Pete Wargent blogspot

PERSONAL COACH | PROPERTY BUYER | ANALYST

'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, Business Insider.

'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.

Wednesday, 21 November 2018

Devils & Details UNPLUGGED

Devils & Details UNPLUGGED

Learn some trivia about me here ahead of next week's event.


There are six day's remaining to snare a ticket.

See you there.

Tuesday, 20 November 2018

Property crashes! (podcast)

Credit crunch?

More podcast action for you this week.

Tune in here, where we discuss the prospect of a property crash.


More to come next week too!

2wo Third3

Bitcoin dives

Following on from the recent death cross warning signal, Bitcoin is trading down another 14 per cent today.

Today's price is at the lowest level in more than a year.


The world's largest cryptocurrency has lost two-thirds of its value so far this year.

Since the peak in December 2017, Bitcoin has lost more than three-quarters of its value.

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Update: the price is down another $100 since I wrote this.

Update: $150, $200, $300...

Monday, 19 November 2018

Where the demographic tsunami hits

Where the young migrants head

I've posted some research previously to show how Australia's population pyramid is benefiting from a starburst of 25-34 year-olds thanks to the country's immigration programme. 

This is visibly helping to slow the ageing of the Aussie population. 


Intuitively it's always seemed likely that the younger migrant cohort would gravitate to the University precincts and inner suburbs of the capital cities. 

But here's some startling research that shows just how different population pyramids are around the traps, by Demogog Blog's Simone Alexander.

The blog notes:

"As a global city, Sydney attracts a disproportionate share of Australia's migration intake, so when net overseas migration is high it tends to have a positive effect on Sydney's growth rate".

In Camden there are many families with young children, for example, out on the greenfield sites of the urban fringe. 

Meanwhile the south coast has many older inhabitants.

But the inner suburbs of Sydney are experiencing an explosion in the 25-34 year-old cohort, due to the prevailing powerful levels of net overseas migration.  

Despite there being fewer children as a share of the population in the inner city of Sydney, almost half of the population here is aged 20-34, due to the employment, education, and lifestyle opportunities. 

The ABS will release its latest population projections on Thursday this week, which is always useful to recalibrate a few expectations. 

Stay tuned for that. 

Here comes the Cross River Rail

Gentrification

Set to be another handy addition for inner-Brisbane, the Cross River Rail is now under construction.


The surroundings of the photographed Woolloongabba busway will eventually play host to an exciting upgrade by 2024, with the famous cricket ground also set for a major $100 million revamp. 

More details about the Gabba precinct concept can be viewed here

Rental vacancies to tighten

Au revoir to the cranes

The most timely JLL report showed that the residential construction pipeline is now shrinking fast on tighter lending criteria for developers and investors.  

In time this will inevitably lead to tighter rental vacancies, especially as we head into and beyond the traditionally busy Christmas and New Year period, with more Airbnb offerings also set to eat into the rental market through this cycle. 

With the greatest volume of apartment construction through this cycle Sydney and Melbourne will be the last markets to know about the tightening (although when D-Day does come the presently record high population growth in these cities means that the tightening of rentals market may also be felt most acutely).

We're already hearing more and more stories of failed or delayed settlements, so the slowing in supply could come about sooner than expected. 

The initial impacts will be felt in Hobart, Canberra, Adelaide, and an array of rental markets around regional Australia.

Indeed, SQM's latest figures showed that rental vacancies had already fallen to the lowest level since 2014 by the end of last month, so the tightening process is well underway in some markets.

The HIA forecast today in its National Outlook that housing starts will fall by more than 50,000 from the peak, noting (or lamenting) that:

'APRA’s restrictions were designed to curb high risk lending practices but we are now seeing ordinary home buyers experience delays and constraints in accessing finance.'


Source: HIA

Note that all of this is before Labor's proposed changes to negative gearing come about, which were originally designed to slow investor activity in the raging hot markets of 2016. 

Arrivals hit record high

The ABS released its arrivals and departures figures for the month of September 2018 this morning, which showed permanent and long-term arrivals rising to 823,090 over the year to September. 

This represents an increase of 6 per cent from a year earlier, and is the highest figure on record for Australia (the equivalent figure around the time of the Sydney Olympics was about 300,000, which is a measure of just how popular migration to Australia has become).


Short-term arrivals into Australia have also boomed in recent years, rising to a record high of 9.2 million in September. 

Interestingly the growth is no longer being driven by Chinese tourists, with a range of other countries picking up the mantle, including India.


Education arrivals were also up by 5 per cent from a year earlier to a record high of 596,400.


Simon Kuestenmacher of The Demographics Group refers to the international student cohort as a demographic jackpot - they pay for their education, and 1 in 6 stays in Australia as a skilled migrant going on to pay tax immediately from a young age.

Finally, at the state level short-term arrivals were up by 4 per cent in New South Wales to 3.45 million for the year to September, but growth was stronger in Victoria (up 8 per cent to 2.3 million) and Queensland (up 8 per cent to 2 million).


Queensland was a little flattered here by the Commonwealth Games XXI, held at Gold Coast earlier this year...although that all seems like a long time ago now!

The wrap

Both short- and long-term arrivals hit record highs for the year to September 2018, with accordingly significant implications for housing market demand over the years ahead.

Australia's visa programme is tilted towards those aged under 30, so there are dramatic implications for rental market demand here as construction slows, as well as pent up demand for entrants to home ownership over the years ahead. 

Sunday, 18 November 2018

A bit on mortgage stress (podcast)

Podcast

A Sunday podcast for the weekend, where we discuss mortgage stress and property market meltdowns, among other things. 

Tune in here (or click the image below). 


There's always a crisis just around the corner.

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This week I'll be down in Melbourne, where I'll also be back on the Property Couch with the fellas down there. 

And then the following week I'll be in Sydney to appear live on the all-new Your Money TV show, as well as to appear at the Devils and Detail Live and Unplugged event at The Ivy.

Check out the line-up of speakers...wow.


Saturday, 17 November 2018

Negative gearing loophole

Swiss cheesed

The AFR's lead article today highlights the somewhat glaring loophole in Labor's negative gearing plans.

I highlighted the same point on this blog here a week ago.

Changes to property taxation are evidently going to be a red hot topic over the next six months.

I put together a short presentation here to explain some likely outcomes. 


Prepare accordingly! 

Weekend reads

Here you go!


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Friday, 16 November 2018

Sunshine after no rain

Queensland turns the corner

To look at the latest employment and unemployment figures you might things haven't been so bright for Queensland.

But these are lagging indicators, and business investment growth is now at the highest level in years, albeit coming off a low base. 

The latest state accounts for financial year 2018 released today showed gross state product up by 3.4 per cent - behind only Victoria of all the states - for the strongest result since 2011-12, while final demand in the Sunshine State was also up by 3½ per cent. 

New South Wales saw its agricultural production hit by drought, slowing the state result. 


Source: ABS

Better still, business investment in Queensland recorded double digit growth at 10.6 per cent after a lean five years. 

Provided China keeps importing Australian coal in 2019, the period ahead should be brighter for profits and wages.

Gross income per capita grew in Queensland by 2.3 per cent after an awfully sluggish few years (nothing compared to the Canberra bubble, mind you!).


Finally, 2018 was characterised for the housing market by switching to lower mortgage rates, but with more principal being repaid.


*Oops, I need to reverse the labels for SA/WA.

And on that brighter note for Queensland, I'm knocking off early to enjoy some sun.

Have a great weekend all! 

Thursday, 15 November 2018

Blessed relief

Relief as jobs fire

With the new articles getting more shrill by the day on tighter credit, it's becoming more important than ever to watch the facts closely with a clear head! 

Following on from yesterday's wage price index, there was a tremendously upbeat employment report today, with full-time jobs leaping by +42,300 in October 2018, described variously as a  'jobs boom' and 'beautiful set of data'.

Stepping away from the monthly noise, this takes annual employment growth back up to 2½ per cent, or +308,100 (there are six charts to expand below). 


New South Wales again drove the gains in October, with quarterly employment growth for the state booming by +63,100, and annual growth soaring off the charts at +151,000, for a staggering +3.9 per cent annual gain. Wow.


There were also very solid gains for Victoria over the year at +93,100, while at the other end of the scale things have been looking rather messy for the Northern Territory over the past 18 months, with total employment trending ever lower. 

Unemployment rate lowest since 2011

The seasonally adjusted unemployment rate held firm at 5 per cent, confirming that last month's surprisingly big drop was no statistical fluke. 


Zooming in the chart to a 5-year timeframe the trend unemployment rate thus continued to fall to hit the lowest level in the 87 long months since July 2011. 


At the state level New South Wales has a seasonally adjusted unemployment rate of just 4.4 per cent, but Victoria has been the real mover and shaker of late with its unemployment rate continuing to dive, now down to 4½ per cent. 


Things look less healthy from an unemployment rate perspective for Queensland and Western Australia, but these states are at least set to be showered with commodity export royalties, which can yet be positive for company profits and wages. 

Finally for this chart set the trend number of unemployed persons continued to decline to 680,000, down from 776,000 four years earlier, despite the strong population increase over that time, representing a steady improvement. 


Underemployment was still quite elevated, and hours worked growth over the year was moderate at 2 per cent, but overall this was a fine set of numbers. 

The wrap

The Reserve Bank must undoubtedly be thrilled with this jobs report, and with inflation still only around 1¾ per cent there's no compulsion to move interest rates.

The RBA's Debelle spoke today on macroprudential measures and the housing market, trumpeting the success of these tools in 'reducing the risk profile of household borrowing', while cautioning about the risk of a shock 'from another source'.

There's no way a central bank could or should wade into political issues, but it was hard not to reach the conclusion that policies designed to tighten lending to investors are viewed favourably here (with little need, therefore, for the ALP to pile in with measures designed to reduce demand from investors further). 

The bank's latest statistics confirmed that the stock of outstanding interest-only loans had reduced from 40 per cent to 27 per cent - the lowest ever reading from the available records - with no troublesome surge in defaults emerging to date. 

There's no doubt that policy has been stunningly effective in turning these trends around, but of course reduced liquidity can itself increase risk, while falling asset prices don't increase household balance sheet resilience either. 

Sydney new apartment sales slowed to effectively zip over the third quarter, according to the latest Urbis report.  

Median unit prices haven't moved too much in Sydney, but unless something changes there will be some developers facing cashflow 'headwinds'.

Still, an upbeat jobs report for the month of October, and that's always good to see.

Death cross

Crypto conniptions

It was getting boring for a few months there, but finally some price action to awaken the crypto crew from their slumber.

Overnight all cryptocurrencies got hosed, including Ethereum (-15 per cent) and a whole load of others I've never head of (also down about 15 per cent).

The famous death cross technical indicator flashes red when the short-term moving average crosses below the long-term moving average, and indicates the potential for a major sell-off. 

This hasn't happened to the flagship Bitcoin chart since 2014, but a death cross may be imminent. 


GLTAH!

Wednesday, 14 November 2018

Zugzwang

Zugzwang - when there's nothing to be done, do nothing!

Read here.


Wages growth hits 3½-year high

Gradual pick-up

It's a steady improvement for wages growth, then, with growth moving up to +2.3 per cent, the highest level in 3½ years.

Public sector wages growth of +2.47 per cent is still tracking better than the private sector at +2.14 per cent, mind you...although that gap has narrowed just a tad. 


The picture including bonuses was a shade brighter, with private sector wages including bonuses up by +2.8 per cent.

As anticipated, the recovery is being led by Victoria, with wages growth now up by +2½ per cent, while New South Wales wasn't too far behind at +2.4 per cent, and Tasmania did a little better still at +2.6 per cent. 

The resources jurisdictions are still dragging for now, however I do expect this is also set to change


The strongest gains were seen in the healthcare and social assistance sector at +2.8 per cent, with mining and retail trade still the laggards at +1.8 per cent (although this is now turning around for the mining industry). 

The wrap

Overall, it's been a long, slow haul for wages growth, but things are on the way back up from their nadir for Aussie pay packets. 

Key word: gradually. 

Next stop wages growth

Wage rise time

Are wages finally set for a punchy lift over the next few quarters?

We'll find out a bit more at 11.30 this morning.

The strongest economy in the country right now is Melbourne.

Indeed, Justin Smirk of Westpac has highlighted the sharp reduction in slack in the Victorian labour force, which normally foreshadows a boost to private sector pay packets. 


A handy leading indicator to add to the arsenal.

More to follow...

Tuesday, 13 November 2018

Royal flush

Crunch...

Haven't checked in on Isentia for a little while.

Unfortunately, to borrow a simile du jour, it's gone down like a proverbial turd in a well.

It looks like another zero for this quality stock.


Next quality stock to blow up: Reece Ltd?

Mining to lead wages up

Wages set to grow

Some thumping lending to the mining sector has ramped up over the past seven months, as solid commodity prices encourage new investment (and some existing projects require renewed investment).

With all the infrastructure projects around New South Wales and Victoria underway right now, who in their right mind is going to be putting their hand up to go and work FIFO in the mining industry?

The answer is no-one, UNLESS the big dollars are on offer.


The NAB survey also confirmed that Aussie businesses are finding it harder to find appropriately skilled workers again. 

And with nominal GDP rising again, wages growth should follow in time. 

The other thing that stood out from the lending finance figures was that land sales are now falling. 


13-month low for land sales, as it's become incrementally harder to get a mortgage. 

Lowest vacancies since early 2014

Rentals tighten

It's still early days, but the first indications that the dramatic clampdown on lending to investors is leading to tightening rental markets are surfacing.

Nationally the vacancy rate for residential properties fell to just 2 per cent in October, the lowest level in more than 4½ years, according to SQM Research. 

Since many apartments were bought off the plan in Sydney and Melbourne many of the most impacted markets will initially include the smaller capital cities and regional centres. 

While Sydney's vacancies remained at 2.8 per cent or ~19,450 rentals in October, Hobart has crashed to just 0.3 per cent or 78 rentals, which is a full blown rental crisis playing out in real time.

Canberra isn't too far behind on that curve, declining from 2½ per cent in 2014 to just 0.6 per cent, with vacancies declining again to 387 rental properties (remember many prominent commentators said that land tax 'in theory' would have no impact on the ACT rental market):


Interestingly, now many commentators are saying that the proposed negative gearing changes will have 'no impact' on rental markets too...but that's a whole other story. 

Adelaide also continued to tighten, down to just 1.1 per cent. 

Perth has a high vacancy rate of 3.3 per cent, although this too is well down from 4.4 per cent a year earlier, while Brisbane is now diligently working its way through its glut of inner-city apartment towers. 

Darwin is a bit of a basket case, with construction slowing to a halt, but with the population of the Territory now in decline vacancies remain elevated. 

Sydney soft

From SQM Research's media release:

'Louis Christopher, Managing Director of SQM Research, said: “Australia’s national vacancy rate is being driven lower by falling vacancies in many of Australia’s smaller cities. 

In Hobart, there is a severe shortage of rental accommodation with just 78 properties available to rent, and rents are rising quickly, with no slowdown in sight. 

“In Canberra too, where many renters live, there are just 387 rental properties available, putting upward pressure on rents. 

Melbourne’s vacancy rate has remained at low levels over the year. 

In contrast, we are seeing a surplus of rental properties in Sydney and rental costs are falling, a trend we expect to continue into 2019,” said Christopher.'

Can't disagree with regards to Sydney, where a so-termed balanced rental market might be represented by ~15,000 vacancies, rather than the prevailing ~19,450. 

For context, Greater Sydney's population grew by ~100,000 persons last year, for the city's greatest ever population increase, so any 'oversupply' is a somewhat nebulous concept, and in reality it's likely to be a temporary dynamic as the construction pipeline now wanes.

Australia: 20 years from now (free online workshop)

It's a big couple of days ahead for Aussie economy news.

But there's not so much news of note fro you today.

So here's a free online workshop for you to watch instead (or click on the image below).

Enjoy!

Monday, 12 November 2018

Zero hour

I hopped off the ferry in New Farm today to take a look at what's going down on the new wharves.


Howard Smith Wharves are set to open imminently which is a cool addition for the area.


Just one of several projects boosting the inner suburbs of Brisbane over the next few years.