Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory & buyer's agents, 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'.

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Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email pete@allenwargent.com

Wednesday, 26 April 2017

Core inflation misses target...again

Inflation up a bit (base effect)

Headline inflation missed expectations of a 0.6 per cent increase in rising by 0.5 per cent in the March 2017 quarter.

This was obviously some way stronger than the negative -0.2 per cent print for the prior year comparative period, and as a result the annual headline inflation rate increased to 2.1 per cent. 

It seems that the risk of deflation - if there ever was one - has passed for now, and the Reserve Bank of Australia (RBA) may at least take a little bit of comfort in the inflation rate trending higher. 


Interestingly this means that real wages 'growth' is now negative. 

The quarterly gains were largely driven by a widely anticipated 5.7 per cent increase in the price of automotive fuel, while electricity prices rose by 2.5 per cent.  


However, nearly 40 per cent of the CPI basket recorded declining prices over the quarter, including travel, fruit, and furniture prices, and inflationary pressures overall were still subdued. 

A trawl through the sub-indices shows that a range of items are at their cheapest level in around three decades, including women's clothing and household electrical items, among other categories. 

Consumer price inflation was notably higher in Sydney and Melbourne - in the middle of the target range - than in the resources capitals. 

Rates on hold

The prices of non-tradables goods were up by 2.6 per cent over the year, while tradables inflation was still very low at 1.3 per cent. 

To be fair this represents a reasonable pick-up in non-tradeables inflation, but this may well prove to be temporary. 


Underlying inflation misses again

More importantly, the annual core measures of inflation continued to miss the 2 to 3 per cent target range for the fifth consecutive quarter. 

The trimmed mean (0.48 per cent) and weighted median (0.38 per cent) readings were again very weak in the March quarter, even after the seasonal adjustments were applied. 

And despite a moderate upwards revision to the trimmed mean reading, both core measures were still well below target year-on-year at just 1.86 and 1.65 per cent respectively.


RBA credibility

Overall, despite the uptick in the headline rate of inflation, this was another soft reading for the core measures.

And as the terms of trade begin to decline again through 2017 - in turn hurting earnings and wages growth - there appears to be a good chance that core inflation continues to deviate from target on the downside for even longer than it already has.

I only read 3 or 4 media pieces on today's inflation data, and strangely all of them noted that inflation wasn't yet high enough to lead to rate hikes (to re-iterate: inflation has missed target for five quarters on the downside).

This is arguably an indictment of the RBA.

Having a stated 2 to 3 per cent inflation target can work as a stable nominal anchor, but not if people start believing that the RBA is unconcerned about undershooting the target range.

And now some are clearly doubting the Reserve Bank's commitment to meeting the inflation target, which is precisely what should not happen.

Perhaps if the Governor disagrees with the media 'hot takes' he will infer so in due course, so watch this space...

Anyway, the cash rate seems likely to be on hold for a while to come, but realistically there remains more chance of a cut this year than a hike.

Land prices accelerate to record high

Land prices surge

The weighted median vacant lot value rose by 4.8 per cent in the December quarter to a record high of $254,406, according to the Housing Industry Association (HIA). 

Vacant lot prices rose by 9.3 per cent over the year, while volumes are declining sharply, implying a shortage of shovel ready land for homes in some capital cities. 


Source: HIA

The rise was driven by massive annual increases in Melbourne (+16.3 per cent), Sydney (+10.7 per cent), and Adelaide (+10.3 per cent).

There were however also increases in Brisbane (+5.4 per cent), Hobart (+3.1 per cent), and Perth (+0.9 per cent). 

Sydney has the most expensive median vacant land price, rising by 65 per cent over the last five years to $455,000, which is about 45 per cent of the median house price in the harbour city. 

Lower volumes

The increase in median lot values came despite a  significant drop in sales volumes since 2015.

Lot sales totalled 10,756 in the December quarter, down by 23 per cent from Q3 2016, and by a massive 40 per cent from the prior comparative period. 

Kiwis trickle back to Oz

Record NZ migration

Migrant arrivals grew to a record high 129,500 over the year to March 2017 according to Statistics New Zealand, putting increased pressure on the Auckland housing market. 

On a net basis permanent and long term migration rose to a record high 71,900 over the year to March, with fewer migrant departures being an important part of that equation. 

It's been a long time coming but the number of permanent and long term departures from Australia to New Zealand is now in decline. 

Record migration has been driven by sea-changing Brits, Chinese mirgants, and migrants from South Africa. 

There has been a sharp pullback in the annual number of migrants from India, perhaps related to a freeze on the parent visa category, through which new NZ residents sponsor family members. 


More than a quarter of migrant arrivals were citizens of New Zealand. 

On a net basis the flow across has the Tasman has been in the direction of Australia for three months consecutively, suggesting that the "Kiwi exodus" has run its course. 


Unemployment rate Bledisloe

New Zealand's unemployment rate rose to 5.2 per cent in the December quarter, but this remains some way below the 5.9 per cent unemployment rate recorded in March in Australia. 


Despite this, Australia remains a popular destination for Kiwis.

The latest available data showed that from nearly 2 million temporary visa holders in Australia more than 677,000 were New Zealanders on a subclass 444 visa. 

Tuesday, 25 April 2017

Northshore Hamilton

Hamilton (Brisbane)

I haven't done a post on a construction hotspot for, gosh, at least two weeks.

So let's take a look at Hamilton in Brisbane, which has a vacancy rate of about 9 per cent.

Granted, 9 per cent doesn't sound like a whole lot.

And it isn't from an international standpoint, implying after all an occupation rate of more than 90 per cent.

But you have to look at it in terms of the Australian reporting standard - by way of comparison, the entire metropolis of Melbourne has an official vacancy rate of 1.5 per cent. 

The trend is the important thing to watch, and until lately it's been up, up, and away...from close to zero half a decade ago, give or take a few frictional vacancies. 


Source: SQM Research

For new Brisbane apartments at the moment, we're starting to see plenty of 'incentives' to lease.


I went for a wander around down at Northshore Hamilton today.

Ready for some photos?

Northshore Hamilton

Hamilton is a pleasant suburb on the north bank of the Brisbane River, located a little further downstream than most of the other major construction hubs in Brisbane, at 4 miles or about 7 kilometres from the Central Business District. 

The suburb has had the highest mean taxable income in Queensland, and is home to some phenomenally expensive real estate in the elevated locations with amazing water views, leading to a median house price comfortably (and, to be fair, deservedly) in the 7-figure range. 

In 2008 it was announced by the Urban Land Development Authority (ULDA) that the northshore of Hamilton would be developed. 

The area to be developed close to the river covers some 304 hectares and a strip of around 2.5 kilometres of land along the riverfront.

The land was previously government owned and zoned for industrial use. 

The areas that have been developed to date are pleasant enough, although in truth there isn't an awful lot down there besides a ferry terminal and a nice cafe.


Not all of the development stages come as apartments, which is a bonus, although the terraces don't exactly come with cheap price tags. 

All but one of the terraces have now reportedly been sold in this Parkside Circuit development. 


Vacancy rates are already shifting higher as evidenced by the 'For Lease' signs.


There is a chance that vacancy rates may be potentially understated at this stage in the construction cycle, a point covered in more detail in my market reports. 


Pretty quiet around here in parts...


Hamilton: A construction hotspot

The $400 million mixed-use riverfront development was planned to comprise 700 to 1,000 apartments, parkland, a pool, and a restaurant and retail precinct.

'ICON', meanwhile, a new $650 million four-tower mixed use development proposal has been submitted for 19 Hercules Street in Hamilton, a 7,637 square metre site. 

The Hercules Street site previously had approvals for a 23-storey tower comprising 582 apartments by Mirvac (the development formerly known as 'Foreshore Hamilton'), but the site has now been sold on for a private property trust to develop. 

The new development is expected to comprising a hotel and three residential towers adding 567 apartments. 

Apartments are also now for sale off the plan from a retail price of $394,000 at Hamilton Reach.


Construction is getting underway at a new stage of the apartment living options. 


The development of more than 300 hectares of land in total is planned to be delivered in stages.


The government is reportedly pitching in $20 million for amenities, although it is not clear what plans have been made for public transport, aside from the existing CityCat ferry service. 


This part of Hamilton was previously a bit stranded away from the prestigious homes on the hill.

The suburb is effectively scythed in two by the noisy through-route of Kingsford Smith Drive (which, as the route name implies, runs away from the City to Brisbane Airport). 


From start to finish the project is expected to take about a decade to complete. 


Display suites are now open...


More than 15,000 people are projected to move in to the area over the next two decades, as the last strip of undeveloped land along this side of the river is converted to residential use from its industrial past. 


Northshore Hamilton is located fairly close to the airport. 'Good for transport' as they say in real estate parlance!


Future riverfront stage selling...


You can just about see the Central Business District, shimmering some 6 kilometres or so in the distance.


The wrap

The ICON development alone is expected to create 2,000 full-time jobs (and a further 1,500 ongoing full-time positions), while another 500 full-time jobs were reportedly to be created for the Northshore Hamilton development.

This certainly represents an opportunity for Brisbane, but also highlights one of the salient risks facing Australia right now, with more than 1.1 million people employed in construction from an employed labour force of just over 12 million. 

Over the year to April 2016 a record 21,679 units, townhouses, and apartments were approved in Greater Brisbane, but in the early months of 2017 new approvals have slowed to a trickle, while dwelling starts are also now clearly dropping off in the Queensland capital. 


I think it would be fair to say that Brisbane will have no shortage of new apartments over the next few years.

The biggest unknown factor in the market right now is how new apartment settlements and sales will hold up since local lenders became unwilling to lend to non-resident buyers.

New apartments tend to command a price premium in Australia, and as such foreign buyers often account for a high percentage share of sales in new apartment blocks.

Non-resident buyers are generally restricted from buying established dwellings, except for development purposes when adding to the dwelling stock.

---

Hugely important data release due out tomorrow morning, being the inflation figures for Q1, 2017.

If you have mortgage debt, you should be hoping for a low print.

The market expects a headline result of 0.6 per cent, with forecasts ranging from 0.3 per cent to 0.8 per cent. 

ANZAC Day 2017

A very large turnout for the ANZAC Day service at the Sandakan POW Memorial in Brisbane today.


Lest we forget.

UK average asking price hits new high

Brexit shrug

Rightmove's UK asking price index rose by 1.1 per cent or £3,547 in April to a record high of £313,655. 

Over the year to April 2017, the average asking price of new homes brought to market was a moderate 2.2 per cent higher. 


Note how in London average asking prices for new homes brought to market appear to have stopped rising at £636,777 in April.

The London average is being pulled down by some sharp declines in the premium sector, with average asking prices down by 10.4 per cent year-on-year in Kensington & Chelsea to £2,011,069.

At the cheaper end of the spectrum, however, asking prices are recording solid gains in London. 

For the reasons why, see here

Monday, 24 April 2017

Unemployment rate gets set to fall

Unemployment rate to fall

A number of indicators have suggested an improving outlook for the Australian economy, at least in the immediate future. 

Yet the unemployment rate has remained quite elevated at nearly 5.9 per cent on a seasonally adjusted basis. 

Flipping the unemployment rate on its head and mapping it against the strong jobs vacancies figures suggests that the unemployment rate should fall as 2017 progresses. 


And indeed the IMF recently forecast that Australian unemployment would fall from 5.9 per cent to 5.2 per cent this year. 

The May budget has yet to be released, but the above chart suggests it would be justified in assuming something similar. 

In reality the unemployment rate has already fallen well below 5 per cent in Sydney.

But elsewhere in the country unemployment and under-employment has been all too common.

A job search is most likely to be fruitful in New South Wales, with the number of unemployed persons per job vacancy having declined to below 3. 

Subscription reports

Monthly Market Reports analysis

I post plenty of thoughts here on my blog page from day to day.

For institutions and fund managers wanting detailed tactical analysis of Australian market trends, please subscribe for the Monthly Market Reports. 

These punchy reports allow you to immediately identify the key themes and ideas relevant to your trades and positioning. 


What you get...

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The Monthly Market Reports are delivered to your inbox at the beginning of each month.

For report samples & an order form please email pete@allenwargent.com.

Critics

"What the critics are saying" about inner city Brisbane apartments, apparently...


Unfortunately the quote is from nearly two years ago.

In reality what we are seeing now in the inner Brisbane new apartment market is widespread evidence of price discounting to shift stock. 

Sunday, 23 April 2017

Weekend reads - must see articles of the week

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

Property Update was recently listed by feedspot as the top property blog worldwide.


By the way, if you want to come and see me speak at Gold Coast, register your interest here.

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A hugely important release is due out on Wednesday this week, being the Consumer Price Index (CPI) or inflation figures for the first quarter of calendar year 2017.

Core inflation has been tracking at below the Reserve Bank's 2 to 3 per cent target range, and the September inflation result was clearly soft as consumers benefited from discounts. 

However, the forecast range for CPI this quarter is quite wide. 

Generally the market expects to see another relatively subdued result, but there are rising fuel prices and potentially energy bills and/or pharmaceutical costs that combined with the seasonal factor could see a higher than expected result. 

March is normally a soft quarter for inflation, so the statistician adjusts for the seasonality.

The figures will have important implications for the trajectory of interest rates. 

Sydney auctions

After Easter, Sydney posted its lowest preliminary auction clearance rate of the season at 75.6 per cent.

The median auction price was lower than we've seen in recent weeks at $1,110,000.

The clearance rate was still higher than the equivalent weekend last year at 68.8 per cent, but the number listed was higher at 506 compared to 422.


The median auction price for houses was broadly similar to the same weekend last year.

However, the median auction price for units was about 12 per cent higher, so there maybe some change in composition evident. 

Overall, with the median price flattening and auction listings rising, it looks as though regulatory measures to cool the market may be working. 

Saturday, 22 April 2017

London price growth by decile

Lowest value segments now lead

Over the last 8 years strong London house price growth was initially led by the highest value markets.

London house prices have growth by 80 per cent since 2009, taking house prices to around 14x earnings. 

As a 'thinner' or more illiquid market, the top price band has historically been the most volatile. 

Following multiple tax changes and concerns over Brexit, the top price band is now seeing prices fall.

House prices in the 10th or most expensive decile have declined by 5 per cent over the past year. 

Activity has shifted to the lowest deciles of the market, where price growth is now very strong. 


Source: Hometrack

Hometrack reports in much more detail here.

The 9 top property blogs worldwide

Ranked here by Feedspot (or click the image below):

Friday, 21 April 2017

Foreigners taking our jobs?

Migration policy

It's been pointed out that most full time new jobs since the financial crisis have gone to overseas born workers. 

No doubting that this is absolutely true on a net basis.

A quick glance at the population pyramid explains part of the reason. 

Immigration policy encourages workers under the age of 30 to come to Australia.

Meanwhile at the other end of the spectrum, mostly Australian-born workers are dropping out of the workforce, or shifting to part time employment.

Thus on a net basis, most of the growth in new full time jobs is accounted for by overseas born employees. 


In reality, as I've shown many times on this blog immigration can rise faster when the economy is firing, and naturally falls again when the economy is weaker and thus not creating the jobs that incentivise migrants to come to Australia. 

There's no doubt that the economy has been through a sticky patch, and youth unemployment remains a little too high for comfort. 


Overall, immigration is a force for good, though, and improves the economy, as documented by the Productivity Commission:

"Younger and more skilled immigrants are best placed to make a positive economic contribution to Australia. 

These types of immigrants provide a demographic dividend by increasing the proportion of people in the workforce, thus reducing the negative impacts associated with an ageing population. 

Skilled immigrants are also more likely to generate spillover benefits through enhanced productivity, innovation, and greater flexibility to move to other occupations in response to changing labour markets."


The most recent Intergenerational Report projected that the population of Australia will likely expand significantly over the next four decades, concluding that:
  • lower immigration would lead to slower economic growth;
  • lower immigration would lead to an ageing population; and
  • lower immigration would lead to lower participation rates (with an adverse consequences the tax take).

Arrears decline in February

Typically arrears rise in February following the Christmas break and summer spending.

So this may be significant, given that mortgage rates have been rising.

Reported by S&P:


Source: S&P

Melbourne creating the jobs

Labour market set to tighten

Any number of indicators have pointed to an improving labour market, from jobs vacancies, to NAB's business surveys, to the Roy Morgan measure of unemployment. 

The ABS survey went some of the way to bridging this gap in March, recording year-on-year employment growth of 146,000 or about 1.23 per cent. 

The minor glitch in last month's detailed figures was fixed, leading to a total labour force of 12.069 million in original terms. 

Is this another sign of an improving labour market? 

Let's hope so. 


Employment growth has begin to pick up again in Sydney after the boom of 2015, with the harbour city adding 33,000 jobs over the past year. 


Melbourne remains the king of employment growth, however, adding 75,000 jobs over the year on a net basis, while regional Victoria added net new employment of 21,000. 

Unemployment rates

Over the year to March, Greater Sydney had an average unemployment rate of just 4.86 per cent. 

At the other end of the spectrum the unemployment rate in Adelaide averaged 7 per cent. 


Hobart's economy is improving, with the unemployment rate now set to go into an impressive downtrend.

In Perth the labour market and unemployment rate have been deteriorating since January 2013, and this still continues. 

Searching...

It was comparatively easy to find full time work in Australia before the financial crisis.

In the financial services sector a skills shortage meant it was possible to have multiple job offers on the table for prospective employees to choose from. 

Today, on average, it is not so easy to find gainful employment, although job search conditions have been nowhere near as bad as they were following the last recession. 


At the city level it is becoming easier to find work in Hobart, which has the most improved labour market in the country right now. 


The wrap

The March labour force figures were strong, although in absolute terms the new employment has been heavily weighted towards Melbourne and Sydney.