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.

Thursday, 17 August 2017

You better, you bet

10 months of gains

A year ago I made the casual observation that the Australian economy had reached an impasse of sorts: either population growth would have to fall, or employment growth would have to rise.

Leading indicators tentatively pointed towards the latter, and in the end, that's what we got.

In fact, over the past ten months employment has torn +277,880 higher to a record high of more than 12.2 million. 

Over the most recent five months the gains have totalled more than +189,000.

You have to go back more than a dozen years to find a hot streak like it. 


Naturally we got all the usually debates about whether the figures were 'right' or not, but drilling the trend line through the figures shows that annual employment growth has accelerated to a reasonably impressive +2.2 per cent, or +259,220. 


Queensland (+27,000) accounted for almost all of the gains in the noisy monthly figures.

Over the past quarter the the +87,500 net increase in employment has largely been centred upon New South Wales (+35,000) and Queensland (+33,600). 


Unemployment rate improving

The trend unemployment rate has steadily improved over 33 months from 6.25 per cent in October 2014 to 5.62 per cent in July 2017. 

The participation rate edged inched up in July, while the trend employment to population ratio is now back up to the strongest level since May 2013. 

So things have evidently been on the mend, though it's a sobering thought that the UK now has an unemployment rate of just 4.4 per cent, the lowest reported reading since 1975. 

At this rate it will be a few years before Australia gets anywhere close to full employment, if international trends are anything to go by.


New South Wales has by far the best trend unemployment rate of the most populous states at 4.8 per cent.

But the surprise package here is Western Australia, where trend full time jobs have been improving for 10 months and the unemployment rate has declined to 5.4 per cent, now materially lower than the national average.


And finally, for the many doubting Thomases, the annual trend in monthly hours worked improved to +2.5 per cent, the best result in 19 months. 


Sound as a pound.

Wut

The Queensland winter wears on...

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Wednesday, 16 August 2017

Melbourne land sales hit fastest pace on record

New car sales supercharged

The trend result for new motor vehicle sales rose to 101,083 in July, the highest on record.


The recent surge has largely been accounted for by Victoria, where new units sold are +4.4 per cent higher year-on-year in seasonally adjusted terms at 28,349.

Victoria is the home of arguably the most vibrant economy in the country right now: Greater Melbourne.

South Australia has also been improving steadily, with seasonally adjusted new vehicle sales +8.1 per cent higher over the year at 6,269.

In annualised terms, New South Wales has racked up 397,652 unit sales, which is the highest figure ever recorded for any state. 


Sports utilities continue to dominate the sector, and are all set to overtake passenger vehicles as the most popular choice over the months ahead, which has been an extraordinary progression. 


Meanwhile production continues to plummet as the domestic auto industry winds up, and the overwhelming bulk of new vehicles going forward will be imported. 


The wrap

Overall, these were more strong numbers indeed for new vehicle sales, with the Victorian economy once again shining.

This is leading in turn to a starburst of population growth and demand in Melbourne.

Oliver Hume reported that the average time on market for vacant land sales in Melbourne continued a precipitous drop from 200 days in Q4 2012 to a fresh all-time low of just 30 days in Q2 2017. 

Blocks have never been snapped up at anything like this speed before across the history of the data series. 

Demand has been strong locally, with anecdotally even some Sydneysiders now relocating to Melbourne for cheaper housing. 

The median price of land in Metropolitan Melbourne increased by +2.3 per cent in the quarter to $268,000 according to Oliver Hume, with the average lot size declining.

Land prices per square metre increased by $14 to $654. 

Wages bump along along the bottom

Wages bumping along

There's been plenty of talk of wages growth in Australia picking up the pace again as the labour market improves. 

But with plenty of underemployment and spare capacity around, there's barely a flicker of that yet.

Wages growth came in at +0.5 per cent for the June 2017 quarter, and +1.9 per cent for the year.


For all the hand-wringing about record low wages growth and so on, it's worth noting that wages have comfortably outpaced inflation over the past decade.

Wages growth is still ahead of underlying inflation even now, if only just.

Not so widely reported was that public and private sector wages growth including bonuses increased by +0.7 per cent in the quarter - the strongest result for the June quarter since 2010 - to be +2.1 per cent higher over the year.

Furthermore, the numbers of hours worked in the economy has been rising solidly over the past 12 months, even if growth in the hourly rates of pay has been subdued. 

Public sector wages growth has been surprisingly robust in rising by +2.39 per cent over the financial year.

But private sector wages growth really has been in the doldrums, increasing by only +1.78 per cent.

You can see here how private sector wages growth has tailed off since the peak of the resources boom.


The unemployment rate in New South Wales has fallen to just 4.8 per cent - across Greater Sydney it is now below 4.4 per cent - yet to date there are still few signs yet of wages growth really picking up.

Indeed, annual wages growth around the traps was remarkably similar across the states and territories, tracking in a range of +1.9 to +2.1 per cent, with Western Australia the sole laggard at +1.4 per cent. 


Although lower nominal wages growth is seen as a 'bad thing', it is also a mechanism which helps the labour market to adjust through weaker periods. 

Contrary to what you might think, across the past two decades the strongest percentage growth in wage prices has been seen in Western Australia, then South Australia, and then the Northern Territory (although there are of course wide variations within the states). 


Industry trends - services sectors lead

There was a strong +0.8 per cent quarterly pick up in mining wages in the second quarter, with many workers apparently being awarded their first significant pay rise in a couple of years or so, but in annual terms mining wages have still been limping along at +1.1 per cent.

Wages growth in rentals, hiring, and real estate has also been very subdued, reflective of the notable evidence of new entrants to the industry. 

Over the financial year the top performing sector was healthcare and social assistance, an industry that has seen gargantuan employment growth over the past two decades. 


Education and training has been another area of focus for wages growth, perhaps reflective of the surge in international students hailing from Asia. 

Wages growth in financial and insurance services remains quite moderate at +2.1 per cent. 

The wrap

With wages growth stuck at these low levels there are few inflationary pressures around, and there's pretty much zero chance of interest rates being hiked any time soon. 

An optimist might say that in unrounded figures annual wages growth is marginally higher than it was in the final quarter of 2016, though that might be clutching at straws a bit.

Including bonuses, wages growth was better, suggesting that the bottom may well now be in.

Indeed, with minimum wages increases taking effect from 1 July, annual wages growth will very likely be stronger next time around. 

With hiring in the labour market improving strongly in 2017 - and with other forward-looking indicators appearing quite robust - the Reserve Bank anticipates a return to full employment, but also that it may well take a few years for that to play out. 

In the meantime, it seems that many employees will have a tough gig negotiating pay rises.

Jobs figures due out tomorrow!

Brisbane & population growth

Queensland rebounds

Population growth in Queensland is steadily picking up the pace.

Click to view video!


Population growth in Queensland (not Brisbane, my bad) is presently tracking at just over 70,000 per annum, well below the levels seen at the peak of the mining boom.

But it's picking up again now, so over a dozen years an extra 1 million inhabitants across the state seems quite feasible.

Tuesday, 15 August 2017

Hobart rents are exploding

Hobart insanely tight

Hobart's vacancy rate fell from 0.7 per cent to just 0.5 per cent in July 2017, according to SQM Research data.

That's probably close to about as low as you will ever see in a capital city, based on the prevailing measurement criteria. 

Sydney's vacancy rate was a notch lower at 2 per cent, while Melbourne's vacancy rate of 1.7 per cent was materially tighter than the 2.1 per cent result for the same month last year. 

Overall, the national vacancy rate ticked down from 2.4 per cent to 2.3 per cent in the month.

At the other end of the spectrum vacancy rates are elevated in Darwin, Perth, and for apartments in Brisbane. 


Melbourne's outperforming economy has been attracting interstate migrants from Western Australia, Adelaide, the Northern Territory, and lately even from Sydney.

And that's on top of the strong immigration from overseas.

As a result vacancy rates are tracking at around their lowest level in years. 

Smoothing the original numbers on a 6mMA basis is a tad misleading since there is typically a spike over Christmas, but it's more than evident that Melbourne vacancy rates have clearly been trending down for several years now.


And with Greater Melbourne recording the highest population growth on recent record for an Australian capital city, there is no respite on the horizon.

The nail in the coffin for the predictions of an imminent Melbourne plunge is that not only are prices rising, but now asking rents are too, with median apartment rents heading up and away (+5 per cent year-on-year). 

This has nothing on Hobart, though, where both rents and prices are now blazing higher at a double digit pace. 

And then there's the surge in Chinese interest in Tasmania. 

Normally you'd expect to see a dramatic supply response ramp up in such circumstances. 

To date developers have possibly held back a little given the logistical challenges and costs posed to those based on the mainland, although a range of major hotel and commercial projects have certainly been touted.

It'll be interesting to see if locals now get building.

But for the foreseeable future it will be a feeding frenzy as buyers race to escape the woeful conditions for renters. 

Emphatic demographic figures

Immigration rose in FY2017

There was a strong +11 per cent increase in net permanent and long term immigration into Australia in FY2017 to a total of +291,300.

This represents a marked increase, mirroring the recent improvement in the economy and jobs growth.

Most are heading to Sydney and then Melbourne, with daylight a surprisingly popular third choice. 


Asia accounted for 56 per cent of permanent settlers, with underlying strength in the numbers hailing from China (17,780), and especially India (23,010). 

The increased humanitarian intake also saw the settlement of 9,370 Iraqis across the financial year. 

On the other hand are now comparatively few permanent settlers from the United Kingdom (6,180) and New Zealand (8,100). 

You can insert your favourite Barnaby Joyce quip here, should the mood take you. 


Tourists, tourists, everywhere...

Following the depreciation of the Aussie dollar there has also been a tremendous surge in annual short term visitors, mushrooming by +45 per cent from 5.9 million in FY2012 to a record 8.6 million in FY2017.

Sydney still attracts the most tourists, so these prodigious numbers potentially put a different slant on the assumed apartment oversupply, as well as representing a boon for businesses in the Airbnb space.


In absolute terms, the growth in short term arrivals was again largely driven by the thunderous 1.7 million visitors from China, Taiwan, and Hong Kong (+167,300). 

But there were also very strong percentage gains from the United States (+16 per cent), Canada (+14 per cent), Japan (+12 per cent), India (+15 per cent), Other Asia (+13 per cent), and Other America (+17 per cent).

Some of this trend is currency driven, and some due to awareness of Australia as a destination.


Finally, FY2017 was also a record year for education arrivals, including a monster intake of international students in the month of February, in advance of the first Semester in March.


The education boom is largely a Sydney and Melbourne phenomenon, as indeed has been the case for most of the thriving sectors since the 2012 financial year.

Overall, these were strong demographic numbers for FY2017, with Australia attracting more long term arrivals, and visitors in record numbers.

And just think of all those future politicians arriving on Aussie shores! 

Competition!

Click here or click the image to enter.


Best of luck! 

Monday, 14 August 2017

Credit card balances down again in FY2017

Credit cards out of vogue

The average credit card balance accruing interest moved slightly lower once again over the 2017 financial year.

Credit balances have been easing for years now. 

In fact, the growth in the number of cards was the lowest across the entire quarter of a century of available data. 


The average credit card balance as at 30 June was $3,130, while the average balance accruing interest was also well down on a year earlier at $1,936.


The average balance was slightly lower than a year ago - and much lower than six years ago - even before adjusting for inflation. 

Chook raffle

All to cock...

Livestock slaughter numbers have been well down in the 2017 financial year, with the totals impacted by poor weather and recent shifts in the currency. 

The number of lambs slaughtered has fallen significantly across the last couple of decades. 


No such good news for chickens though, with a completely insane 653,300,000 or so slaughtered over the year to June 2017.


If you aren't great with big numbers, that's well over half a billion chickens, or 27 for every man, woman, and child in the country. 

After accounting for vegetarians, this really is a truly ridiculous statistic. 

Barnaby choice!

On a lighter note, from the sublime to the ridiculous, now it has transpired that even the Deputy Prime Minister has been pinged for having dual citizenship. 

Lol, Barnaby.

Joyce neglected to note that he has New Zealand citizenship, though he must surely have known given all the recent brouhaha and that his father was born in NZ.


Shut happens, bro!

Jesting aside, someone needs to sort this out, it's making a mockery of the political system (well, even more so than usual). 

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A slow news day today, clearly, but a whole lot more coming over the next few days, including key wages and jobs figures.

Sunday, 13 August 2017

'Til household debt do us part

Debt ratios 

Later in the year I'll be speaking at a banking conference, partly on the subject of household debt.

Human nature dictates that readers feel drawn to commentary on the subject tending towards the binary: it's either a complete disaster set to collapse in a heap, or "she'll be right, mate".

First a quick look at a few of the headline numbers, then.

There's no doubt that gross household debt has increased in Australia, to its highest level on record this year.  


It's not that hard to see why.

With interest rates hitting their lowest level on record, households have felt confident in servicing more housing debt because it's costing them less to do so, at least for now. 


As is so often is the case, the headline figures tell only a small part of a considerably more complex story, with the underlying dynamics presenting a range of possible outcomes. 

For example, some Australians have been taking advantage of the low interest rate environment to get well ahead on mortgage repayments.

About 2 in 3 housing borrowers are at least a month ahead of their repayment schedules, and fully half of borrowers are now 6 months or more ahead. 

Meanwhile households are now sitting on well over $1 trillion in currency and deposits, which is unprecedented.

Net off these balances, and the household debt position takes on a different appearance, staying at around the same level since 2004. 


Moreover, asset prices have risen solidly to the extent that the household debt to assets ratio has now fallen to just 19.5 per cent. 

New trends

Some households are clearly finding life much easier than others then.

The Reserve Bank of Australia (RBA) would also be at pains to point out that analysis of the distribution of household debt shows that the rise has been mainly attributable to higher income households (the opposite of what happened in the US in the lead up to the subprime crisis). 

Quite a substantial chunk of the increase in household debt relates to older Australians taking on a mortgage to buy an investment property, something far less common a generation ago. 

The most important indicator of all, argues the RBA, is that indicators of household stress are contained. 

That's not to say the poop couldn't say g'day to the fan if unemployment or interest rates were to rise quickly, but it's nevertheless where things are at today.

A more immediate issue is that if households are busy racking up offset balances or paying down mortgages then they aren't spending on consumption, which presents a different set of challenges.

Mining towns bottoming out?

Mining town malaise

An interesting newsletter from SQM Research this week hinted at the worst potentially being over for Australia's mining town property markets.

It's been a helluva run, and not in a good way. 

At the absurd peak of the mania it was argued by some that you could simply replace your salary through buying a house in Australia's coal mining towns. 

Five years and a thousand bankruptcies and later those articles have been quietly archived into internet purgatory, of course. 

But most markets reach a point where they have fallen so far that the worst is necessarily in the rear view mirror.

And some of the resources town property markets such as Karratha, Port Hedland, Gladstone, and Moranbah are now seeing rents and asking prices stabilise on SQM's indices, or even nudge higher in some instances. 

Listings and vacancies have also generally been trending down. 

It's unlikely that we'll see strong property price increases again any time soon, though. 

Memories can be short, but not that short.

Reflation trade?

Indeed, there's been a brighter outlook for commodities generally.

Since bottoming out in mid-June, the spot price of Australia's key commodity has rebounded nearly 44 per cent higher.  


Similarly, the US dollar copper spot price has recovered from dire lows of below $2.00/lb to around ~$2.90/lb, a likely indicator for an improvement in global economic health.u


Around the traps

It's been a rough five years or so for a number of regional economies in Queensland from Bowen, Mackay, and Rockhampton, to Dalby, Chinchilla, and Emerald. 

With a considerably larger population and more diversified economy Townsville region is by no means in the same category as the out-and-out mining towns, and yet this could be one of the regions set to benefit most from a resources rebound over the coming years. 

It's been tough half decade for the region, with the high profile closure of Palmer's Nickel Industries last year a low point. 

The regional Queensland recession has hardly all been related to mining - there has been a drought, and public sector cuts to contend with. 

Seven years after it was first proposed in 2010, the controversial $21 Adani mine project could be the trigger point which signifies a marked rebound in fortunes for the region, with Townsville appearing likely to be the headquarters for the planned ops. 

Employment has already been recovering in 2017 as recently laid off Nickel employees find new gainful employment, and the unemployment rate has also eased from somewhat alarming levels in mid-2016.


Double digit rates of employment are always likely to result in talent moving elsewhere, particularly among the aspirational younger cohorts, but it looks as though the outlook for Townsville could now be on the up again. 

Saturday, 12 August 2017

Weekend reads - must see articles of the week

Summarised for you here at Property Update.


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For details of our upcoming Money for Life one day workshop see here.

Friday, 11 August 2017

Lending to business awakens

Business lending bounces

Lending finance displayed some solid 'bouncebackability', jumping by +8.3 per cent to a 7-month high of $73.59 billion. 


The rebound was driven by a bolshie +13.7 per cent uplift in commercial finance, while lending for renovations also trended up to their highest level in 7 years in June, helping to push total owner-occupier lending higher. 

Commercial lending has now picked up positively, up by nearly +30 per cent from a year earlier.

No stress?

Reserve Bank Governor Lowe today pointed the finger at a recent inequality "scare campaign" noting that fewer households are experiencing financial stress than 15 years ago.

Interestingly enough, despite a small uptick in June, personal finance commitments are still plumbing the depths at levels not seen since a decade and a half ago - even in nominal terms - confirming that consumers have clearly been winding down non-housing loan debt in the prevailing low interest rate environment. 

There are a couple of exceptions to this general rule, being higher borrowing for new cars - which are considerably cheaper than they used to be - and for renovations, for which I blame The Block (or more realistically, record stamp duty levies which necessarily discourage housing market mobility). 


Investor loans divergence

Lending to property investors is no longer growing at a breakneck pace, and indeed as a share of housing loans is being pared back. 

Splitting out the value of investor loans by states shows a significant divergence, with New South Wales and Victoria still rising, but relatively subdued activity elsewhere. 

Arguably restrictions on investor loans have not impacted the hotter Sydney and Melbourne markets as much as they have elsewhere - the good old law of unintended consequences - though these trends could yet shift. 


In Darwin the annual value of investor loans continued to decline to the lowest level since 2006.


Indeed, there's a genuine emerging risk that the population of the Northern Territory could actually fall into decline at some point over the next couple of years, which could lead to some rather interesting housing market dynamics!

The Commonwealth Bank announced a range of reductions to its fixed rate mortgages this morning, both for owner occupiers and for investors.