost

A 30-second look at the November 2018 figures, then: seasonally adjusted retail turnover increased by a better-than-expected 0.4 per cent in the month to $27.12 billion. 

As you can see in the chart above the prior year figures were spiked bigly by Black Friday and especially iPhone X sales - rather depressing the year-on-year change in retail turnover - but the smoothed trend series shows a moderate year-on-year growth of 3.6 per cent. 

Black Friday and other promotional activities were especially flattering in November 2018 to household goods retailing (+1.2 per cent), and clothing, footwear, and personal accessories (+1.5 per cent), while department stores (+0.4 per cent) saw a modest boost. 

The main monthly increases were seen in New South Wales (+0.8 per cent) and the ACT (+1.6 per cent), with Canberra now experiencing the fastest year-on-year growth.

Overall, not bad numbers, so we can all breathe a sigh of relief and save the Apocalypse Now references (for another month at any rate). 

The horror. The horror...