Pete Wargent blogspot

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

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

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Friday, 20 July 2018

Business as usual?

Brokers processing

It's 'business as usual' for the mortgage broking industry reported AFG, the country's largest mortgage aggregator, in its media release yesterday.

Or is it?

Certainly there has been no huge impact from tighter lending standards on the average mortgage size, which increased to a record $504,900, up 4.3 per cent from a year earlier, and up from $360,000 at the beginning of the data series in March 2010. 

The main strength here was driven by Victoria and Queensland, and this generally mirrors the monthly housing finance figures reported by the ABS

Although lodgement volumes increased seasonally to $14.6 billion in the June 2018 quarter, this was only a moderate increase on the equivalent figure from a year earlier (and indeed, AFG's rapid volume growth now appears to have a slowed a since 2015). 

New normal

The composition of lending has changed significantly, too.

Investors now comprise 28 per cent of lodgement volumes, well down from 40 per cent at the 2015 peak. 

And interest-only loans comprise less than a fifth of new loans, way down from 59 (fifty-nine!) per cent at peak popularity in 2015. 

Thus some 81 per cent of new borrowers through AFG brokers are now taking advantage of cheap interest rates to pay down their principal immediately, instead of using buffers and mortgage offsets.

This is a big change both for the housing market and the wider economy.  

Market share shifts

Perhaps most interesting aspect of the AFG numbers to me was that the gap between major and non-major lenders continues to shrink.

The figures suggested that consumers needing to look outside the Big 4 lenders to meet their needs - be it for refinancing, upgrading, or investing - are comfortable to do so. 

The majors now accounted for just 59.3 per cent of buyers, when well above 70 per cent was seen to be typical in 2013 and 2014. 

Thursday, 19 July 2018

Arrears a little higher

Arrears a little higher

Prime mortgage arrears remained below their 2011-12 peaks in May 2018 at 1.38 per cent. 

However arrears were a little higher than in May 2017 (1.2 per cent) or May 2016 (1.21 per cent), so this is more than just a seasonal affect. 

90-day prime arrears have moved a bit higher over the past two years.

Arrears have suddenly surged in the Northern Territory to 2.84 per cent, with Western Australia seeing a small improvement in the month to 2.67 per cent. 

Arrears remain benign in the two most populous states plus the nation's capital, according to S&P Global figures. 

Unemployment lowest in more than 5 years

Employment surges 51,000

With record jobs vacancies an upside surprise was always a possibility, and in the end that's what we got with employment surging by a seasonally adjusted by +50,900 in June 2018 to 12,573,600, driven by a large increase of +41,200 in full time employment.

Employment increased by +2.8 per cent over the financial year. 

To two decimal places the unemployment rate fell to 5.37 per cent, the lowest in 67 months since all the way back in November 2012, in spite of a promising jump in the participation rate. 

If you were to pick out a slight weakness in the numbers, the year-on-year trend growth in monthly hours worked was a tad softer at +2.6 per cent. 

Overall, though, it was an unambiguously good result.

State versus state - NSW booms

The monthly gain was driven by another +27,300 increase in New South Wales employment, taking annual employment growth to a massive +150,400 or +3.9 per cent. 

Queensland also saw an increase of +14,800 for the month of June, with only modest results recorded elsewhere. 

The bonanza year for New South Wales saw the statewide unemployment rate drop to just 4.7 per cent in seasonally adjusted terms. 

With its unprecedented construction pipeline Victoria could feasibly follow suit over the coming months. 

The smoother trend numbers showed an improvement for South Australia too. 

The trend number of total unemployed persons has declined from 773,700 in October 2014 to 719,000 in June 2018, which is also a clear improvement. 

The wrap

Excellent result, overall, with Sydney looking to be the likeliest candidate for nascent skills shortages and wages growth returning.

4 types of wealth (and how to balance them)

Some thoughts for the day...

Wednesday, 18 July 2018

Priming the pump

'Declining moderately'

An interesting little snippet from the Reserve Bank's Board Minutes yesterday. 

One might reasonably expect that the Reserve Bank is quite happy with Sydney prices declining by about 5 per cent over the past year, following a strong run. 

There's been a bit of odd discussion and reporting of these trends in recent weeks.

The most expensive sectors of the housing market by price decile do tend to be 'thinner' and more illiquid, and as such they do indeed tend to be more volatile through the cycle. 

But it's worth noting too that if the median price is down by 5 per cent, then that's the change in the median price; it can't all be driven by the top end or 'prime' properties!

The RBA is obviously clear on this point; not so sure about the burgeoning market commentariat, though!

There was also some interesting discussion of household debt trends, a subject that has been of considerable interest, both in Australia and overseas

Jobs preview

A bit of a slow news day, then, evidently!

But a big release is due out tomorrow morning relating to the labour force, with the market anticipating a modest increase in employment. 

The market median forecast expects the unemployment rate to remain flat at 5.4 per cent.

Hopefully there'll be an upside surprise in the offing given that jobs vacancies at the end of May were the highest in about four decades as a share of the labour force. 

Find out tomorrow at 11.30...

Tuesday, 17 July 2018


Live on Sky News tonight discussing the housing market and what happens next.

If you miss it, catch the repeat on Saturday, or catch up with it all online at the Sky News Australia app.

Sydney vacancy rate jumps

Sydney vacancies rising

The latest building activity figures confirmed that the record number of apartments under construction in Sydney is now morphing into a surge in completions.

June is always a seasonally soft month for rental markets, but the latest release from SQM Research recorded a vacancy rate jumping all the way to 2.8 per cent for Sydney.

That's well up from 2 per cent a year earlier.

Vacancies were very high in the Hills District at 4.9 per cent.

But the inner suburbs have by no means been immune as apartments complete across the city. 

There's a certain seasonal aspect to this.

Indeed, Australia's capitals are becoming more seasonal than ever with net overseas migration peaking in the warmer months, and hundreds of thousands of international students coming and going in recent years - but there's also high level of new supply for the city to deal with.

Around the traps

Melbourne's vacancy rate was just 1.6 per cent in the month of June 2018.

However, Melbourne now has more dwellings under construction than at any time in its history, as well as a range of transport, infrastructure, and commercial projects. 

Nationally, the vacancy rate declined from a year earlier from 2.5 per cent to 2.3 per cent, representing a decline from 78,314 to 75,757 vacancies. 

There were year-on-year declines in Perth, Adelaide, Canberra, and even Brisbane as more interstate migrants head north (as yet not fully recorded in official guesstimates, which have more lag than my Grandad's boiler).

You can find SQM's more detailed commentary in its always-excellent media release here.


The Real Estate Institute of New South Wales also released its vacancy rates figures, which told a similar story.

The Sydney-wide vacancy rate was 2.7 per cent, with year-on-year increases across the harbour city.

The Hunter Valley (ex-Newcastle) continued its multi-year tightening cycle with a vacancy rate of just 1.5 per cent. 

Monday, 16 July 2018

Entrepreneurship, business, & building an empire

A recent podcast interview I recorded in Sydney with the inspirational Angie Zimmerman, author of Addicted2Success

Listen on i-Tunes here

All hat and no cattle

Stock and flow

A quick shout-out to SQM Research and its excellent range of data series! 

As the Royal Commission approaches its interim report, fewer vendors are listing their homes and investment properties for sale in Sydney. 

The number of new listings for this time of year is now tracking at the lowest level since 2013. 

However, those properties already on the market are taking longer to sell.

And so total number of listings is at the highest level in Sydney since 2012 (while acknowledging that the population of Greater Sydney has swelled by about ½ million since that time, depending upon where you draw the boundaries). 

It's bittersweet to read these statistics as a property buyer. 

In the suburbs where we normally buy houses such as Bondi Junction I take a sideways glance at the online listings to find that there are - wait for it - a grand total of three houses to choose from (including a tiny 2-bedroom cottage, and a house on the modern day car park that is Bondi Road). 

Family-appropriate houses: one. 

If you look with a magnifying glass, you might just be able to make out an increase in the number of eastern suburbs houses listed for sale.


Source: SQM Research

How then, are total Sydney listings at the highest level since 2012?

Well, the answer lies in the fringe areas of Western Sydney and South Western Sydney where stock is taking time to shift.

Of course, most new houses are built on the fringe and therefore a total increase in stock listings is not entirely unexpected, but it's clear from auction clearance rates that the inner west, northern beaches, and lower north shore (about 80 per cent this weekend) are faring much better than some of these secondary locations.

Godspeed to these vendors!

'Gliding smoothly to a soft landing'?

According to CoreLogic, Sydney's longest and greatest peak-to-trough decline in dwelling prices across four decades of figures was 11.6 per cent through an ultimately recessionary 28-month period spanning from 1988 to 1991.

Extremely high mortgage rates followed by a recession proved to be a tough combination for the Sydney housing market to deal with at that time. 

Over the past 12 months the median dwelling price in Sydney has declined by 4.9 per cent, on a shallower trajectory than 3 of the past 7 downturns, though of course individual experiences will differ.

The traditional spring selling season approaches in the coming months. 

People power

Bridging the gap

While there's been much talk of 'cuts' to the annual rate of immigration, the number of people heading to Australia appears to be as strong as ever, with record high temporary and bridging visas helping to, erm, bridge the gap.

Annual permanent and long term arrivals hit a record 803,030 over the year to May 2018, which is considerably higher than the 708,910 of only three years earlier. 

There was, furthermore, a record number of seasonally adjusted short-term resident returns in May.

Asian tourism and education boom

Meanwhile, short-term arrivals hit a record seasonally adjusted high of 728,600 in the month of May 2018.

Over the year short-term arrivals now exceed 9 million, also a record.

Sydney retains its position as by far the biggest drawcard for overseas visitors. 

Most short-term visitors intend to stay in New South Wales (3.42 million), Victoria (2.27 million), and Queensland (1.95 million). 

The ABS notes that caution should be applied to the place of intended stay for the months of April and May, with an unusually high number opting for Canberra (shome mishtake, shurely!), so any blips relating to the past month or two should be interpreted accordingly. 

The tourism boom has been quite spectacular, but the growth in this sector does look to be slowing.

Education arrivals, on the other hand, have gone from strength to strength, with more than 575,000 over the year to May 2018 (there may be some double-counting here, but generally speaking this has mirrored the rise in enrolment trends of recent years). 

Finally, the massive increase in short-term arrivals of recent years has largely and self-evidently been a China phenomenon, although a number of other countries across Asia and America have contributed.

The wrap

Summarily, while here may be some tweaks to permanent migration numbers at the margin, the overall demand for Australia Inc. remains about as high as it's ever been. 

The main beneficiaries will likely be those cities with sought-after educational institutions, and regions with appeal to Asian tourists (or both).

Truly, a people-powered services economy!

Sunday, 15 July 2018

Canberra rents

Too damn high...

Median asking rents for houses in Canberra are now up by more than 30 per cent over the past 3 years.

Source: SQM Research

Unit asking rents in the nation's capital, despite a surge of construction, are up by about 17 per cent over the same period. 

Saturday, 14 July 2018

Weekend reads - must see articles of the week

Here they are!

Don't forget to subscribe for the free newsletter and commentary here.

Most of Victoria getting under construction

Jumpin' jackhammers

Don't normally deal in hyberbole on this blog, but gee whizz this header isn't too far off the truth.

When the latest engineering construction figures were released last month they showed a huge ramp up in work yet to be done in Victoria, as a volley of transport and infrastructure projects underway saw the engineering pipeline explode nearly $10 billion higher, to sit at by far the highest ever figure. 

In a recent report on the end of the construction boom, I also noted that of the capital cities only Melbourne presently has the dynamics to sustain an elevated rate of apartment construction, supported by extraordinary population growth

An unprecedented surge in attached dwelling approvals October and November 2017 had become commencements by the first quarter of 2018, as the number of dwellings under construction continued to rise statewide.

Commercial building work in the pipeline is booming, too, doubling in only the past couple of years to more than $8 billion.

The net result is a wild and synchronised upswing in the total pipeline, with the best part of $38 billion of work yet to be done, also a near-doubling in only the past couple of years. 

Nationally construction activity may be set to fall, but clearly this won't happen any time soon in Victoria.

In fact, looking at this chart Melbourne may even experience the opposite problem, being a constraint on capacity!

Residential construction in particular is known to have a strong multiplier effect, so it's quite possible that Melbourne will see its unemployment rate fall in a similar manner to Sydney. 

Weekend Australian: My way

Profile piece today in the Weekend Australian here (paywall).

Friday, 13 July 2018

Land sales to slow

Don't wait to buy land...

The latest lending finance figures hinted at a slowdown in lending to finance blocks of land.

Lending for major renovations declined to the lowest level in 17 years, down by more than a fifth from last year's peak.

The share of lending finance to investors also continued to ease in New South Wales and Victoria.

As for Darwin, where population growth has gone from booming to almost zero...

Total finance commitments declined 1.4 per cent to $67.4 billion.

Everything in moderation, it seems.

Wednesday, 11 July 2018

Byres prepares for rainy day (but outlook remains clear)

Lenders gonna lend

There were nervous onlookers aplenty as APRA Chairman Wayne Byres prepared to speak in Sydney today on prudential lending standards and sound lending practices.

They needn't have been quite so fearful, in the event, as Byres reassured markets that while heightened scrutiny had uncovered some displeasing practices, most of the heavy lifting has already been done with regards to tighter lending standards.

For subscribers to our market reports, a number of familiar themes raised: tightening standards have been applied incrementally over a period of several years (rather than overnight as often assumed), a new focus on comprehensive credit reporting to better capture pre-existing debt commitments of borrowers, and some very useful analysis of lower loan-to-value ratios and the decline of interest-only loans. 

While much has been made of a potential 'credit crunch' - mainly by interests hoping to see a credit crunch, it must be said - Byres reiterated how in aggregate annual credit growth has continued to track at 'very healthy' levels, especially for owner-occupiers at about 8 per cent.

Of course, there are many unknowns about how this will all play out from here. Some parts of the housing market will fare well where demand from homebuyers is high, and others will struggle where the opposite holds true.

Caveat emptor.

Computer says no credit crunch

As Byres was busy adjusting his tie pre-speech in Sydney, financial markets were digesting the latest housing finance figures for the month of May.

Supporting what Byres would go on to say in his speech, there was a seasonally adjusted increase in the number of mortgages written across all loan categories, defying market expectations, and a corresponding increase in the total value of lending.

The 'trend' figures are still shaping lower, but at $31.9 billion the seasonally adjusted housing finance figures were pointing to anything but a credit crunch, especially for the homebuyer cohort.

The average loan size for both first homebuyers ($344,600) and non-first homebuyers ($412,000) also hit a record high in May - both in monthly and rolling annual terms - so it appears that those borrowers able to commit to a loan have not seen borrowing capacity trimmed as much as feared, at least in aggregate. 

Where to from here?

Clearly no credit crunch in these figures, then, but my sense is that everyone would feel a bit happier with the world if the household debt to disposable income ratio was seen to be no longer rising from its present level of 1.9x

APRA has played its part in tightening lending standards for investors, rapidly reducing the stock and flow of interest-only loans (meaning more Aussies paying are now down their debt), and ensuring that new borrowers are stress-tested with what are very significant mortgage rate buffers. 

It's interesting to consider momentarily how so much market commentary has become morbidly fixated on a bad news narrative, almost wilfully overlooking a string of upbeat data over recent months.

Westpac reported this morning that its consumer confidence index had surged to the highest level since all the way back in 2013, mirroring Aig's index showing the services sector expanding at the fastest pace on record, and jobs vacancies firing to their highest ever level.

So much for it all being doom and gloom!

Meanwhile the unemployment rate is easing back towards the lowest level in years, exports are tracking at record highs, and the rolling annual Budget deficit is in the best nick in a decade.

All sanguine observers are quite clear on the missing piece of the puzzle, though: wages growth!

Melbourne construction boom scales new heights

Melbourne construction boom

An intriguing set of building activity figures as ever for the March 2018 quarter. 

The most interesting point of note was how thousands of building approvals in the Victorian pipeline were kicked off as dwelling starts in the first three months of the calendar year (recall how Melbourne saw nearly 10,000 townhouses and apartments approved in only a two-month period in October and November last year).

In New South Wales, on the other hand, there are more houses and apartments approved but not yet commenced than ever before, as developers grapple with tighter financing and languishing apartment pre-sales. 

Following on from the above, there was a near-explosion in the number of quarterly dwelling commencements in Victoria, to a seasonally adjusted 22,150, well over double the equivalent figure from a decade earlier.

Melbourne's population growth has been tracking at record highs, and demand for housing is high.

This alone was significant enough to send the national trend for dwelling commencements northwards. 

In Queensland more houses are being commenced in response to strong demand from interstate migrants, but the number of attached dwelling starts continues to moderate as the Brisbane apartment market rebalances. 

Pipeline is enormous

The number of residential dwellings units under construction also increased as a result of the Melbourne building boom to more than 224,000, a record high.

You can also see the leap in Victorian attached dwellings under construction to a record level, while Sydney completions are now finally raining in, which should result in a spike in vacancy rates in the harbour city as the year rolls on. 

Both the value of building work to be done ($71.4 billion) and total building work in the pipeline ($95.8 billion) are at all-time highs in current prices terms. 

The big question mark is how many of the buyers of off-the-plan apartments will be unable to settle, especially if more valuations at settlement start to come in at under the contract price.