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

Wednesday, 28 August 2013

HIA: Low interest rates continue to improve mortgage affordability

From the Housing Industry Association media centre here:

"The cyclical improvement in housing affordability continued in the June 2013 quarter, said the Housing Industry Association, the voice of Australia’s residential building industry.

The HIA-Commonwealth Bank Housing Affordability Index increased by 4.4 per cent in the June 2013 quarter to a level of 72.8.

“A synchronised increase across the capital cities and non-metro areas drove the further improvement in the June 2013 quarter. Housing affordability in Australia is now 16.7 per cent higher than in mid-2012,” said HIA Chief Economist, Dr Harley Dale.

“These are certainly encouraging results for those entering the market at this time in the cycle,” commented Harley Dale. “The considerable reduction in interest rates is more than offsetting recent dwelling price increases,” said Harley Dale. “Current improvements in housing affordability do not represent structural shifts in Australia’s affordability; rather, they represent the dominant impact of cyclical changes in lending rates which will of course be prone to reversal at some point.”

“Genuine, structural improvements to affordability are contingent on a stock of housing supply that grows commensurately with the population and its housing needs,” noted Harley Dale. “Policy reform, led by the Federal Government, needs to be implemented to drive a sustained improvement to residential construction so as to genuinely address the housing affordability challenge in Australia.”

In the June 2013 quarter the HIA-CBA Housing Affordability Index increased in all seven capital cities reported. The strongest quarterly increase occurred for Brisbane with a rise of 10.4 per cent, followed by Hobart (10.0 per cent), Adelaide (7.7 per cent), Canberra and Perth (4.1 per cent), Sydney (3.3 per cent), and Melbourne (2.2 per cent).

Outside of the capital cities, affordability improved in the June 2013 quarter in all six non-metro regions reported. The strongest quarterly increase was for regional Queensland with a rise of 9.6 per cent, followed by the non-metro areas of Tasmania (8.1 per cent), South Australia (7.7 per cent), Victoria (5.3 per cent), Western Australia (4.5 per cent), and New South Wales (2.9 per cent).

Given the importance of adequate new housing supply coming online to avoid unnecessarily strong pressure on existing dwelling prices, the HIA-CBA Affordability Report is now tracking new detached house prices relative to established detached house prices. This provides an indication of the affordability of new houses relative to established houses and consequently the progress different markets are making in addressing overall housing affordability.


“A relative new house affordability advantage has emerged for Sydney and Western Australia in recent quarters. These are the areas of Australia where, not coincidentally, a clear new home building recovery is underway,” added Harley Dale."

This is welcome news in the short-term and all fairly obvious to anyone who has lived through an interest rate cycle before on a standard variable rate mortgage - repayments on existing mortgages have become very cheap as the official cash rate has continued to plumb record lows.

Naturally, we'd expect interest rates to revert higher (although realistically perhaps not until some time in 2015) so if median dwelling prices remain elevated then the affordability index would then decline again. 

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A very important capital expenditure report tomorrow from the ABS which includes a survey of expected business plans. 

The capex report should give us an improved insight into the unwinding of the mining construction boom and how quickly capital expenditure it is expected to drop off.

One of the key figures will be the 'Estimate 3' for 2013/14. and this should give us an insight into the expected rate of decline.

As a quick recap, Estimate 2 (non-shaded bar below) came in better than many expected at $156.467 billion. 

Financial year actual and expected expenditure - Total Capital Expenditure

Source: ABS