Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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

'One of Australia's brightest financial minds, a must-follow for accurate & in-depth analysis' - David Scutt, Business Insider.

'I've been investing 40 years yet still learn new concepts from Pete; one of Australia's finest young commentators' - Michael Yardney, Amazon #1 bestseller.

'The most knowledgeable person on Aussie real estate - loads of good data & charts, the most comprehensive analyst I follow in Australia' - Jonathan Tepper, Variant Perception, 2 x NYT bestseller.

'Superlative work' - Grant Williams, founder RealVision.

Thursday, 19 April 2018

Employment growth stalls

Stall speed

Australia's economy has added a very impressive +525,900 jobs on a net basis since September 2016, but the dream run was over by March 2018, with only a small increase recorded in the month and a revised drop reported for February. 

Very hard to look at this chart with rose-tinted spectacles for 2018!


After a spectacular run it's no surprise that New South Wales has hit a leaner patch, while South Australia recorded a net employment loss of -6,100 for the month, as the local economy struggles to gain traction, possibly with some flow-through to suppliers of the now shuttered auto assembly industry.


Over the past quarter employment growth was overwhelmingly driven by Queensland (+17,800) and Victoria (+15,900).

On a trend basis over the past year Queensland recorded by far and away the strongest employment growth rate at +4.3 per cent, although New South Wales was also very strong at +3.6 per cent.

Unemployment steady

The participation rate in Australia has been tracking as high as we've ever seen, though it ticked down a notch to 65.5 per cent in March. 


There was a slight decline of -2,400 in the seasonally adjusted number of unemployed persons to 730,200, which was enough to keep the seasonally adjusted unemployment rate steady at 5.5 per cent, though the trend result inched higher to 5.6 per cent. 


And while Sydney is now at or close to full employment, almost everywhere else there remains an abundance of slack in the labour force. 

The seasonally adjusted unemployment rate in Western Australia leapt to 6.9 per cent in the month, though certain other indicators including the participation rate have been more positive. 


Finally, and perhaps the acid test, the trend annual growth in the number of hours worked is clearly now losing its way in slipping to +2.6 per cent. 


Not too many positives here overall, short-term bearish for the Aussie dollar and especially for wishful expectations of near-term adjustments to monetary policy. 

Wednesday, 18 April 2018

Long term arrivals at record high

Arrivals hit record

Skilled job vacancies advertisements rose for an 18th consecutive month according to the Department of Employment, for the first time since March 2011. 

There was quite a jump in the month too, from 184,000 to 189,000, with the trend result now +34 per cent higher (or +47,400 advertisements) than the October 2013 nadir. 


Conditions improved everywhere, especially Western Australia, although South Australia was the notable laggard, with only a small annual change in vacancies. 

Things are certainly looking up, slowly but surely, and when the economy improves often so too does immigration rise.

Indeed, the number of permanent and long term arrivals hit the highest ever level in February 2018 at 105,630, in turn sending the annual total to a record high of 788,260.

If you've ever wondered why Melbourne's supposed oversupply of housing never materialised, here's why.


February also played host to a tourism bonanza in honour of Chinese Lunar New Year, with a record 226,900 Chinese arrivals in the month.


Including arrivals from Hong Kong there were more than ¼ million visitors in just 28 days.

Unprecedented. 

With 1.4 million short-term visitors over the year to February it's no surprise that China grabs the tourism headlines, though there were also record arrivals from other countries, including India at 311,500. 



February is also a key intake month for international students, and education arrivals were also extremely high at 111,500, although this was just a notch below the record high for a month set in February 2017.

Annual arrivals were above 564,000, but these numbers need to be treated with a little care due to double-counting. 


Lots of moving parts here, but the big picture is very strong demographic flows, especially into Sydney and Melbourne, coupled with booming tourism for Australia.

A heady combination. 

4 types of buyer (& how to approach them)

How to understand the different types of buyer.

Tuesday, 17 April 2018

That's not a podcast...

Yardney podcast

I recently had some fun with Michael Yardney recording this great podcast on the theme of Crocodile Dundee, and what has changed in Australia since that movie was first released. 

It was an interesting research project for me, and there's some great information in there.



Subscribe for the regular free podcasts while you're there.

I'll be running a follow-up podcast with Michael there quite soon.

Vacancy rates tighten in Canberra

Canberra tightens

Vacancy rates tightened slightly to 2.1 per cent in March 2018, down from 2.3 per cent a year earlier (and 2.2 per cent in February 2018) according to SQM Research. 

In the month of March vacancy rates fell in Brisbane from 3.4 per cent to 3.2 per cent, and in Canberra from 0.8 per cent to just 0.6 per cent.

The vacancy rate for Canberra has fallen from 2.5 per cent in mid-2015 when it was announced in the Barr Budget that there would be significant rate rise and land taxes imposed in the Australian Capital Territory (ACT).

While there are rentals on the market, the methodology picks up rental properties vacant between leases for a period of time and acts a viable leading indicator for markets that are tightening or easing. 

With investors looking elsewhere, SQM reports that median asking rents for houses in the ACT have increased by +29 per cent over the past 3 years to $617/week.

That makes Canberra the second most expensive capital city after Sydney at a $738/week median asking rent for houses. 


In Hobart the chronic shortage of rentals has eased a little over the past two months, if only a little. 

Melbourne has a relatively tight vacancy rate at 1.4 per cent, while in Sydney the vacancy rate of 2.3 per cent is being reflected in relatively flat rents overall, including a slight decline for median house asking rents. 

The Perth market continues to pick up steadily from its nadir. 

Monday, 16 April 2018

Hunter-killer

Return of the Hunter!

Although Sydney has a record number of apartments under construction, the rising number of completions through this cycle to date has generally been absorbed by faster population growth. 

The vacancy rate for metropolitan Sydney declined from 2.3 per cent to 2.2 per cent in March 2018, according to the latest REINSW data.

Inner ring Sydney recorded a vacancy rate of just 1.9 per per cent - and that figure has been tracking lower for quite a few months now, down from 2.3 per cent in July last year. 

However, there have been some signs of rising vacancy rates in the middle and outer rings at 2.6 per cent and 2.3 per cent respectively. 

Smoothing the figures on a 6-month moving average basis shows the trends.


It's interesting to note that Newcastle and the Hunter Valley have seen vacancy rates tightening substantially since the coal bust of 2012. 

Further afield most regional markets are relatively in balance from a rental market perspective. 

The highest vacancy rate was in the Coffs Harbour region at 3.9 per cent. 

Sunday, 15 April 2018

Royal Commission to squeeze mortgage lending

Housing finance to slow

The Housing Finance figures were released for February 2018 this week, reported as "Housing finance falls in February" (Australian), "Falls felt for February" (Rate City), and so on.

Interesting interpretations, given that housing finance was...well, up!

Anyway, having allowed a few days to elapse, here are four thoughts.

1 - Loan sizes up

One less well reported thing that I picked up was the rise in the average loan size over the past year to non-first homebuyers. 


Across the states, Victoria has been the main driver of rising average loan sizes, although each of the most populous states has seen an increase over the year. 


As a result, owner-occupier commitments rose +1.3 per cent in February, and investor loans were up +0.5 per cent, taking total housing finance to a 6-month high of $33.52 billion.

Drilling the trendlines through the data shows that total housing finance has essentially been flat for 15 months now, while a fair chunk of refinancing has been in evidence within that total.


2 - First homebuyer incentives bite

Another notable trend was that first homebuyer loans were up by a third from a year earlier, driven by New South Wales, where the number of first homebuyers doubled from February 2017.


Homebuyer commitments for new dwellings rose by +6.6 per cent from a month earlier, but are now in a trend decline from 4-decade highs. 


3 - Prevalence of non-banks

Thirdly, the trend result for non-bank lending declined in the month, and remains at only around half the peak levels of a decade ago, but will nevertheless remain a key point of interest as lending standards come into focus. 


4 - Royal Commission to slow lending

Overall housing finance beat expectations despite a small decline in the actual number of home loans. 

The Reserve Bank of Australia (RBA) noted in its Financial Stability Review that an average of $120 billion of interest-only loans per annum are due for conversion between now and 2021.

Nothing unknown there, though some people misread that as $480 billion of loans that will convert to principal repayments, which isn't going to happen.

Elsewhere, Moody's reported 30+ day delinquencies at 1.45 per cent, down from 1.52 per cent a year earlier, despite some trouble spots including Gladstone, central Queensland, some suburbs of Perth, and other parts of Western Australia. 

A final point, and a key outcome to watch over the days and weeks ahead is the impact of the Royal Commission into banking misconduct.

It seems that borrowers will now be required to be provide statements on all debts, a loophole closure which appears likely to be a wise move. 

However, there could be some overreach in terms of brokers needing to audit bank statements to support declared living expenses broken down by category, the aim being to reduce the typical reliance on benchmarks. 

There are many problem with this, not least that borrowers tend to have multiple bank accounts and credit cards these days with different banks.

Certainly private banking clients and affluent borrowers have never been subjected to such scrutiny, which may lead to some interesting discussions! 

Given that loans are already being assessed at mortgage rates way in excess of the rate actually being paid, it seems like overkill.

If implemented forcefully this will slow the mortgage market and reduce transaction volumes as brokers and borrowers get to grips with the new requirements.

Mortgage brokers would presumably also need to consider switching to a fee-for-service model to compensate for the exponential increase in paperwork and compliance.

Regulators in the UK went through their own mortgage market review (MMR) in 2014 which ultimately lowered the risk of borrowers over-stretching and made the industry more professional.

The MMR also temporarily gummed up the lending market, so we'll have to see what plays out Down Under. 

Saturday, 14 April 2018

Day 10 #GC2018

Day 10 of the Commonwealth Games at Gold Coast, with the Rugby 7s in action.



It looks as though Australia has the medals tally wrapped up. 

The organisation has been fantastic, all very smooth use of the Park 'n' Ride just 40 minutes or so from Brisbane. 

Only gripe through the entire Games has been the predictable dearth of coffee carts! 

Friday, 13 April 2018

Weekend reads - must see articles of the week

Here you go...enjoy!


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Speed finance

Live event review

Thanks to all who came along, a great event in Brisbane yesterday, and I certainly learned a lot!

In particular, I picked up some mind-blowing information about stock market returns and how much money is made during periods of global stock market distress. 


And, yes, it's Queensland, so there was plenty of finance networking too.


I'll be speaking next month in Sydney CBD (book launch).

Before then, I'm doing a seminar mini-series of 3 presentations in Brisbane, so keep an eye out for those, details to follow. 

Wednesday, 11 April 2018

Bust looms for Sydney's apartment developers

Apartment boom over

Both new residential building and renovation activity declined significantly in 2017, with total seasonally adjusted dwelling starts down to 52,600 by the final quarter of the year, well down from the peak of 62,300 in the first quarter of calendar year 2016.

The drop was driven by a 17 per cent year-on-year decline in attached dwellings, with Brisbane's inner city apartment market the prime culprit. 


Sundry indicators suggest that activity across Queensland should now trend moderately upwards, spurred on by a healthier spread of boutique developments, 'plexes, and townhomes.

But inner Brisbane's new build high-rise sector is absolutely cactus as the renters move in. 

Interestingly, despite the extremely high level of apartment starts through this cycle, total dwelling completions continued to decline for another quarter, suggesting that all is not well in developer-land. 


Crunch looms for developers

By the end of the year there were still some 150,000 attached dwellings under construction. for the seventh consecutive quarter.


Drilling down a level it's clear to see that while apartment activity was fading fast in Melbourne and Brisbane respectively, Sydney and the state New South Wales had more than 68,000 attached dwellings under construction.

To say that this is unprecedented would be an understatement; the numbers are off the charts!

Now it does take a long time to see apartment projects through from approval, but in Sydney the completions just haven't been hitting the market in the numbers expected.


Total dwelling completions in 2017 for New South Wales were 61,600, with just over half of that total accounted for by attached dwellings, which on a net completions basis is barely keeping pace with demand. 

Officially, of course, everything is fine.

There are few reported defaults, and settlement valuations are holding up reasonably well despite the softening of the resale market and the total evaporation of the offshore Chinese bid.

With pre-sales flagging it's certainly hard to envisage as many new projects getting off the ground, as investors grapple for finance in the midst of a Royal Commission into banking misconduct.

It's become a vicious circle, with nervous banks requiring higher pre-sales which developers are unable to achieve, and finance for construction thus not forthcoming. 

In any case, a raft of actioned and proposed budgetary and regulatory macroprudential measures have made property investment less appealing at the margin (and totally unappealing for foreign investors). 

Another compelling indicator of troubled times ahead for developers is the sheer number of dwellings approved but not commenced at 46,400, mostly accounted for by apartments and by far the highest figure in Australia's history. 


What happens next?

Now sure, the plural of anecdote is not data, but I believe that we'll see many of Sydney's apartment projects running into trouble. 

The official line is that defaults are low, and everything is going swimmingly, but I'm not so sure. 

By the way, don't rely on anything you read here either, this is just my opinion.

Take a drive around, speak to a few sales staff, observe how apartment projects are progressing. 

In addition to the astonishing boom and collapse of Chinese investors, another potentially unique aspect of this cycle is that construction and materials costs could remain high in Sydney, even in the face of a sharp drop in apartment activity.

Forged on the back of a stamp and transfer duty bonanza from both residential housing and asset sales, the state has embarked upon an overdue thrust at tackling its infrastructure deficit, in turn propelling total construction employment to even greater heights. 

As a result construction employment surged higher than it had ever been before both in absolute terms and as a share of the workforce, squeezing developer margins.

Incidentally, I personally believe that most of the apartments approved in Sydney will be converted into dwelling starts in the fullness of time, but quite possibly at a different price and rate. 

Receivers and cashed up opportunists will stand by at the ready. 

Investing: luck, skill, or both?

Is success is investment down to good luck, or is it all about skill?

Monday, 9 April 2018

How not to go broke

How to avoid going broke...

Halifax records highest ever average price

Record high for UK housing

Haven't checked in on UK house prices for a while.

Halifax record a standardised average price of £227,871 for March 2018.

That's the highest figure ever recorded. 


Prices for the first three months of the year were +2.7 per cent higher than a year earlier. 

Halifax also reported that mortgage affordability was at the best level in a decade. 

However, mortgage rates would almost certainly have to rise from where they have been - which is to say at incredibly low levels. 

Live Brisbane event on Thursday

Come along and see me, Kouk, and Steve Moriarty present on Thursday, tickets $50.

A couple of free books are included in the price.

Email 'Speed Finance' for a ticket to brisbane@allenwargent.com 

Newsletter

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Subscribe quickly here!

Saturday, 7 April 2018

Softer US payrolls

Weaker in March

US jobs growth was much weaker than expected in March 2018 at +103,000.

There were also revisions stripping away -50,000 from the previously reported gains in January and February.

Looking through the noise, the 3-month average growth remained reasonable enough at +202,000.


The unemployment rate was steady again at 4.1 per cent.


And wages growth is still looking to grind its way higher - with the annual increase up to +2.7 per cent - but not at an alarming pace. 


Gradual hikes ahead

Overall, a much softer result for March, but probably not one that will change the outlook too much, with US interest rates still deemed likely to be heading higher, but gradually. 

The Fed has slowly been raising rates since 2015. 

What would I do with a $1 million lotto win?

Find the answer here.


Friday, 6 April 2018