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Co-founder & CEO of AllenWargent property buyers & WargentAdvisory (subscription market analysis for institutional clients).
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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.
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Australia's total annual employment growth has lifted to +2 per cent, taking the total number of employed persons up to 12.2 million, representing a material improvement in 2017.
After a remarkable 3-year run, Sydney hiring is off and running again, with total employment growth surging back towards +2.5 per cent, and employment +64,500 higher year-on-year.
Despite the relatively high level of unemployment on the Central Coast, across Greater Sydney the unemployment rate has now fallen to just 4.36 per cent.
The annual average unemployment rate for the harbour city is now at the lowest level since the financial crisis, helping to explain why mortgage arrears have been falling from already low levels to even lower levels.
Perhaps small wonder that the Sydney housing market has held up so well looking at these numbers.
Brisbane has seen an big uplift in inbound internal migration, but appears to be struggling to absorb the intake with gainful employment as apartment construction slows.
Accordingly, the Brisbane unemployment rate has lifted somewhat.
The median duration of job search across Australia has improved, if marginally, from 20 weeks a year ago to 19 weeks in June 2017.
While Hobart has been improving on this measure, it now takes 22 weeks on average to find a job in Adelaide, which is a concern.
Finally, a look at Townsville employment as a bellwether for the resources-influenced regions shows that total employment has rebounded from the lows of 2016.
Overall, the labour market seems to have turned a corner in 2017, albeit with the proverbial turning circle of the QE2.
And the results do remain quite unbalanced around the states.
Sydney looks set to most enjoy the benefit of low interest rates for another couple of years, which may in turn result in the return of stronger wages growth.
The recovery in the labour market has been slow, surreptitious, and shallow, so you'd easily be forgiven for having missed the bottom, but job vacancies do indicate a steadily improving immediate outlook.
After a solid result in the month of May, trend vacancies improved again by +0.9 per cent in June 2017.
Vacancies are now +23 per cent or +32,100 higher than at their October 2013 lows, and sit at their highest level in five years.
Notably Skill Level 1 jobs have seen a +25.3 per cent since increase since the lows of ~50,000 in August 2013.
Skill Level 5 jobs have increased more modestly by +14.8 per cent since their 2015 low of 19,400.
Trend job vacancies were on the up for all occupational groups in FY2017, but the strongest increases were for machinery operators and drivers - which were up by +21.5 per cent over the financial year, albeit from a small sample group - as well as technicians, and trades workers.
State versus state
Naturally, the employment outlook for employment is always important for the respective city housing markets.
But this is doubly so in 2017.
Since there has been an unprecedented volume of apartments under construction the three most populous capital cities need to be able to sustain strong immigration rates in order to absorb the new stock, in addition to attracting international students.
New South Wales appears reasonably well placed in this regard, with the Department of Employment reporting some 65,500 vacancies.
The ABS survey has also previously recorded a super-strong 69,300 vacancies for NSW, an all-comers record high for any state on that measurement (this index was put on ice for a while during a period of budget cuts, accounting for the mysterious gaps in the chart).
Following a recent surge, Victoria has now seen a +5.9 per cent trend uplift in vacancies over the financial year to a solid enough 45,100.
In many ways Queensland faces some of the greatest challenges, with thousands of new apartments coming online, yet employment having been held aloft by public sector hiring and, well, jobs related to apartment construction!
There was some promising news in the Sunshine State with trend vacancies up by +7.9 per cent over the year to 31,600, making Queensland the second strongest year-on-year performer on this measure.
South Australia has recently been the surprise package on this index, with a +13.3 per cent trend annual increase.
However, there were declines in Tasmania, the ACT, and a substantial double digit trend decline in the Northern Territory.
Finally, having nosedived by -28.8 per cent over the two years to September 2016, trend job ads in
Western Australia have recovered somewhat to be 9.6 per cent above their September 2016 nadir.
Clearly it's a far cry from the heady days of the mining boom when you could sometimes get a pay rise or even a bonus just for turning up to work, such were the skill shortages in certain sectors.
Nevertheless it's good to see that vacancies have been rising solidly over the last five years, albeit with a couple of stumbles along the way.
On this evidence, Sydney and Melbourne will continue to attract the bulk of immigrants, while Melbourne is also attracting workers from all over Australia, rendering its forecast apartment glut a big fat fizzer.
Oops! Inflation was remarkably weak in the June quarter at just +0.18 per cent, the softest inflation result for the second quarter of the calendar year since 2003.
Thus, not only is core inflation tracking below the target 2 to 3 per cent range, now headline inflation is too, at just +1.9 per cent.
To be fair, though, here was another moderate annual increase in non-tradables inflation - a proxy for domestic price pressures - so the inflation pulse arguably still at least has a...erm, pulse.
As widely expected, automotive fuel prices pulled the headline result down in the quarter.
Looking more closely at the seasonally adjusted and analytical series, both of the core measures came in at +0.5 per cent for the quarter, although the weighted median was within a hair's breadth of being rounded up to a +0.6 per cent reading.
Over the past year both core measures came in at just +1.83 per cent and +1.84 per cent respectively.
Other soft spots for inflation included the intensely competitive clothing and retail sectors.
Many readers of this blog have a good deal of interest in the housing market, so let's have a quick shufty at what's happening to rents around the traps.
Annual rental price growth remains weak at just +0.6 per cent as a weighted average of the eight capital cities, which is the equal lowest level in 23 years, a direct consequence of the building boom combined with record numbers of Mum and Dad landlords.
There were some wild variations around the capital cities, however.
The headline result was impacted heavily by increasingly sharp year-on-year declines in Perth (-8.1 per cent), and another weak result for Darwin (-7.2 per cent).
Brisbane rents were only flat over the past year as the impact of the inner city apartment oversupply threatens to ripple through to the wider apartment market.
There was a much juicier +4.2 per cent annual increase in rents in the tight Hobart market down in resurgent Tassie.
In Sydney, rents (+2.5 per cent) continue to comfortably outpace inflation, and indeed over the past decade rents in the harbour city (+54 per cent) have increased by exactly doubled the growth in the index for all groups CPI (+27 per cent).
Overall, it was a stunningly low inflation result for the headline inflation figure, which should keep the interest rate hawks in check for now.
If you look more closely at the analytical series, though, you could arguably make the case that the weighted median inflation figure is gently drifting back towards the target range, while the annualised trimmed mean figure was essentially flat when you drill in to an extra decimal place.
With several indicators of improvement in the economy, and with the Reserve Bank's own inflation forecasts suggesting that the middle of the target range will be hit sometime around the middle of the next decade, we could well be in for a loooong period of rates on hold.
Another sometimes useful indicator we can look at is the employment to population ratio, which is less volatile that many of other labour force estimates (since estimates of the resident population are also less volatile).
Scanning the trend in the employment to population ratio it initially looked as though the labour market had reached a trough in 2014.
But then there was a setback, which some commentators attribute to then Treasurer Hockey's 'austerity' measures, which attempted to drag the Budget kicking and screaming back into surplus.
Now the trend employment ratio is improving again, up from 60.9 per cent at the beginning of the year to 61.3 per cent in June 2017, with both the male and female cohorts rebounding.
As you can see, nationally the employment ratio tends to be considerably higher these days than it was in the 1980s due to the vastly increased female participation in the workforce.
This also has important implications for the housing market, for there are now many more dual income households than there were, increasing household incomes, and in turn borrowing and purchasing power.
Despite the recent improvement the national employment population ratio remains 1.5 per cent lower than in 2008, when the employment to population ratio ran all the way up to 62.8 per cent in a starburst of fiscal stimulus packages.
State versus state
Most states have seen a bit of an improvement in recent months.
Possibly the surprise package here is Western Australia, which has rebounded nicely as jobs growth has picked up.
This has partly been driven by resurgent commodity prices, although at least part of the improvement in labour force ratios has been due to negative net interstate migration, with disaffected workers now migrating back to the eastern states.
We've seen similar trends in the Northern Territory, where the employment to population ratio ran even higher at above 70 per cent in the early part of 2017, but population growth in the Top End is now threatening to turn negative.
Still, it shows that the medium term prospects in the resources states may yet prove to be better than many imagine.
Waiting for tonight
With its burgeoning tourism boom, gosh aren't Sydney hotels becoming rather expensive these days?
This week we looked into booking an 8-night stay in the harbour city for the first week of October and received one quote back from the Four Seasons at a somewhat ambitiously priced A$43,000.
One assumes that was for the penthouse suite.
As a mildly amusing aside my wife once encountered Latino pop diva Jennifer "J. Lo" Lopez in the elevator during one of our stays at Sydney's Sheraton on the Park (two young girl fans asked her for a hug, but alas Jenny from the block politely declined).
Like most people that aren't pop empresses, I will not be shelling out 43 grand for my short stay, although the website being perused still came back with a surprisingly punchy $4,000 quote for the Novotel at Darling Harbour.
Since virtually nobody pays hotel rack rates these days, I reckon the sojourn will end up being about three quarters of that price, but it's another indicator of a state capital economy that is humming along right now. Housing markets firm
Following the introduction of new incentives there have been some early signs of a first home buyer reawakening in Sydney and Melbourne, thereby confirming that there are no meaningful price falls on the immediate horizon.
Indeed, the preliminary auction clearance rates reported on Saturday evening pitched in at the highest level in six weeks.
There has also been a good deal of premature arousal about rising mortgage rates.
It's true that investor loans have seen rates tweaked higher, but generally speaking commentary has focused too much on standard variable rates and not enough on discounted rates.
The fact remains that - for all the talk or rising funding costs - depending on the loan-to-value ratio home loans can still be secured from 3.69 per cent.
Just like with hotel stays in Sydney, while some unassuming people will pay the advertised headline rate on mortgages, most will shop around and get considerably better deals.
In the absence of much housing market excitement to write home about, all eyes will be turning to Wednesday's inflation figures, and in turn the trajectory of the official cash rate.
Despite some speculation about imminent rate hikes, the Reserve Bank Minutes certainly did not indicate a tightening bias.
In any case as residential construction starts to turn down this will likely act as a material headwind to growth in 2018.
Improving jobs figures
There has been a marked improvement in the jobs figures since late last year, but even now youth unemployment remains fairly elevated at about 13 per cent.
Youth unemployment can sometimes be quite a useful indicator of economic strength - younger employees are often the first to have their wings clipped when times are tough, but may be hired again when conditions and the outlook improve.
In New South Wales the trend unemployment rate has declined to just 4.75 per cent, with strong jobs growth in Sydney across recent years pushing the unemployment rate in the capital down as low as 4.4 per cent.
Although Sydney's strong economy is attracting immigrants from overseas in droves, the latest internal migration figures show that thousands of residents are using their boosted equity to retire from the Sydney workforce to the regional south coast and to the Hunter Valley.
Sydneysiders are also increasingly migrating to Queensland for a cheaper cost of living, as tends to happen at this stage in the cycle.
With such a low unemployment rate, upwards pressure on Sydney wages should now be returning in due course.
Despite the improvement in labour force figures, there are few signs of significant inflationary pressures and it's far too early to be talking about rate hikes in earnest.
The Reserve Bank Board appears confident that forward-looking indicators suggest further improvements are in the post for the labour market, but also recognises that the rate of under-employment remains elevated.
Even in New South Wales the underutilisation rate is still some way above where it was before the financial crisis shock, and all of the other major states sit some way higher again.
Inflation still benign
With wages growth generally soft, it should be no surprise that core inflation has been consistently missing the target range to the downside.
Although the CPI figures are rarely weaker in the second quarter of the calendar year, Bloomberg's survey of economists suggests that this trend of core annual inflation missing the bottom end of the target range may well have continued in the June quarter.
While there will be a post-Cyclone spike in fruit prices pushing the headline rate of inflation well above 2 per cent, this will to some extent be offset by falling automotive fuel prices at the bowser.
Finally, a rarely recognised potential twist in the tail is that the inflation figures are known to be upwardly biased, since the measures are fixed for a number of years.
Seasonally adjusted employment increased by +14,000 in June according to the ABS, with full-time employment soaring by an outlandish +62,000.
Rather noisy monthly figures, of course, but full-time employment has now increased by +187,000 since September 2016, which represents a marked improvement.
Total employment now sits at its highest ever level at 12,166,900.
Annually total employment was up by +240,200 or +2.0 per cent, which is quite a way ahead of the rate required to absorb population growth.
The unemployment rate was 5.6 per cent, with the number of unemployed persons up a notch to 728,100.
Perhaps the most sanguine measure of how the labour force is travelling is to look at the annual change in the number of hours worked, which has increased by 3+.3 per cent over the past year, or +2.4 per cent on the smoother trend series.
In short, there has been a steady improvement since November 2016, following a period of apparent stagnation.
NSW approaches full employment
At the state level Victoria continues to add the most jobs on an annualised basis at +97,800 - as it needs to, given record population growth - with Queensland next up, adding +44,600.
Western Australia saw a net increase in employment of +29,500, which should in turn see the unemployment rate falling as net interstate migration has seen thousands returning to the eastern states.
After hitting an apparent plateau, employment in New South Wales is off and running again with total employment rising by +42,800 over the past quarter sending the trend unemployment rate to its lowest level since 2008 at just 4.75 per cent.
Small wonder that mortgage arrears are so low and still declining in Sydney.
At the other end of the spectrum, employment has now been trending down in the Northern Territory for four months, and the resident population may also be following this trend into decline.
South Australia has the highest trend unemployment rate at 7 per cent.
Overall, and looking through the monthly noise, it was a pretty good result, consistent with gradually improving conditions.
Housing market modelling shows that a more responsive supply of property to rising prices tends to generate dynamics that can ultimately lead to financial distress.
In Sydney's now-record construction boom this is most likely to mean markets on the city fringe where land is abundant, and the high-rise apartment sector of the market where the sky is almost literally the limit to the response in supply.
Why is this so?
The short explanation is that in supply responsive markets large volumes of property are built during the boom period, thus creating a larger overhang of excess dwellings when the market turns down.
This alone can amplify the downturn in prices.
And since by definition more people will have bought near the peak of the market cycle, then more of the loan book is accounted for by borrowers that are liable to experience negative equity, magnifying market risks.
Time-to-build lags add to risks
Where time-to-build lags are longer in highly responsive markets the impact on loan performance can be exacerbated.
That is, where supply is highly responsive to rising prices but production delivers new housing supply over a longer period.
This implies that some of the greatest risks are likely to be in the new apartment market, particularly in inner city Brisbane.
Characteristics of loan contracts
In Sydney's case, there is a further concern that if homebuyers are borrowing up to $1 million to buy new homes on the city fringe, then rising interest rates could eventually cause financial distress.
Housing market models unanimously show that the trajectory of interest rates during the downturn is likely to be pivotal in determining the extent of negative equity.
Note that in Australia many investors have used interest only loans to fund purchases, which due to APRA's new regulatory measures may now be flipped into principal and interest loans at the end of the initial interest only period.
I discussed this in a summarised fashion on ABC Lateline last night (click image to view video).
Obviously this is a short excerpt from a considerably longer interview.
The statistical analysis sitting behind our views of the risks broken down to the LGA level can be found in our market reports.
The annual number of bankruptices fell in the June 2017 quarter to the lowest level since the quarterly data series began according to ASFA's latest figures.
There were annual declines across every state and territory except for one (the Northern Territory, which recorded a miniscule increase comprising half a dozen bankruptices in the June quarter).
Total personal insolvencies also declined from 7,900 to 7,616 over the three months to June 2017.
This improved result was also 3.5 per cent lower than the 7,893 insolvencies recorded in the June 2016 quarter.
There has been a bit of an increase in insolvencies since the lows of 2015 - pretty much what you'd expect through a soft patch for the economy, particularly across resources regions - but the trend is now softening again with the unemployment rate generally trending down across the past 31 months.
The declines continue to be led by New South Wales and Victoria, but with Western Australia now tracking at a higher level than through the resources boom.
S&P reported that home loan arrears were stable in May at 1.21 per cent, below the decade average of 1.30 per cent.
There were increases in Western Australia to 2.37 per cent, and in the Northern Territory where arrears were up from 1.70 per cent to 1.91 per cent.
These were offset by declines in New South Wales and Victoria.