Pete Wargent blogspot


'Must-read, must-follow, one of the best analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Markets & Economics Editor, Sydney Morning Herald.

'I've been investing 40 years & still learn new concepts from Pete; one of the best commentators...and not just a theorist!' - Michael Yardney, Amazon #1 bestseller.

Saturday, 31 December 2016

Housing market pivots back towards investors

Broad money

Annual credit growth ticked up to 5.4 per cent in November 2016, while the growth in broad money increased by a somewhat stronger 6.4 per cent. 

Deposit growth has been very strong in recent times, and as banks tweaked deposit rates term deposits saw a solid 8.8 per cent increase over the year (following a long period of being understandably shunned by yield-starved investors).

Investor rebound

Business credit had a better month to see annual credit growth ticking back up to 4.9 per cent, while housing credit continued to cruise along at a 6.3 per cent annual growth.

Housing credit seems to be maintaining a fairly consistent rate of growth, but within the headline figure annual credit growth relating to investors is speeding up from 4.6 per cent in August to 5.6 per cent in November.

The regulator has set an arbitrary speed limit of 10 per cent for investor credit, so if this uptrend continues APRA may well be getting twitchy fingers by the second half of 2017. 

Total business credit increased to a record $868 billion in November, but the pace of growth has continued at a slower pace than housing credit, while personal credit is actually shrinking. 

The annual increase of housing credit of 6.3 per cent was slower than the 7.4 per cent seen at the same last year, though a glance at a compound interest table shows that this rate of growth still implies a doubling in less than a dozen years. 

With business credit growth only moderate, and personal credit in decline with mortgage buffers and the use of offset accounts at record levels, the share of outstanding credit relating to housing is now 61.4 per cent, up moderately from 60.9 per cent a year ago.

The wrap

A better result for business credit this month, while housing market momentum appears to have pivoted back towards investors after previous regulatory intervention. 

The rate of investors credit growth is a trend to watch for 2017.

CoreLogic's final housing market index figures for 2016 showed that Sydney recorded the strongest increase in home values over the calendar year at 15.46 per cent, although Melbourne wasn't all that far behind with 13.68 per cent. 

Brisbane was much steadier, at 4.40 per cent growth.

Friday, 30 December 2016

Mineral exploration steadies (WA goldfields)

Permanently lower plateau...

Having declined by fully two thirds from the March 2012 quarter peak, mineral exploration expenditure (ex-petroleum) increased by 0.6 per cent in Q3 2016.

This is some welcome good news for Western Australia, being the state that has born the brunt of the decline, with exploration spend trending up for 12 months in WA and the state notching a 1.9 per cent increase in expenditure in the third quarter of the calendar year.

Although it's tempting to believe that the reason for the rebound must be the spiralling price of coal and to a lesser extent iron ore in 2016, in reality it was exploration in the WA goldifelds that drove the rebound.

The statistics for metres drilled show that the recent improvement was driven by new rather than existing deposits, with commitments having been made earlier in the year to expand the program at Australia's largest undeveloped gold deposit to the east of Kalgoorlie and Laverton, the Yamarna Belt.

Coal exploration did jump significantly in the September quarter, but truthfully the numbers are volatile and in rolling annual terms total expenditure for the mineral remains well down. 

If mineral exploration is going to hold up or improve then it will need to be driven by (a) the Adani Carmichael project getting up, and (b) iron ore drilling programs ramping up to maintain production volumes as existing reserves are depleted.

All roads - and flights - lead to Melbourne

Internal migration

I took a look here recently at some of the key national and state level migration trends. 

We already know that most immigrants to Australia head for sunny Sydney and increasingly for Melbourne, but what about internal migration trends?

I've tried to capture a few of the main trends in the infographic below (click to expand).

In short, at the moment, all roads and flights increasingly seem to be leading to Melbourne!

Foreign born Sydney

Let's start in the densely populated south eastern corner of the country.

We know that from the state level figures charted below that Sydney typically loses residents interstate, but there is also a steady movement outwards into regional New South Wales. 

And after a lull interstate migration from NSW is now starting to happen again, with Sydneysiders typically heading for south-east Queensland.

Mainly they head to Brisbane, but also to the Gold Coast and Sunshine Coast, coastal locations that are attracting more than their fair share of regional Queenslanders too. 

Some Sydneysiders are now even heading for Melbourne, for work, for relatively cheaper housing, and for the perceived sophistication of the lifestyle (lol).

Unusually for Australia, Sydney also loses residents to regional centres within its own state.

There is even an observable internal shift within Sydney itself from locations such as Canterbury, Ashfield, Fairfield, and Strathfield-Burwood in the inner west and inner south west respectively, as folks seek more affordable housing options (Parramatta) or more space (Sutherland Shire).

In turn, Parramatta and the Shire lose internal population flows too, with Sydney's peri-urban regional centres often the beneficiaries.

With immigrants more than plugging the holes left by departing Sydneysiders, the net result is that Sydney has a population comprising largely of foreign born residents, and residents with foreign born parents. 

Indeed, the share of all Australians born overseas has now reached its highest level since the 1800s at close to 30 per cent.

Go West? No longer

A second notable trend is the shift from west to east. 

Tasmania has previously suffered from losing its working age population to the mainland, resulting in the median age spiking nastily from 35 to 42 over the past two decades, but net interstate migration from Tasmania turned positive at the beginning of 2016, albeit marginally.

The most interesting change since the peak of the mining boom has been the marked about-face in Western Australian net interstate migration, from dramatically positive to negative. 

There had already been a strong migration away from the Western Australian outback as the resources construction boom transitioned to the production phase. 

But now residents of Perth are sensing the economic winds of change and in turn are making the long trip across the Nullarbor too. 

A few of my Perth friends have upped sticks and moved to the nation's capital Canberra, but statistically more will end up heading for Melbourne. 

The latest figures also showed that South Australia is losing residents at a pace not seen in more than two decades, with the net interstate depletion totalling 1873 in the June quarter alone, concerning figures for Adelaide and the regions of the state. 

Melbourne reigns

Brisbane and south-east Queensland (essentially Gold Coast and Sunshine Coast) are evidently improving in the migration stakes, with over half of internal migrants to Brisbane coming from 'rest of Queensland' locations, a point often missed by observers. 

With Sydney losing residents internally as it always does, however, there can be no doubt that overall Melbourne has by far and away earned the title of Australia's population lynchpin in recent times.

Not only is Melbourne attracting residents from overseas, from Adelaide, Perth, and now even Sydney, the Victorian capital is also a magnet for attracting the population of the state's regional centres, where population growth has all but stalled, exclusive of Geelong.  

Much of the population growth in Melbourne from internal migration occurs on the fringes, fanning out around the compass on the outskirts of the city in places like Wyndham, Whittlesea-Wallan, Casey-South, and Melton-Bacchus Marsh. 

This suggests that the relative affordability of Melbourne's fringe estates is acting as a comparative advantage over Sydney, where even in Western Sydney's working class outer suburbs house prices have exploded higher.

The west of Melbourne experiences the highest net migration gain of all of Australia, with this area encompassing the fastest growing suburbs in Melbourne such as Tarneit, Truganina, Point Cook, and Laverton.

There is internal migration away from some established areas too, such as Dandenong in the south east, and closer in at Brimbank in the west.

Overall, though, Melbourne is acting as a magnet for both overseas settlers and internal migrants, and as such is well set to shatter all population growth records in 2017. 


Thursday, 29 December 2016

Santa rally puts FTSE 100 at record high


Aussie stock markets have been quite the dog over the last decade, no doubt.

But that's not true elsewhere in the world, where rock bottom interest rates and unconventional monetary policy have seen stock indexes at record highs.

US stock markets understandably attract most of the attention.

But today it was the turn of the FTSE 100 to rise to a record close, only a matter of months after it was predicted that the EU or 'Brexit' referendum would lead to a crash.

It's been quite a journey since 1984 (click to expand).

This is a nightmare for investors actively seeking value or aiming to pick individual stocks.

Although stock valuations have clearly been higher before, today's valuations are still very expensive, with earnings likely to come under pressure as real wages growth starts to kick in, and gearing levels high enough to cause pain as interest rates rise.

Real wages have declined considerably in the UK over recent years, but real wages growth seems likely to return with the unemployment rate declining to just 4.8 per cent. 

It's largely become a game of guessing where markets go next based upon central bank stimulus measures rather than investing in the conventional sense. 

When the end comes it probably won't be very pretty, mainly because the stretched valuations are not really being supported by strong levels of economic activity. 

Overall, low market volatility may be lulling investors into a false sense of security, and history shows that when the correction comes it may well be swift and brutal.

Unfortunately too many investors will decide to chase recent gains by piling into stocks at this late stage in the cycle and will end up wearing losses. 

Wednesday, 28 December 2016

Pyramid scheme (level up)

Demographic trough

A lot has been made about a first homebuyer 'strike' over recent years, but the NAB survey and others have shown that often young people are choosing investment property as their first step onto the ladder. 

As such, the share of the market comprising first time buyers hasn't really changed all that much.

Mentioned far more rarely (or more like never) is that with most people doing things later in life than used to be the case, relatively speaking there just haven't been that many people in the key age bracket to buy their first home either.

This is especially so given that the average first timer is likely to be in their thirties these days, at least in the main capital cities.

This trough in Australia's demographic waves might have been one of the more convincing parts of the bear case for the housing markets in recent years, but in the end policy makers opted to sidestep the potential wipeout by cutting interest rates to record lows.

It largely worked by drawing more investors into the froth rather than through pulling forward demand.

In surfing terminology we've been in a demographic trough for a long period, but it seems that the swell is now beginning to build.

The next wave

It's probably not for a few years yet that the number of persons in the 31 to 40 age bracket reaches a critical mass that might be considered compelling.

Yet the demographic statistics figures for the quarter ended June 2016 showed that finally things are beginning to move in that direction, with a significant 2 per cent leap in this cohort during the financial year. 

Between now and 2026 the number of persons in this age bracket is projected to swell dramatically.

Looked at graphically, you can see the trough in the 31 to 40 age bracket becoming emphatic over the last decade.

However, the red line shows that the housing market is just beginning reaping the benefits of the ramped up immigration programme (which is tilted heavily towards immigrants aged under 30). 

Looked at another way, after mostly treading water for years the number of 31 to 40 year old residents jumped by more than 118,000 in the last 24 months, with hundreds of thousands more to come in a demographic wave between now and 2026.

This is important because although individual choices differ and trends shift over time, in aggregate people tend to do quite predictable things at fairly predictable stages in their lives. 

Variations around the traps

The bureau's figures showed that although Australia's population is expected to age in a similar way to other developed nations due to a combination of longer life expectancy and lower fertility rates, the immigration programme helped to keep the median age steady at 37 years over the 2016 financial year.

What is clear from analysing the figures, however, is that the states and cities with stronger economies and employment prospects generally have more a favourable demographic outlook than those with rising or elevated unemployment rates.

For example, Tasmania's median age has spiked sharply from 35 to 42 years over the last two decades, as younger adults have chosen the path of interstate migration to the mainland in search of gainful employment.

And while some states saw solid growth in their working age population in 2016, including New South Wales (+1.0 per cent) and Victoria (+1.7 per cent), both Tasmania and the Northern Territory saw their working age populations decline.

The wrap

The picture is quite mixed around the states and cities, but projections show that over the next decade there will be more than three quarters of a million extra persons in the 31 to 40 age bracket, a huge demographic wave to drive new entrants into the housing markets.

That's not to say other cohorts won't expand too - in fact, the total population is projected to expand by a record 4.4 million over the next decade to 28.5 million - but the number of potential new entrants may possibly be the most important driver of demand.

For some reason it's only just dawning on people how population growth will impact traffic congestion in the largest cities.

As a result of this the next big run on housing markets is likely to be towards certain inner suburban locations with transport links at the expense of outer suburbia where infrastructure and jobs are sparse. 

Monday, 26 December 2016

Residential prices - the full data series

Full data series

The full ABS Residential Property Price Indexes (Eight Capital Cities) since its inception in 2003.

Price gains by capital city since 2003 included gains of 157 per cent in Darwin, 120 per cent in Melbourne, 119 per cent in Perth, 87 per cent in Sydney, 85 per cent in Hobart, 82 per cent in Brisbane, 85 per cent in Adelaide, and 66 per cent in Canberra.

The average capital city house increased in price by 164 per cent since 2002.

The attached dwellings series doesn't run back that far, but also recorded large gains from its inception.

The year that was 2016

2016 draws to a close

As 2016 draws to a close it's interesting to look back at what played out.

Politically there were some pretty big surprises. 

An experienced gambling friend of mine made a huge killing by backing both 'Brexit' and a Trump victory. 

Annoyingly he'd explained to me in advance in both cases why the prevailing narrative was an easier sell to voters, but alas I only really saw how right he was after the event.

Back home, one of the things that was nice to get right this year was the rebound in population growth, when plenty of people had thought that population growth would drop off a cliff.

That said, although international student visas will break more records in 2017, as things stand labour markets outside Sydney and Melbourne don't appear strong enough to sustain much in the way of net overseas migration, at least not yet, and nationally the uptrend looks set to stall.

Wages growth looks likely to grind along the bottom in 2017, too.

With residential construction sector looking peaky, the economy will face a twin headwind next year from this plus the resources construction sector bottoming out, so although there will be an ongoing move towards road, rail and other infrastructure projects it's likely to be a year where the economy might grind out 2 per cent growth but not much more.

Looking further ahead and into 2018, the outlook is a bit brighter since resources construction will eventually plateau as we move into the next investment phase of the mining boom, being that required to maintain production volumes as iron ore reserves are depleted. 

Private new capital expenditure is now rising in New South Wales, Victoria, and most notably Queensland, but Western Australia and the Northern Territory still have some way to travel before finally reaching the nadir. 

Sydney housing dominates

Louis Christoper of SQM Research was once again a front runner in housing market forecasts in 2016.

He explained here how in inner ring Sydney the market was phenomenally strong in the second half of the year, with examples of properties reselling at 15 to 20 per cent higher prices in the space of just a few months in the face of chronically low stock levels. 

I saw the same thing around Pyrmont, and although it's not my 'patch' the northern beaches clearly experienced some outsized gains too. 

Louis notes that the outer suburbs and north west were weakening earlier in the year, while stock on market shortages led to prices rising in most areas by the end of the year. 

Elastic fantastic

In 2006, Cyclone Larry destroyed more than 90 per cent of Queensland's banana crop, some 200,000 tonnes of fruit.

Since Queensland produced about 95 per cent of Australian bananas, the price of bananas went through the roof, rising by 400 to 500 per cent. 

Later in 2006 as the devastation receded, growers councils warned producers not to attempt to recover costs through a production flood.

It's an example of the immutable laws of supply and demand working pretty much as you'd expect.

It's tempting to think that housing markets work like bananas, but they don't - at least not in the short term.

For example, for some years it's been argued that Sydney's housing market must peak imminently because it takes first homebuyers too long to save a deposit for a median priced house.

But while this could be one of the fundamentals which might theoretically drive a market's 'fair value', being only one sector - and a presently diminishing one at that - it only really has a marginal impact on housing market momentum.

Louis Christopher believes that Sydney will see price growth of 11 to 16 per cent next year, incidentally. 

The reason for this is that although higher prices in theory should deter buyers, in housing markets this can instead lead to a a fear of missing out, while the rising price of housing gifts homeowners with more equity. 

Household wealth passed a record $9 trillion this year, with more credit sloshing around the system than ever before. 

Hence, unlike in the banana market, prices can continue to rise even as developers bring more supply onto the market.

A lot can happen in twelve months, but the first half of the year is likely to see more price gains in Sydney.

Beyond this, markets remain convinced that interest rates will fall no further than they have already.

The next inflation figures aren't due until the day before Australia Day, so we'll have to see what those figures bring.


With the changing face of Australia's housing markets I did a lot of work with various international hedge funds in 2016, which in turn both directly and indirectly led to some geographical changes in my blog readership, garnering much more interest from the US in particular. 

Indeed, the monthly readership passed 65,000 hits for the first time in the last quarter of this year, so thanks for reading and for sharing.

Sunday, 25 December 2016

Merry Xmas

..from the Old Dart. Thanks for reading in 2016.

Have a good 'un!


Edit: RIP Rick Parfitt.

Saturday, 24 December 2016

Australia added +102,000 manufacturing jobs this year (& nobody even noticed)

Manufacturing rebounds

Everyone knows that manufacturing is doomed in Australia.

And everybody is certain that the Holden and Ford closure signal the end of the road for manufacturing employment too. 

Australia doesn't make stuff, it only sells iron ore to China.

We all are sure of it, because we've read it on doom and gloom blog sites the interweb!

But wait there just a moment...

Recall that on 1 April I noted that AIG's Performance of Manufacturing Index (PMI) gauge had soared to 58.1, the highest reading in twelve years.

A figure of above 50 denotes expansion, so 58.1 really is quite a huge reading. 

Believe it or not, this was not an April Fool's joke! 

Still even today the gauge is comfortably in expansion territory at 54.2.

What gives?

The reason for these contradictory messages is that while manufacturing has obviously been in a long, sweeping, structural decline over the last three decades, the lower dollar has finally encouraged a rebound since the last quarter of 2015.

In fact, manufacturing was by far and way and the biggest contributor to employment growth in the year to November, adding way more jobs than the remainder of the economy combined at +102,000.

Better still, more than three quarters of these were full time positions at +78,000.

The odd thing is that, as far as I can tell, nobody even noticed, because by the time the figures were reported most people were well esconced in Ryan's Bar (or their home city's equivalent) celebrating the silly season.

Where were these manufacturing jobs? 

Mainly in Greater Melbourne and Greater Sydney, as most new jobs seem to be these days.

Education and training was another winner this year, adding +50,000 jobs. 

Even the mining sector was resurrected somewhat by the commodity price rebound in 2016, posting an additional +12,000 persons employed over the year to November.

Work to be done

As you can see in the chart above, retail trade struggled badly in 2016, reversing most of the good work done in 2015. 

And indeed, it was a poor year for several of the other services industries include finance and insurance, and professional, scientific and technical services, resulting in much slower headline employment growth over the year. 

Clearly there is much more work to be done in 2017 if the national unemployment rate is going to get down to anywhere near 5 per cent, a level that Sydney achieved some time ago already.

Friday, 23 December 2016

Employment growth slower in 2016

Employment growth slower

Total employment rose to above 12 million in November in original terms, but the rate of employment growth has been considerably slower in 2016 than in the prior year.

When you take a more granular perspective it's not hard to see why.

Sydney went on a blazing run in 2015, but over the past year has added only +14,800 new jobs, leaving Melbourne as the undisputed king of employment growth at +74,600.

Employment growth went backwards in regional New South Wales in 2016. 

Brisbane has now reversed an unusual looking drop, and added +10,000 net new positions over the year, but both Perth and regional Queensland lost ground. 

Looking around the traps, therefore, it's clear that Melbourne has been keeping the show on the road in 2016. 

Across regional Australia as a whole total employment is lower than it was a year ago, with some regions faring better than others. 

Unemployment rates have run quite high in a number of regions. 

Perhaps the early signs of an employment rebound in Townsville?

I'll drill into the figures by industry next up.

Sirtex plumbs new depths

Finishing for Christmas in an expected manner, down at a fresh low close of $14.23.

The Top 25 Property Blogs of 2016

Summarised for you here at Property Update (or click the image below).

Sydney struggling gamely to bridge supply gap

Net completions struggling to bridge supply gap

Net dwelling completions increased by 9 per cent to 34,359 across the year to October 2016, up from 31,388 a year earlier, according to NSW Government data.

While this is an improved result - and Greater Sydney has been completing dwellings at its fastest absolute pace in a decade and a half - the rate of addition to supply was still struggling to keep pace with surging demand.

In the month of June alone some 4893 units and apartments were completed adding to the widely held perception of a supply glut - including some significant projects in Rockdale, Hurstville, Strathfield, and the Hills District - but there have been a number of other considerably slower months. 

It's worth noting that the net dwelling completions figures cover a truly vast urban area stretching from Bondi to the Blueys, and from Wyong to the 'Gong.

If you're not familiar with Sydney geography, this means the coverage area stretches a long distance north of the harbour city to include the Central Coast, and a long way to the south to cover Wollongong and the Illawarra, as well as out to the national park in the west.

In short, 34,359 new dwellings in a year still isn't going to cut it, particularly in the context of so many preceding years of under-building, and a greater completions rate still will be needed to bridge the supply gap (click on the charts to expand them).

The main reason for this is simply increased population growth.

While New South Wales population growth was ticking along happily enough at +79,800 in FY2012, it then suddenly exploded to well over +100,000 per annum in FY2013 and has been maintaining this impressive run rate ever since.

Population growth in the state was running at an annualised pace of +105,600 in FY2016.

Over the year to October 2016 number of local government areas saw a particularly high number of net completions, including Blacktown (2498), Parramatta (2378), Camden (2004), Hornbsy (1606), and the Hills District (1878).

However, offsetting this there were also sharp drops in a number of key LGAs such as the City of Sydney itself, Ryde, and Liverpool. 

While net dwelling completions have still been too undercooked to make any noticeable difference to Sydney's property market rocket to date, this is partly due to the elongated construction times for multi-unit projects.

There is still much work in the pipeline, and as we shall see below, approvals have touched record highs in 2016. 

Approvals soar

There were some 64,457 dwelling approvals over the year to October 2016 according to the NSW Government, so the potential to bridge the supply gap definitely exists, even if it takes time to play out.

In terms of the LGAs at the greatest peril of oversupply, for mine Parramatta and Blacktown are clear standouts.

Meanwhile the Hills District is seeing plenty of construction activity, while there is also such potential in Liverpool, Camden and Campbelltown, Ryde, Penrith, Hornsby, Auburn, and Rockdale, among other places. 

At the other end of the scale, almost nothing of note is being added to supply in upmarket Waverley or Woollahra in the east, or in Manly or Mosman to the north, which is pretty much as you'd expect really.

Thursday, 22 December 2016

Sirtex bonfire continues

Do we need to keep doing this?

Down by another -1.52 per cent today to $14.28 at the close, from the year's high of $41.04.

Sydney unemployment rate 4.85pc

Lots to report from today's Detailed Labour Force figures.

I'll take a look at some of the other findings later.

Greater Sydney looks to be in good nick with an unemployment rate of only 4.85 per cent.

I doubt it will run a whole lot lower than that. 

In fact, generally speaking, most capital cities are heading in the right direction, if from too high a base in Adelaide's case. 

The one capital city where the unemployment rate is still definitely trending up is Greater Perth.

That said, it does look as though perhaps the unemployment rate is steadying a bit in Perth too.

It's now at an annual average of 6.16 per cent. 

Sirtex crashes again

Just 'cause.

Down another 1.8 per cent today, and down 65 per cent from the 52-week high.

Wednesday, 21 December 2016

Another index finishes 2016 on a high

Slower repeat sales price growth in 2016

Residex reported its repeat sale growth summary for the year to November 2016 today.

Like CoreLogic and Domain, it reported Sydney prices rising again into the end of 2016, albeit at a slower annualised pace than CoreLogic. 

Residex reported the median house price in Sydney as rising by +3.9 per cent over the year to an all-time high of $1,105,500. 

Unit prices rose by a slightly more sprightly pace of +4.6 per cent to a fresh high of $715,500. 

Overall, the year-on-year growth rate for house and unit prices has been slower in 2016 than it was in 2015.

The best performing market was Hobart, where the rental market has become very tight. 

House prices in Hobart rose by +6 per cent over the year to November, while attractive Launceston was also in positive territory for the year.

Meanwhile, house price growth was also positive in Melbourne, Canberra, Brisbane, and Adelaide.

By far the weakest market was Darwin, where the median house price dropped by -9.1 per cent to $520,000.

For some reason a number of analysts have been talking about cash rate hikes as we move into 2017, although it's comforting to see that Residex is not among that number (I don't reckon so either).

The Residex monthly reports written by Eliza Owen always have some interesting findings.

You can find their full report here

2016 drawing to a close

2016 ends

A bit of a cheat as there are still 10 days to go, but let's take a quick 10-second squiz at what is happening in property markets as 2016 draws to a close (not a whole lot happens between now and the new year anyway). 

Sydney home values increased by +14.2 per cent in 2016.

In Melbourne, meanwhile, home values increased by +13.2 per cent. 

Not much more to say about that except that there have been some seriously bad forecasts in recent years!

Apartment construction to slow

In Melbourne, there have been reports from Charter Keck Cramer research that Melbourne apartment construction has been set to "go slow", with apartments to be brought to market more slowly next year than previous forecasts had suggested.

CKC expects 16,300 apartment completions in Melbourne 2017, well down from the 23,200 they had forecast for the 2016 calendar year. 

This is generally good news for the Melbourne apartment market, widely thought to be facing an oversupply of apartments.

Over the year to June 2016, annual population growth in Victoria accelerated to its highest ever level at +123,100 - this is well over double the long run average for absolute population growth in the state, so there should be plenty of demand for accommodation.

Cognitive dissonance?

Of course, you could look at the coming slowdown in apartment construction in one of two ways.

Either you could see this as the market correcting itself, with supply rationally adjusting to the risk of oversupply.

Or you could see it as a panic reaction from fearful developers, foreshadowing an inevitable meltdown in the new apartment market. 

Whether you believe the former or the latter will almost certainly be based upon what you thought at the beginning of 2016, because these market dynamics have been known about for a long time, and because it's human nature to seek out evidence which supports our opinions.

Cognitive dissonance is the state of having inconsistent thoughts where we 'spin' or reframe evidence to fit our beliefs, rather than updating our beliefs in light of the new evidence.

We like to believe that we mould our beliefs to fit the evidence, as this would obviously be the rational thing to do - but human nature often simply does not allow us to do it. Why? Largely because we don't like to be proven wrong, for it challenges us too much! 

Being unable to change your views when the outlook changes can be a dangerous trait in business and investing.

Market sentiment proxy

There is no simple way to measure exactly what financial markets think about the new apartment markets and any related systemic risk.

Genworth Mortgage Insurance Australia (ASX: GMA) is a monoline mortgage insurer operating in Australia and its share price action might possibly be the best proxy we have for monitoring mortgage arrears and default risk.

The GMA share price is up by a whopping +29.1 per cent year-on-year despite a huge drop in gross written premium (stock levels have been well down this year, and macroprudential measures curbed the investor market in 4Q15).

Clearly the market doesn't appear to be too perturbed about default risk, although the recent surge may in part reflect good cheer for the company's renewal of its contract with CBA.

The 3Q16 investor presentation showed that delinquency rates are somewhat higher as at 30 September 2016 from a year earlier, up to 0.47 per cent from 0.39 per cent, driven by Western Australia which saw delinquencies leap by some 24 basis points to 0.69 per cent.

The resources regions of Western Australia and Queensland in particular face some serious challenges. 

That said, delinquency developments by book year have been generally favourable since 2009, with a bit of a spike following the Queensland floods of 2011.

Delinquencies are predictably lowest in New South Wales at 0.32 per cent, and Victoria at 0.39 per cent, with dwelling prices in a sustained growth cycle. 

Source: ASX: GMA

Sirtex crashes again

The bonfire continues apace.

Sirtex Medical is now down 63 per cent year-on-year.

As for some of the other value stock favourites people tweet me about?

Vita Group is staging a bit of a fightback, having previously been smashed:

Healthscope is not really going nowhere, and remains well down:

REA Group (real estate) looking to shape upwards in 2017 after a bit of a knock:

And Vocus Communications...bleurgh!

Source: ASX

While Aussie shares continue to tread water, in the US it's a veritable moonshot with the Dow firing for 20,000.

Source: DJIA

Even our old friend Harry Dent has turned bullish on US stocks now, even if he is about half a decade too late to the party. 

He had predicted the DJIA would fall to around 3000 to 3800, just before it rocketed to 20,000.

Ridiculous, really, but perhaps it says something about the market if even the Dentmeister has turned bullish.

Open all hours?

Hours worked weaker

With the proliferation of part time jobs in 2016, it's perhaps not surprising that the notion of monthly hours worked being the most reliable measure of labour market strength has garnered a groundswell of support.

The long run figures present a few interesting findings.

Firstly, the measure has proven to be quite a useful indicator of periods of economic weakness, such as in the early 1980s recession, the "recession we have to have" of 1990-1, the early 2000s recession, and the global financial crisis.

The chart below shows that while Australia might have dodged a technical recession through 2009, businesses and employees were grappling with recession-like conditions for some time.

In the final quarter of 2015 the annual change in hours worked was shaping upwards nicely, but now annual growth has all but ground to a halt.

There's a possibility that the survey overstated the strength of the labour market last year and has understated it this year, but whichever way you look at it the present environment is soft Australia's now works through the final year of the resources investment downturn. 

Around the traps

Only Victoria is scoring well on this measure at the moment, with Melbourne actually scoring quite strongly on a number of metrics right now. 

It's also worth looking at the same figures in trend terms over time too.

Looking at the figures charted this way, you'd be hard pressed to describe conditions in New South Wales as soft with monthly hours worked essentially as high as they've ever been after a huge surge in 2015.

The chart also reveals the economic weakness in the southern states since the financial crisis, with monthly hours worked in South Australia remaining below where they were in June 2010, while in Tasmania they remain below where they were all the way back in July 2007.

Some good news for Western Australia is that monthly hours worked appear to be flattening out somewhat, having declined quite sharply in trend terms since March 2015.

Business spending at 7 year high

'Encouraing' news indeed, from Commsec.

It's the highest level seen since the financial crisis.

Source: Commsec

Very unlikely, then, that we'll see a second consecutive quarter of negative growth.

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