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.

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Tuesday, 13 August 2013

UK: FHBs rocket back into the market (+30% y/y)

From the UK Daily Telegraph here:

"First-time home-buyers are rushing back to the market as confidence grows and mortgages become increasingly available.
The Council of Mortgages Lenders said 68,200 first-timers purchased property in the second quarter (from April to June), the highest quarterly number since the pre-crisis peak of the property market in 2007.
More than 25,000 loans were advanced to first-timers in June alone, up 30pc on the figure for June 2012, the CML said today. The average loan size leapt from £112,500 in May to £117,000 in June, with first-timers borrowing an average 81pc of their property's price.
Falling mortgage rates meant that although loan amounts rose, the the average first-timer still spent the same proportion of their income - just over 19pc - on their monthly mortgage bills.
First-time buyer activity is viewed as a key bellwether of the wider market. The weakening or directionless trend of the market for much of the past five years has been blamed on lack of first-timer activity. That may now have changed, the data suggests. Since 2007 first-time buyers have accounted on average for 38c of house purchase loans. This latest quarterly data shows the figure to have risen to 46pc."
And another article from the same newspaper here notes how the average price of a flat has breached £250,000 for the first time as property prices move on to all-time highs:

"The average price of a flat in England and Wales has breached the £250,000 mark, according to official figures, in another sign of the housing market gaining momentum."

The key takeaway points are these: the level of household debt cannot continue to expand faster than the rest of the economy in perpetuity as a number of property promoters seem to believe. 

That would make no sense at all - if it were to be the case then a huge mountain of household debt would simply end up being the economy, dwarfing everything else in its wake. 

But household debt levels also will not move perfectly in tandem with GDP growth either: debt levels will accelerate until they become too high, and then eventually go into reverse. It is, quite simply, a cycle.

In an inflationary economy, such as those in the developed world, the long term trend in prices of properties which are in high and growing demand (where the population is growing fast and land supply is limited) will be upwards. There will be ebbs and flows over time, but the trend line heads north as the value of the currency is steadily inflated away.

Unlike Australia, many parts of Britain saw a significant property downturn over the last half decade. There was predictable panic and hysteria across the media, and all kinds of sensationalism about how Britain was doomed and would never, ever recover. However, property is supposed to be a long-term investment for homeowners and investors, and not one which is judged over any short period.

Fortunately for homeowners and property investors who bought or invested in the in-demand areas (not those seeking yields in the remote north of the country) in London and the south-east of England, prices never really fell very far. 

And in any case, UK property prices nationally have recovered all of their lost ground according to the house price indices and will now power on to record new highs as the market recovery gathers momentum.

Watch out for consumer price inflation running out of check in Britain in the next few years as the Bank of England subtly shifts its mandate away from inflation targeting and towards lowering the unemployment rate to 7%. 

Also expect to see strong price gains in the south-east of England - the level of dwelling construction is far, far too low to cope with the growth in demand, sitting at its lowest level in decades. Meanwhile, buyers are sensing that the market is taking off and so are flooding back in as the cycle continues.