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).

5 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 finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete 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'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Tuesday, 23 December 2014

SQM - 2015 Sneak Peak

SQM Research has a fine track record of forecasting Australian property markets, so their newsletter is always worth a read.

From the latest edition:

"Overall not much has changed since we wrote our latest Housing Boom and Bust report in September. 

The National housing market has continued to rise at a moderate pace, primarily driven by surges on the East Coast of Australia, in particular Greater Sydney and parts of Melbourne

Areas of weakness continue to be Perth, Darwin and to a lesser extent, Adelaide and Canberra. The mining towns continue their downturn at pace.

There has been no material slowdown yet for Sydney, even while clearance rates have fallen. That is perfectly normal for this time of year.

Melbourne is still patchy, though we note the moderate fall in vacancy rates this this year which was a surprise.

It was another weak year for the Canberra housing market, with most reporting bodies recording flat to modestly falling dwelling prices. SQM Research has asking prices for houses up by 1% for the past 12 months. 

While units are down 8%, which comes as no surprise given the ongoing high rate of completions with apartments. 

That said though, vacancy rates for Canberra have been falling in recent months. It could be a sign that the worst is now over, at least on the rental side of that market.

Right now, the weakest capital city market according to our numbers is Darwin. You can see via this chart on vacancy rates exactly what I mean by this. Indeed, I recommend you click on each chart we have for Darwin because there appears to be weakness everywhere right now.

Darwin is a classic example of what I call a ‘shallow’ housing market. But that I mean there is not a lot of market volume and depth and therefore, prices can rapidly swing one way or the other. Right now its swinging south, primarily due to the commodities downturn. 

I won’t use this time to go into major detail why. My point being though is the downturn continues on as we speak and there are no signs it is stopping anytime soon.

On the other hand we have the Hobart housing market. Yes, I understand that it has historically been a weak economy, has experienced weak to negative population growth and subsequently, a weak housing market. 

Taking all this into account, we think prices are well under valued by historical standards and are prime to move upwards from here. 

I think a lower Australian dollar helps the Tasmanian economy on many levels. Right now the market indicators suggest there is movement. Once again, take a look at the vacancy rate chart we have on Hobart. Things are getting tight once again for renters. It is increasingly turning into a landlord’s market. 

Overall the outlook for 2015 will be reasonably positive for the markets, depending on where you are. The two “X factors” I see include interest rates and any possible lending restrictions prescribed by the Australian Prudential Regulation Authority (APRA). 

I think there is high probability that APRA, prompted by the RBA will take greater action in 2015. They will do this in an attempt to reduce risky, speculative investor behaviour, particularly form those who should not be taking on large amounts of housing debt due to their limited capacity to pay it back.

However, if APRA do move, it could potentially open the way for the RBA to make rate cuts, possibly more than the standard 25 basis points. It’s clear to most the economy is weak and if it wasn’t for the threat of a national surge in house prices, rates would most likely be lower today.

So far, the pronouncements from APRA made earlier this year, have amounted to no more than jawboning. They appear to have flagged further action but if and when that comes remains to be seen. 

Could there be a situation behind the scenes where the two government departments are in open communications with each other on the timing and magnitude of action? Possibly.

A look at what the money market are pricing in terms of rate cuts, is revealing -

Basically the markets think it’s a dead set certainty rates are going to be cut by April 2015 with the chances increasing of another rate cut in June to take the cash rate to two per cent.

If such rate cuts happen, housing markets will be boosted throughout the course of the calendar year with most cities recording growth at the top end of our forecast ranges.

A rate cut would also lower the Australian dollar, thereby stimulating local tourism economies and their respective housing markets. Surely that would force APRA’s hand. Right now we are unsure of the magnitude they would place in curbing investment lending. 

So it is an X factor to be watchful of. In the extreme, APRA could forcibly increase loan to value ratio requirements on the banks. E.g require investors to put down up to a 20% down payment, which would without doubt, slow the east coast housing market. 

I think such radical action is unlikely, with APRA taking a more measured approach. But I am certainly not on their board so who knows for sure what they may do.

So there you have it. Overall markets will rise from this point and the increases will be driven by the east coast, namely Sydney (once again). We certainly won’t see a rate rise next year but most likely will get a rate cut. 

And at about that time, they may well be some additional curbs on investment lending. But overall it is going to be a positive year once again for existing residential property owners.”

That's a great summary. 

2015 looks set to be a good year for property markets in Sydney, Brisbane and Hobart, but far less so elsewhere.