Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

'Huge fan of your work. Very impressive!' - Scott Pape, The Barefoot Investor, Australia's #1 bestseller.

'Must-read, must-follow, one of the finest analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Business Insider.

'I've been investing 40 years yet still learn new concepts from Pete; one of the finest young commentators' - Michael Yardney, Amazon #1 bestseller.

'The most knowledgeable person on Aussie real estate - loads of good data & charts...most comprehensive analyst I follow in Oz' - Jonathan Tepper, Variant Perception, 2 x NYT bestseller.

Wednesday, 20 June 2018

'Peak fear' passes for banks

Believe, achieve

Bank share prices surged higher today as the media's apparently boundless energy for Royal Commission stories begins to ebb away.

Telstra saw its share price drop 4.87 per cent to $2.77 as the telco announced an 8,000 net reduction in employees and the monetisation of $2 billion of assets.

Showing another 8,000 staff the door will form part of a truly massive cost reduction for Telstra.

However, it must be said the company doesn't hasn't a great track record with revenue and earnings downgrades, and today proved to no exception in disappointing the market.

There seems to be a fair chance that the FY2019 dividend gets its wings clipped too. 

Nevertheless the ASX 200 surged 70.5 points or 1.1 per cent higher to 6172.6 at the close.

That's the highest close in 10½ years, while the accumulation index sits comfortably at a record high.

Positive news here for household wealth, with super funds on track to deliver double digit returns this financial year. 

Crazy book competition (free to enter)

Book pack up for grabs

We haven't had enough fun on this blog page recently - far too much seriousness afoot. 

But, here's a prize worth winning.

11 books valued at a total of...hang on....just a moment...$475!

You an enter for free here, or by clicking the image below which takes you to the landing page. 

Now, I'm supposed to say in the wording to this blog post that I've read all these books and therefore you should too.

But, the truth is, I haven't read all of them. 

Not yet anyway,

Ao I'll be entering myself! 

Best of luck (although hopefully I will win and not you).

Click here for your chance to win.

Tuesday, 19 June 2018

March quarter resi prices (-0.7pc qtr, +2pc yr)

ABS reports modest price declines

The ABS released its residential property price indexes for the March 2017 quarter.

Although these figures are retrospective, they are always instructive, and reflected tighter lending conditions this quarter.

The total value of the dwelling stock was a nick lower at $6.9 billion - albeit well up from $4.4 trillion in 2011 - putting the mean price of residential dwellings at $687,700, and leaving housing market equity of around $5.1 trillion or so.

At the national level there was a quarterly decline in prices of 0.7 per cent, now leaving prices just 2 per cent higher than a year earlier.


The quarterly price decline was mainly accounted for by the most populous city, Sydney, with Melbourne also posting a moderate 0.6 per cent decline. 


Zooming in on the New South Wales capital, from a year earlier attached dwelling prices in Sydney were still 0.4 per cent higher, but house prices were 0.8 per cent lower (though all dwelling types were below their respective June 2017 cyclical peaks).  


Over the year to March 2018 the strongest price growth was seen in Hobart at 14.1 per cent, and the weakest was seen in Darwin at negative 6.5 per cent.

There was moderate year-on-year price growth in Melbourne (6.2 per cent), Canberra (3.8 per cent), Adelaide (2.6 per cent), and two-speed Brisbane (1.6 per cent), while Perth looks (-1.5 per cent) looks to be bottoming out.

Finally, there was all the usual explosive commentary about crashing transaction volumes at unprecedented lows (and imploding dwelling completions), as there is each and every quarter.

But, of course, these numbers are preliminary, and as such they are always apparently crashing or at unprecedented lows - until they are revised up next quarter. 

Rate hikes pushed out until 2020

OIS see no hikes imminent

The Reserve Bank released its Board Meeting Minutes today for June 2018. 

I noted here the other day that there was an addition in June relating to declining mortgage rates on outstanding loans. 

It was interesting to note that in today's release the wording was given a little tweak to add a bit more clarity, suggesting that mortgage rates on new housing are no longer falling. 


There was a bit of discussion about the positive impacts of immigration on the ageing population.

Australia has experienced strong population growth over the past decade.

Thanks to young migrants, notably the median age had declined in New South Wales and Victoria.

There was a murmur of excitement due to there being no direct reference to the next move in rates being up.

Not sure I'd read too much into that personally, although currency markets flickered a little!

There was also a reference to wages being 'low and stable' which isn't wording that exactly screams imminent tightening, although there is reportedly some evidence of wage pressures in parts of the economy. 

In any event, reality is dawning on financial markets, with RBA meeting overnight indexed swaps looking increasingly skinny and now not pricing in a hike until 2020. 


Source: Martin Whetton, ANZ

And a lot might change between now and 2020 - including the government.

As you were.

5th straight decline for Brisbane vacancy rates

Brisbane rentals through the worst

SQM Research reported its always-excellent vacancy rates index today for the month of May 2018, with vacancy rates nationally at 2.1 per cent, down marginally from 2.3 per cent a year earlier. 

And the figures showed a fifth consecutive decline for vacancies in Brisbane.

Brisbane's city-wide vacancy rate was down to 2.9 per cent, from 3.5 per cent a year earlier. 

This accords well with what we've been seeing on the ground in Brisbane.

Indeed, family-appropriate dwelling stock is now often renting at the first open home, with numerous instances of multiple offers and rentals achieving above the asking price. 

There are still some notable pockets of pain, of course, most evidently in the inner-city high rise 'investor stock', where rental guarantees mask what is often optimistically pitched product.

There are also more high-rise units in the post for the CBD, with the SkyTower construction now well underway. 

Generally speaking and across the city, however, the rental market is rebalancing as construction slows, thanks to positive interstate migration and somewhat pacier net overseas migration, and is in better nick than a year earlier.

Plotted below are the vacancy rate figures by capital city smoothed on a 6mMA basis (not seasonally adjusted). 

As you can see, while Brisbane has now turned a corner, Sydney is now experiencing a high rate of unit completions with considerably more new apartment stock choice for renters. 

Sydney's vacancy rate of 2.5 per cent was well up from 1.7 per cent in May 2017. 


Elsewhere, Perth is grinding its way back from its punishing rental market nadir (please don't email about terminology: if you don't like it substitute with an antonym; it's really not that difficult!), while Hobart remains a tight rental market despite a slight loosening year-on-year.

It will be interesting to see at what point rising prices in Hobart spark a significant supply response, in what is a relatively small city, though some developers are reluctant to stray from the mainland due to the additional logistical challenges. 

Melbourne's vacancy rate was the same as it was a year earlier at just 1.4 per cent, despite hectic rates of dwelling construction. 

The Adelaide rental market has generally been tightening for some time now.

And finally, Canberra's rental vacancies have plummeted since the experiment with housing taxation, and it remains to be seen when a new rental market equilibrium is reached. 

Monday, 18 June 2018

Long-term arrivals into Australia at a record high

Long term arrivals surge

There has been some talk of tighter visa requirements in Australia lately. 

Over the 12 months to April 2018, at least, there were few signs of this having had a material impact on Australia's popularity as a destination of choice (although the ABS cautions about reading too much into these indicative figures). 

For the year to April permanent and long-term arrivals surpassed 800,000 for the first time on record. 


It should also be noted that the ABS releases its initial December 2017 quarter estimates for net overseas migration later in the week, although these data too are subject to revision and are inevitably prone to assumption error.

Tourism boom chilling?

It's been an incredible half-decade for short term arrivals Down Under, driven by a lower dollar and booming tourism from Asia and America. 

But while the monthly trend for short term arrivals is at a record high of 759,900, there may just be nascent signs of this rollicking period flattening out now. 


There has been no slowdown in education arrivals, to date, with total annual visitors hitting a new record high of 573,100 in April 2018. 


Instead, the slowdown was driven by fewer holiday arrivals, although some caution should be exercised with these figures too.

For whatever reason, visitors have become more inclined to tick the box indicating 'visiting friends and relatives' across recent months, rather than the 'holiday' alternative.

I suppose this trend might continue as Australia attracts more repeat visitors, or perhaps it's just uncool to classify oneself as a tourist these days. 

In any event, one thing is not in doubt: there's no shortage of popularity in visitors from China or India. 


The wrap

Record high permanent and long-term visitors at more than 800,000 over the year to April suggest that Australia remains as attractive as ever to migrants. 

It's early days, but there may just be some early signs that the boom in tourism arrivals since 2013 is reaching a plateau, or taking a bit of a breather.

On Thursday this week the ABS will release its Australian Demographic Statistics for the December 2017 quarter.

These figures will likely estimate that Australia's resident population increased by around 400,000 in the 2017 calendar year to 24.8 million.

This strong rate of growth at about 1.6 per cent has been driven largely by immigration into Sydney and Melbourne.

Meanwhile south-east Queensland is increasingly picking up more internal migrants from New South Wales.

Of course, these estimates lag significantly, and at 24,970,000 Australia's population clock is due to tick beyond 25 million within the next month.

For some unknown reason I have an almost overwhelming urge to sign off this post 'tick tock', but that would just be nauseating so I'll try to restrain myself. 

Impacts of Labor's proposed negative gearing/CGT changes

Impact analysis report

A lot of interest in our latest market research report.


Order your copy here (or click the image below).

Sunday, 17 June 2018

Is the Budget built on a bed of lies?

Truth table

Being variously occupied with other things, this year's Australian Budget came and went with nary a comment from me (except briefly in passing here). 

A Budget effectively in balance is forecast for 2019-20, and a solid surplus of $11.5 billion or 0.5 per cent of GDP is now forecast for 2020-21. 

The 2017-18 underlying cash balance was the strongest since the financial crisis, and so too was the estimate for 2018-19.

Rose-tinted outlook?

It's apparently become something of a tradition to lambast the Treasurer for the Budget forecasts.

In fact, last year it was variously claimed that the Budget was built on a bed of lies, in part because of the apparently optimistic iron ore price projections.

This year's main point of contention is wages growth being forecast to rise to 3½ per cent by 2020-21.

Looking at the latest wages numbers you'd have to agree that this is an optimistic forecast.

But the counter-point from the Treasurer would doubtless be to look at the improvement in the Budget over the past few years. 

Don't forget the Budget was ridiculed beyond measure last year - when it estimated an underlying cash balance for 2017-18 of a $29.4 billion deficit or 1.6 per cent of GDP.

Not only did this prove to be a conservative estimate, this year's Budget documents estimated that the 2017-18 underlying cash balance would annihilate forecasts with a deficit of $18.2 billion.

Don't forget the economy is much bigger than it was a decade ago too, so that would only equate to about 1 per cent of GDP.












Just to re-emphasise that point - even with nominal wages growth stuck at low levels - the Budget is being repaired remarkably quickly.

Moreover, the latest available figures suggest that cash receipts continue to power ahead of forecasts, with a rolling annual deficit for the financial year to 30 April 2018 of under $15 billion, or just 0.7 per cent of GDP, which is miles ahead of the mid-year estimates. 

'Emergency' over

This puts the the Budget in the best nick in almost a decade. 

Company profits are at a record high thanks to a timely boost to commodity prices, while jobs growth even hit a record high in 2017, and this has helped to see the budget swing back towards a balanced position.

Thus, if there ever was a Budget emergency in Australia, there isn't now. 

And finally, the reason wages haven't grown faster? 

Scott Sumner is under no illusions: still-too-slow nominal growth in GDP, while money's been too tight.

I made a similar point recently during the Devils and Details podcast at Business Insider.

---

On a related note, Stephen Koukoulas of Market Economics and the BI boys discussed our latest market reported on negative gearing on this week's podcast.

I listen to it in the car.


Well worth a listen, as always - tune in!