Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional), 5 x finance author.

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Tuesday, 25 September 2018

Budget balance comes screaming back

Surplus in sight

So much for the risk of a downgrade, the Budget has come screaming back to a deficit of only $10.1 billion or 0.6 per cent of GDP in 2017-18, with the risk rating actually upgraded to AAA neutral last week. 

With nominal GDP growing by 4.7 per cent the result was miles ahead of expectations, even those of only four months earlier, let alone the $29 billion deficit projected at the time of the May 2017 Budget.

There was a huge increase in revenues over 2017-18, with jobs growth and compensation of employees shooting the lights out (although wages growth has remained low), as well as a big surge in company tax.

Company profits are at record highs - as I looked at previously here - and some high-profile operators are now in a tax-paying position again, having used up years of carried forward losses.

Meanwhile payments were also well down over the year.

Cherelle Murply of ANZ dropped the latest numbers into the chart below.

The deficit is the smallest in a decade, having continued to decline from 4.2 per cent of GDP in 2009-10 when the economy was in need of serious stimulus.

Net debt will also peak lower than expected.

As you can see the budget could potentially be back into surplus in no time at all. 

Source: ANZ

With an election looming by the middle of next year it's more likely that the Coalition will loosen the purse strings a little in an attempt to turn around some very ordinary-looking polls.

More signs of an improving economy.

2 months to lift-off

Legit, from Domain.

QLD 4005, such a great postcode.

Monday, 24 September 2018

Stark turnaround for Queensland

Sun to shine on Queensland

From Westpac (click to expand).

Source: Westpac

Indeed so.

Nice to see.

Bottom falls out of the Top End

Natural selection

Years ago I lived up in Darwin.

It's a cool place - at least figuratively, if not literally - and certainly very different from the sometimes drab sameness of suburban life in the big smoke.

One of the things I liked about it was how almost everyone turns out when there's an event in town, such the V8 Supercars and INXS playing live (or whatever). 

Mindil Beach Sunset Markets quite rightly attract a buzzing crowd every weekend too.

Meanwhile, the National Parks of Kakadu and Litchfield are a must-see-to-believe, especially in the Big Wet (although most Aussies talk of there being two seasons - wet and dry - Kakadu's traditional owners recognise six different seasons, understanding the subtle transitions between them). 

The odd earthquake aside, Darwin has the best winter climate of any city I've experienced, perfect dry heat in the low 30s all day every day, and never a cloud to be seen.

The summer weather, on the other hand, can range from harsh humidity to downright brutal and Cyclonic. 

Although I love the place, I think it would be fair to say that a lack of diversity of choice is a net negative for the Top End, including within the labour force. 

There were stacks of jobs in resources and in the public sector during my time up north, but not very much else. 

Employment rates and full-time salaries are high, and official unemployment rates remain very low.

But the mining boom years have faded and people are steadily drifting back where they came from.

Actually, not that steadily now...quite quickly!

I also recall simple things like going for a takeaway or a coffee being phenomenally expensive, although for all I know maybe that's changed as the mining sector has cooled. 

From boom to bust

From 2003 dwelling prices soared relentlessly in Darwin for a decade, rising by more than 180 per cent by the middle of 2014, by far the biggest increase of any of Australia's 8 capital cities over that period. 

Since the peak of the resources construction boom time prices have dropped back by 18 per cent, including by 6 per cent over the 2018 financial year alone. 

During the boom years thousands of Aussies were relocating from interstate up to the Top End lured by the high wages on offer.

But although the sector experienced a second wind post-financial crisis as China stimulated its economy, even the mighty $54 billion (hello overruns!) Inpex/Ichthys LNG project hasn't been enough to stem to the inevitable downturn.

And now the NT is losing residents interstate in droves, with more than 3,500 upping sticks on a net basis over the year to March 2018. 

With life expectancy increasing, you typically see more births than deaths these days, so the population of Australia increases naturally even without its prevailing strong immigration programme.  

But in the NT the outflow of residents interstate is overwhelming both net overseas migration and the natural increase, to the extent that the population of the territory has actually declined by 1,000 persons over the past six months to 246,700. 

There are few weaker dynamics for a housing market than an outright decline in the population, if sustained. 

No doubt the local authorities will be putting in place incentives to entice families to move up north. 

In short, arguably no state or territory presently has a more concerning range of metrics in its economy or housing market. 

In arrears

Last week I looked at how each of the most populous states is faring with regards to 30+ day mortgage arrears.

In short, not great in Western Australia, pretty comfortable elsewhere. 

Let's now consider the other four states and territories.

As you might expect the NT had the highest rate of prime and non-conforming 30+ day arrears at 2.67 per cent as at July 2018, although this had declined just a little over the preceding two months of available figures from 2.82 per cent. 

Elsewhere arrears rates were reasonably low in South Australia at 1.50 per cent following a marked improvement, very low in thriving Tasmania at 1.31 per cent, and extremely low in the Australian Capital Territory at 0.74 per cent. 

Generally mortgage arrears are a little higher than a year earlier across the board, despite falling unemployment rates, in part due to interest-only mortgages being reset.

Hopefully the NT can turn itself around soon!

Saturday, 22 September 2018

Armageddon looming for Australia?

Revenues boom

Some folks are trying ever-so-hard to convince everyone that Australia is heading for an economic collapse.

Nothing new there, of course, but unfortunately for the gloomers nobody seems to have told the economy itself, which saw growth accelerate to a 6-year high of 3.4 per cent in FY2018.

Meanwhile the resources boom is now paying serious dividends with annual exports booming to a record high of $406 billion. 

And despite the disruptive Tropical Cyclone Joyce having lurked over the Pilbara - leading to the blip over the back end of 2017 - we've racked up a cumulative international trade surplus of some A$25 billion over the past 21 months. More records. 

In fact, there's plenty more where this came from with LNG export values breaking record highs by the month, tourism and education exports firing, and the iron ore price touching a 6-month high this week (now hovering around a very lucrative A$95/tonne).

Oh, and there's a coal price boom as well. 

Back towards full employment

From a Federal Budget perspective it's important to see people in work, and the good news is that employment surged by +306,400 or 2½ per cent over the year to August 2018. 

Over the past two years the economy has added a stunning +642,200 jobs for growth of 5.4 per cent!

With that rate of employment growth it can be no surprise to see that the trend unemployment rate has dropped to the lowest level since 2012. 

The unemployment rate has fallen to 4.7 per cent in New South Wales and 4.8 per cent in Victoria, the territories are already at or below 4 per cent, while Tasmania and South Australia are now improving rapidly.

More employed and fewer unemployed. 

An embarrassment of revenues

All of this is leading to a veritable flood of government revenues that could theoretically have the budget back into a rolling annual surplus in no time at the present rate of progress. 

So fast has the improvement been, of course, that this leaves the Coalition set to open its chequebook in the lead-up to the 2019 election.

With the government's interest expense burden so low at just 4 per cent of revenues there's significant upside potential for infrastructure spending over the next year, while realistically there are likely to be some tax cut sweeteners heading the way of the electorate. 

As for the risk of a rating downgrade so eagerly and widely reported over the past two years, this was swept away by S&P affirming Australia's AAA rating today, while upgrading the budget outlook to stable. 

AAA rating

Anyway, I'm a Coalition stooge, so I'll leave it with S&P Global to fill in the blanks:

S&P Global Ratings revised its outlook on the long-term ratings on the Commonwealth of Australia to stable from negative. We also affirmed the ‘AAA’ long-term and ‘A-1+’ short-term unsolicited sovereign credit ratings on Australia.


The stable outlook reflects our expectations that the general government fiscal balance will return to surplus by the early 2020s.

We expect steady government revenue growth supported by the strong labour market and relatively robust commodity prices, to be accompanied by expenditure restraint.

We also expect property prices to continue their orderly unwind, and that this slowdown won’t weigh heavily on consumer spending and the financial system’s asset quality.'

And furthermore:

'Australia is a wealthy, diversified, and resilient economy, with GDP per capita of an estimated US$56,500 in fiscal 2019.

Along with the resilient and high-income Australian economy, this reflects the low risk appetites of the major banks, which dominate the industry, supported by conservative and proactive regulatory and governance frameworks.

We consider Australia’s banking system to be one of the strongest globally.'


Friday, 21 September 2018

Weekend reads - must see articles of the week

The key articles of the week are summarised for you here at Property Update.

There's some good stuff worth reading here this week, on what's changed in the housing market.

You can subscribe for the free newsletter here.

Have a smashing weekend all!

All in the timing

Pascoe on negative gearing reform (click to read at the New Daily).

Where is the Aussie population growing?

Population growth

We've already looked in a bit of detail at the latest Aussie demographic statistics, which showed a bit of a slowdown in net overseas migration, and a meaningful ongoing swing in internal migration away from New South Wales and towards south-east Queensland.

Where, then, is the Aussie population growing and set to grow most?

Let's take a look back at the 2016-17 figures, and try to project forward from there by dusting off the crystal ball and looking at the latest jobs growth figures. 

Greater Melbourne increased its population hugely by +129,400 or +2.7 per cent in 2016-17.

This is supremely strong headcount growth, both cause and effect of an expanding construction boom on an unprecedented scale for Victoria.

The monthly unemployment rate for Greater Melbourne dropped to just 4.9 per cent in August, down from well above 6 per cent back in 2014 as the economy floundered.

This recent marked improvement hasn't yet flowed through to Melbourne's annual average unemployment rate, but make no mistake full employment is edging closer in Victoria.

Greater Sydney wasn't too far behind in increasing its population by +107,400 or +2.1 per cent in 2016-17, taking the harbour city's total population to around 5¼ million at the time of writing.

The jobs bonanza for Greater Sydney continued in August 2018, with year-on-year growth in total employment of +89,100, and this week's skilled vacancies figures from the Department of Employment pointing to further hiring and brighter things ahead. 

The Greater Sydney unemployment rate was considerably lower than that of Melbourne at just 4¼ per cent in August, and it continues to trend lower. 

When will wages start to rise? Will wages start to rise? Key questions!

Despite strong population growth the Aussie economy is steadily making inroads into the total number of unemployed persons - mainly thanks to the two big capital cities - which puts the unemployment rate at the lowest level since 2012.

Brisbane/SEQ the 3rd growth hub

Greater Brisbane is looking to rediscover the resources boom vibe and its population increased by +2.2 per cent or +50,800 persons to 2.41 million in 2016-17.

Thereafter followed a huge drop, with Adelaide and Perth reporting population growth rates of under 1 per cent, according to Australian Bureau of Statistics (ABS) figures.

You can pick out your own favourites in the ABS table below. 

Source: Australian Bureau of Statistics

In percentage terms there was considerably quicker population growth in other parts of south-east Queensland, at both Gold Coast (+2.6 per cent) and the Sunshine Coast (+2.6 per cent).

And, finally, Geelong in Victoria (+2.7 per cent) has been riding on Melbourne's coattails with abandon.

These remain three of the regional cities that have thrived lately.

Looking forward...

With Sydney and now Melbourne recording respective unemployment rates of under 5 per cent, it seems likely that these two capital cities will continue to attract the great bulk of net overseas migration, at least for the foreseeable future.

The figures released this week suggested that Sydney will, however, lose many incumbent residents to Greater Brisbane and south-east Queensland.

In terms of absolute population growth nowhere else really features materially at all outside the three main hubs.

But in percentage terms I'd hang my hat on Queensland's coastal cities, Geelong, Canberra, and possibly Hobart.