Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

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.

Monday, 21 August 2017

Iron ore +50pc since June

Hello...

Bazinga!

Amazing news for owners of shares in Fortescue Metals Group (ASX: FMG), which reported a monster net profit after tax of $2.7 billion (US $2.1 billion) today. 

That's an increase of +112 per cent from the prior year. 

The dividend was tripled for 45 cents per share, while future payout ratios will be higher too.

The dividend in FY2015 was only 5 cents per share. 

FMG racked up US$3.5 billion in free cash flows in FY2017, helping the group to massively reduce its debt pile. 

Fortescue aims to have its costs down to US$11-12/wmt in FY2018, which is a truly extraordinary cost performance from US$48 in FY2012. 

Meanwhile, the price of Australia's most valuable commodity has a rocket under it.

The below charted benchmark iron ore spot price closed just shy of $80 at $79.93/tonne. 


That's now well over $100/tonne in Aussie dollar terms.

A budget bonus indeed, to help at least in part compensate for lower than forecast wages growth!

FMG's share price soared by +6.36 per cent to $5.85.

Melbournites don't wait to buy land...

Melbourne outstrips regions

It seems that Melbournites are not waiting to buy land...they are opting buy land and wait.

At least for now.

Melbourne has accelerated to record monstrous population growth in recent years, while the regions of Victoria have largely flatlined ex-Geelong.

You can make your own assessment of whether high population growth is impacting the Melbourne housing market, but the land sales figures look pretty damning. 

The pressure appears to be starting to tell, as vacant land sales are being gobbled up at the fastest pace ever recorded, according to Oliver Hume's quarterly data.


Model of a modern Valuer-General

Rising land values have been a key input into rising house prices in Melbourne.

Median vacant land prices in metropolitan Melbourne increased by +3.7 per cent in calendar year 2016, according to the Valuer-General, rising from $219,000 to $227,000.

Median house prices in metro Melbourne rose for a fourth consecutive calendar year from $600,000 in 2015 to $635,000 in 2016.

Median unit values increased far more steadily over the year, up from $487,000 to $494,000.


The ratio of land prices to house prices on this data series hasn't changed a great deal over more than three decades, to some extent reflecting what is actually being measured, with the vacant land sales often located in fringe or secondary locations.

Perhaps this is the subject for a longer blog post another time, but the Valuer-General report always cautions about too many generalisation being drawn from the headline numbers. 

House and land prices in regional Victoria have lagged Melbourne substantially over the past 10 years to 2016, at least in aggregate.

Metro Melbourne median house prices have now more than doubled over the past dozen years, and have quadrupled since 1998. 

In 2016, regional house prices rose by +2.6 per cent to $320,000.

This represents an increase of $100,000 or +45 per cent over 10 years, before accounting for stamp duty and repairs, maintenance, and other holding costs. 

Sunday, 20 August 2017

Jobs market: not as slack as you might think

Slacking off?

R. Gittins wrote an enlightening and thought-provoking piece here about the true extent of unemployment in Australia. 

It is well known and all too often pointed out that the headline rate of unemployment understates the reality.

But, as R. Gittins elucidates, lumping together all unemployed and underemployed persons can similarly provide a somewhat misleading picture. 

An important but rarely reported metric, he notes, is underutilisation in volume measures, taking into account how many more hours of work unemployed and underemployed people are looking for. 

I charted the two cited catalogue series below.


These numbers aren't seasonally adjusted so it's generally best to compare like-for-like periods.

What the chart shows is underutilisation falling from 7.9 per cent in May 2015, to 7.7 per cent in May 2016, and then to 7.5 per cent in May 2017. 

Thus, yes, underutilisation is clearly higher than it might be.

But it has also been very steadily falling over the past two years.

In other labour market news, the trend youth unemployment rate has also improved a bit over the last couple of years. 


But here too, there's a way to go before we see single digits again. 

Youth unemployment can be an important bellwether for labour market conditions, as the least experienced staff can be most expendable in a downturn, yet may be hired again as the outlook brightens. 

Saturday, 19 August 2017

The next property market to rip...

...will be Geelong.


In early March I wrote a bit about some of the likely drivers here.

You've been...Amazoned

The new black - crashes

Granted, technically it's not Monday morning, yet still it seems as good a time as any for a spot of quarterbacking.

You've already heard of being friendzoned.

Well, now, there's being Amazoned.

Footlocker (NYSE: NL), a company with the well-known wide economic moat of, erm, selling runners and footwear, has been touted in some parts as being an outstanding value play. 

No doubt, there's been an ill-advised fashion trend towards wearing sneakers with suits, and an even less advisable fad for wearing yoga pants on shopping visits. 

But fashion trends will come and go.

Meanwhile, US retail has been coming under serious pressure, so it's got to be considered a risky sector right now. 

In short, it's not a great time to be reporting a material decline in comparable revenues. 

And it's certainly not a great time to report a quarterly that massively misses Street expectations.

EPS for Footlocker was reported at 62 cents per share against a market expectation of 90 cents per share.

Same-store sales, a key market metric in the retail sector, dived by 6 percent.

Comparable sales are also expected to remain well down over the remainder of the year.


The share price was already down by a third in 2017, so arguably the market has long sensed a bad report coming. 

But not this bad.

Perhaps unsurprisingly, another 28 per cent was erased from the market cap during Friday's trade.

Investment, or speculation?

People often say that investing in property is speculation, while buying shares in profitable companies is investing. 

It's a valid argument to a point, and especially where people are betting on short term price movements. 

But is it necessarily true? 

Absent a takeover or merger, companies like this ultimately have a life cycle and seem quite likely to be worth zero one day in the future. 

Working out when that day is and how long the dividend stream runs for...well, to a certain extent that has to be speculation too. 

To be fair, I don't think trainers as a fashion item are going away any time soon, though there will be a lot of competition in the space. 

As for property speculation...to be honest I can't say I've ever stressed too much over the years about owning property on Sydney harbour, especially with 90,000-odd new heads converging on the harbour city each year. 

But you can call it speculation if you want.

In the meantime, it's straight off to the clearance rack for Footlocker!

Weekend reads: must see articles of the week

Summarised for you here at Property Update (or click image below).



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Friday, 18 August 2017

England house prices hit new high

Edging higher

A 30-second look at what's been going down in Britain's housing markets. 

The average UK house price hit a new high of just a tad over £223,000 in June 2017. 

This is £10,000 higher than in June 2016, and £2,000 higher than last month.


England drove the gains, with prices there rising by +5.2 per cent over the year to a record high of £240,000, while prices in Northern Ireland remain more than 40 per cent below their peak. 


London has the most expensive market at an average house price of £482,000, while the industrially challenged North East was the cheapest at an average price of £130,000.


The East of England recorded the fastest annual pace of growth at +7.2 per cent, with London price growth easing back to the pack after a stellar run. 


There have been mixed messages around in the Old Dart for a while now, with the unemployment rate having dived to its lowest level since 1975 but Brexit looming overhead as a potentially disrupting factor. 

Then there are the calls to restrict immigration. 

But for now, mortgage rates remain low, first time buyers are very active, and prices continue to hit new highs. 

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