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.

Saturday, 1 March 2014

Home values *fell* in February (but not in Sydney)

Monthly data

I don't know many people who genuinely believe that you can discern very much from monthly home value data.

But nevertheless, RP Data will report this week that home values fell in all major capital cities in February, except for Sydney, where values continued to rise.

Using the back series data, I've charted the movements in RP Data's index over the last 6 months, which shows Sydney and Melbourne prices up sharply over that time, and significantly less convincing trends elsewhere.


Source: RP Data

For what it's worth RP Data's figures will show the following for the month, the 2014 calendar year-to-date and for the last quarter respectively:

City
M/M
YTD
Q/Q
Sydney
+0.8%
+1.6%
+2.4%
Melbourne
-0.2%
+2.8%
+5.5%
Brisbane/Gold Coast
-1.3%
+0.8%
+1.3%
Perth
-0.2%
-1.2%
+0.0%
Adelaide
-0.2%
-0.2%
-0.2%

2014 forecasts

I'm not a huge believer in property price forecasts.

And certainly, when people claim that there is a science to forecasting property prices, I don't believe that for a second.

By definition, each year and each property cycle is different from its preceding equivalet with different variables to be factored in, and a level of intuition has to be applied to the importance of each potentially significant event.

In recent years, consider the various impacts or otherwise of the fiscal cliff, the carbon tax, the US debt ceiling, the potential for a hard landing in China or bursting of its credit bubble, and so on.

For 2014, the main drivers of the market will include a cash rate remaining close to just 2.50% throughout the year, balanced off by the potential for a dimming confidence in the economic outlook as the mining construction boom fades..

Commonwealth Bank's Living Space blog charted what the forecasters predicted for this year here.

City 2014 forecasts
SQM Research
APM
AllenWargent
RP Data
Sydney
+15% to +20%
+5% to +7%
+6% to +9%
-
Melbourne
+4% to +7%
+5% to +7%
+2% to +5%
-
Brisbane/Gold Coast
+4% to +7%
+5% to +7%
+2% to 5%
-
Perth
+4% to +8%
+5% to +7%
+0% to +3%
-
Adelaide
+3 to +6%
+0% to +3%
+0% to +3%
-
Canberra
-1% to -4%
-3% to +0%
-1% to -4%
-
Hobart
+3% to +6%
+0% to +3%
-1% to +2%
-
Darwin
+3% to +6%
+5% to +7%
-
-

My overall theme for 2014 was that I felt that the strong pick up in dwelling prices in 2013 - particularly in Sydney, Melbourne and Perth - would like have seen much of the demand sated, and therefore price action in 2014 could be relatively muted.

For this reason, our forecasts have been more moderate than almost everyone else's.

Truth be told, we have no real experience of Melbourne and therefore 'our' forecast is really a consensus of speaking to contacts who do, although I have to confess I've expected price growth in Melbourne to peter out long before now.

I also declined to make a prediction for Darwin. I've lived in Darwin myself, and watched with raised eyebrows as pundits have called the market wrong for more than a decade. I didn't feel any particular need to add AllenWargent to the list of epic failures. 

The Darwin market has been supremely tight and resources projects have driven blistering growth over the last decade. 

I detailed some of the reasons why I feel somewhat less optimistic than the rest on the 2014 outlook for this on Property Observer here, which variously included:

-wages growth slowing to its slowest level on record (now at just 2.6% y/y);

-a potential lack of willing for Australians to take on significantly higher levels of debt from already elevated levels;

-the mining construction boom passing its peak; and

-the 'Qantas effect' of a gradual uptick in employment eroding buyer confidence.

RP Data will release its full report on Monday, so we'll get some idea of what may be happening in Canberra and Hobart then.

There may be further clues to be found in SQM Vendor Sentiment Index here, which charts asking prices. 

At this juncture, the quarterly data appears to show more of the same in Sydney and Melbourne, but it does have to be noted that APM's forecasts anticipated a stronger first half to the year (especially in Sydney) with price growth tailing off in the latter half. 

On the other hand, SQM believes that the Sydney market has such strong momentum and investor-led demand behind it that price growth could as strong again as it was in 2013.

Tonight's auction figures

Flash auction data from APM tonight showed preliminary auction clearance rates as follows:

-Sydney - 83%

-Melbourne - 76%

While the final figures may well be revised down, as they often are, the implication of this is that both markets are very strong and prices looks set to continue rising, particularly in Sydney.

In fact, with Sydney consistently hitting at above 80% auction clearance rates and the auction results recording a number of thumping results, SQM's 15-20% Sydney call may yet be the winning ticket.