Pete Wargent blogspot

PERSONAL/BUSINESS 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, Sydney Morning Herald.

'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.

Tuesday 19 March 2024

Inflation expectations ease a bit further

Don’t wait to buy land; buy land and wait…

I saw one of those interesting posts on the Property Talk Australia Facebook group yesterday, showing land for sale up in Collaroy in Sydney.

The auctions were scheduled for April 1922, 102 years ago next month, with a £2 deposit required for purchase.  


Source: Property Talk Australia

Today these blocks would have land values of around $2 million, if not more up on the beaches. 

Of course, we've been through periods of high inflation, low inflation, high interest rates, low interest rates...and even a shift from pounds to Aussie dollars in 1966. 

Some of the blocks are also better than others, granted, but by my calculations that comes to a compound annual growth rate of more than 11 per cent (but less than 12 per cent).

Call it 11½  per cent. 

As Cameron Murray pointed out on last week's podcast, as we get wealthier as a nation, we simply spend more of our wealth on housing. 

It’s a much simpler and better model for thinking about the user cost of housing.

Inflation hedge

Come to think of it, 11½  per cent is not too different from total returns from stock markets over the same timeline.

The difference with real estate is that you can typically leverage the results 5x or more.

Of course, every so often articles surface about whether real estate is a "good" investment or a "sub-par" investment.

But I normally pretty much ignore them because they rarely take account of how leverage is used in the real world, how in imperfect markets you can add value to properties through renovation or extension, or how you can redraw equity to buy more investments.

It’s why I know considerably more people with $5m to 10m property portfolios than I do stock portfolios. 

I think at the very least this graphic shows why people like to own land and real estate in the landlocked city suburbs of Australia.

At a time when currency debasement is of concern, property tends to work pretty well over time as a decent inflation hedge.

I read this week that construction unions are pushing for 26 per cent pay rises - whether that comes about is another matter, but I doubt the cost of new housing is going to fall any time soon. 

Inflation expectations

In that context, it was a relief to see consumer inflation expectations dropping back to 4.9 per cent, the lowest level since February 2022, according to ANZ-Roy Morgan's survey. 

Consumer inflation expectations are now much closer to where they were in 2018 and 2019 - when the official rate of inflation was actually below the 2 to 3 percent target range -  so are likely commensurate with the Reserve Bank hitting its inflation target. 


Consumer sentiment generally remains low, with higher interest rates slowing consumption, and with wages growth also now rolling over.

The Reserve Bank will keep interest rates on hold today at 4.35 per cent, as previewed by James Foster here

---

P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

  1. Boom or Bust – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

    2. Download our property buying guide

Download our free property buying guide here

You can also check out a few of our recent property investment purchases here

Get in contact with us today if strategic property investment is your thing. 

    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is one of Australia's biggest business podcasts, with over 30,000 unique listeners per month.

And our enormously popular Low Rates High Returns Show also remains available on Spotify.

    4. Subscribe for my free daily blog

Subscribe for my free daily blog with well over 3.5 million hits here

You can also catch up with me daily on Twitter here, where I'm active daily and have over 13,900 followers. 

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today. 


Sunday 17 March 2024

Podcast: Is Australia just “a quarry with decent Universities”?

2-Sense podcast

Join Batesy and I here to hear all the latest property market news and views (or click in the image below):


You can also watch the video version here:


---

P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

  1. Boom or Bust – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

    2. Download our property buying guide

Download our free property buying guide here

You can also check out a few of our recent property investment purchases here

Get in contact with us today if strategic property investment is your thing. 

    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is one of Australia's biggest business podcasts, with over 30,000 unique listeners per month.

And our enormously popular Low Rates High Returns Show also remains available on Spotify.

    4. Subscribe for my free daily blog

Subscribe for my free daily blog with well over 3.5 million hits here

You can also catch up with me daily on Twitter here, where I'm active daily and have over 13,900 followers. 

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today. 

Thursday 14 March 2024

Build to Rent announcements in 3, 2, 1...

Rental crisis erupts

I was down at the footy last weekend and it's a very sad sight to see what extremely high population growth combined with far-too-tight lending standards is resulting in for Brisbane.

Judging from the vibes on social media people are generally livid about the rate of net immigration sustained through 2023, and now accelerating into 2024. 

Some thoughts for debate, in a social post which wound up all the people you'd most expect it to...



Some hyperbole here, of course - which is a key strategy for engagement farming - and yet more than a grain of truth as well. 

PropTrack reported another decline in rental vacancies in February.


Source: PropTrack

Notably Victoria has a record low number of properties for rent at 6,750, with the average property now leasing in only 20 days. 

I don't think that the punitigve land taxes are going to help here.

Sydney's quarterly decline in rental vacancy rates was even steeper, dropping from 1.39 per cent to a record low of 1.11 per cent. 

Expect some damage limitation policy announcements over the coming weeks...

---

P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

  1. Boom or Bust – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

    2. Download our property buying guide

Download our free property buying guide here

You can also check out a few of our recent property investment purchases here

Get in contact with us today if strategic property investment is your thing. 

    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is one of Australia's biggest business podcasts, with over 30,000 unique listeners per month.

And our enormously popular Low Rates High Returns Show also remains available on Spotify.

    4. Subscribe for my free daily blog

Subscribe for my free daily blog with well over 3.5 million hits here

You can also catch up with me daily on Twitter here, where I'm active daily and have over 13,900 followers. 

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today. 

Immigration accelerates to new highs...

Record immigration

The ABS released the latest arrivals and departures figures, and the numbers are big...really big!


Source: ABS

It was the biggest January on record for permanent and long-term arrivals at 125,410 (+28 per cent from last year).

Overall, there were more than 2.1 million arrivals in January 2024, which is obviously a lot. 


Source: ABS

On the other hand permanent and long-term departures declined by -8 per cent from a year earlier, to around 70,000.

Over the year net permanent and long-term immigration has accelerated towards ½ million. 


This has solved the labour shortage, but created a massive dwelling shortage in its place.

As such the inflation shifts from wages to the price of new housing and rents. 

Chinese visitors are way down on the pre-COVID days but are at least recovering (and February will see 200,000 arrivals from China given the timing of Lunar New Year). 


If you're not following Antipodean Macro and Only Charts yet...well, you should be!

Here Justin Fabo looks at the trends for net overseas migration, which are accelerating again.


There's not too much to add here except with tent cities springing up, there's a serious political issue brewing related to immigration levels, which are presently faster than our capability to build for. 

Expect the government to make a fresh announcement on visas, as was the case with housing targets, but whether anything meaningfully changes any time soon is another question.

---

P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

  1. Boom or Bust – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

    2. Download our property buying guide

Download our free property buying guide here

You can also check out a few of our recent property investment purchases here

Get in contact with us today if strategic property investment is your thing. 

    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is one of Australia's biggest business podcasts, with over 30,000 unique listeners per month.

And our enormously popular Low Rates High Returns Show also remains available on Spotify.

    4. Subscribe for my free daily blog

Subscribe for my free daily blog with well over 3.5 million hits here

You can also catch up with me daily on Twitter here, where I'm active daily and have over 13,900 followers. 

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today. 

Tuesday 12 March 2024

Podcast: The Great Housing Hijack!

Housing Hijack!

It was exciting to get Dr. Cameron Murray on the podcast to discuss his controversial new book, The Great Housing Hijack!

Tune in here (or click on the image below):


You can also watch the video version on Youtube here:


---

P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

  1. Boom or Bust – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

    2. Download our property buying guide

Download our free property buying guide here

You can also check out a few of our recent property investment purchases here

Get in contact with us today if strategic property investment is your thing. 

    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is one of Australia's biggest business podcasts, with over 30,000 unique listeners per month.

And our enormously popular Low Rates High Returns Show also remains available on Spotify.

    4. Subscribe for my free daily blog

Subscribe for my free daily blog with well over 3.5 million hits here

You can also catch up with me daily on Twitter here, where I'm active daily and have over 13,900 followers. 

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today. 

Is there a 'bubble' in Australian property?

Mostly efficient markets

Back in 2019, I wrote about why it's often smarter to adopt a view that markets are fairly efficient most of the time here.

It's pretty unrealistic to compare today's property markets to the decades preceding the deregulation of the financial services sector (and the financialisation of housing markets that followed). 

It's also worth noting how well capitalised Aussie banks are these days, as compared to the pre-financial crisis era.

Today the most highly capitalised internationally comparable banks in the world versus our own 'Big 4' banks rank ANZ (1st), Commonwealth Bank (2nd), Westpac (4th), and the National Australia Bank (6th).


Compare the left-hand side of this graphic to 2008, to a time when most banks around the developed world had Tier 1 capital ratios in the range of 6 to 8 per cent, and often lower. 

In that context, an updated look at the value of the Aussie housing market...

Looking frothy?

The ABS reported today that the value of the Aussie housing market increased to an estimated $10.3 trillion in the December 2023 quarter, up from around $9.8 trillion a year earlier.


This presents an opportunity to update the charts comparing the value of the housing stock, to the size of the economy (for which we can use annual GDP, measured as a flow). 

Australia's GDP originally fell sharply during the COVID lockdowns, but has since rebounded solidly. 


This puts the value of dwelling stock back to around 4x GDP, which is down from a peak of 4.6x GDP.


As noted in previous articles, these measures are only useful up to a certain point.

Clearly if interest rates were to stay at their current level for too long then eventually there would be a good deal of mortgage stress.

However, it's also fairly evident that financial markets expect mortgage rates to fall over the next few years, possibly by quite a lot.

Not enough housing

There's also a chronic shortage of housing building up in Australia.

SQM Research reported today that the national residential vacancy rate fell to just 1 per cent in February, with declines in Sydney, Melbourne, Canberra, Darwin, Brisbane, and Hobart.

Only Adelaide and Perth were stable, but vacancy rates are already at practically zero in those two markets.


Asking rents rose another +1.2 per cent over the month, and even the CBD vacancy rates are now getting tight. 

Melbourne's asking rent rose +1.5 per cent, while the median asking rent for a house in Sydney has steepled to above $1,050/week.

SQM's Louis Christopher noted that vacancy rates are set to fall further in March. 

The estimated number of dwellings increased by +52,500 to 11,134,600 over the quarter, meaning that the mean dwelling price increased by +$13,400 to $933,800.

Unfortunately this data series isn't quite as useful as it once was, looking only at a mean price (rather than, say, a stratified median index). 


Source: ABS

To be fair, +52,500 is actually a decent quarterly increase in the number of dwellings, but still it is nowhere near enough given population growth peaking at around +690,000. 

Dwelling starts have also slowed very significantly of late. 

The wrap

Given all of the above, I wouldn't be at all surprised to see the total value of dwelling stock increase by 20 to 25 per cent over the next few years, as the population continues to increase.

In some parts of the country there may well be a downturn in housing prices, particularly in the popular sea-change and treechange regional markets where there was a super-boom through the pandemic period. 

---

P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

  1. Boom or Bust – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

    2. Download our property buying guide

Download our free property buying guide here

You can also check out a few of our recent property investment purchases here

Get in contact with us today if strategic property investment is your thing. 

    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is one of Australia's biggest business podcasts.

And our enormously popular Low Rates High Returns Show also remains available on Spotify.

    4. Subscribe for my free daily blog

Subscribe for my free daily blog with well over 3.5 million hits here

You can also catch up with me daily on Twitter here, where I'm active daily and have over 13,800 followers. 

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today. 

Apartment undersupply looms

Housing shortage builds

I just finished recording this month's Big Picture podcast with Michael Yardney, where we discussed the undersupply of units in Melbourne.

Interesting insights from Charter Keck Cramer in their latest State of the Market reports point to exactly the same thing. 

A couple of excerpts are here:


Source: Charter Keck Cramer

It's the same story in Sydney where steepling construction costs, weak pre-sales, and planning amendments are leading developers to review the potential of projects in the pipeline. 

Relatively few completions are expected over the next three years. 


Source: Charter Keck Cramer

In Brisbane, CKC projects the undersupply to be chronic.

Source: Charter Keck Cramer

Unit prices will almost certainly need to rise before supply responds meaningfully, and interest rates will also need to fall. 

---

P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

  1. Boom or Bust – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

    2. Download our property buying guide

Download our free property buying guide here

You can also check out a few of our recent property investment purchases here

Get in contact with us today if strategic property investment is your thing. 

    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is one of Australia's biggest business podcasts.

And our enormously popular Low Rates High Returns Show also remains available on Spotify.

    4. Subscribe for my free daily blog

Subscribe for my free daily blog with well over 3.5 million hits here

You can also catch up with me daily on Twitter here, where I'm active daily and have over 13,800 followers. 

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today. 

Monday 11 March 2024

CFR watching financial hardship rise

Arrears to rocket

The Council of Financial Regulators has duly taken note of increasing hardship applications, and the rising risks of a swathe of mortgage defaults. 

Source: CFR

The national accounts showed household mortgage repayment rose another 5 per cent in the December quarter and more fixed rate mortgages continued to reset to much higher mortgage rates.

Sally Auld of JB Were noted that rising interest rates have impacted the interest rate sensitive sectors of the economy - as intended - but notably this has included dwelling investment.

The latest ABS figure suggest that population growth peaked at around +690,000 late last year, but the current settings (including the cash rate target of 4.35 per cent and the 3 percentage points lending assessment buffer) are seeing far too few dwellings being built. 

Interestingly some project developers are receiving interest from cash buyers of new apartments, particularly at the Gold Coast, but overall new developments aren't stacking up in the current environment. 

Separately the devastating global crash in office values was touched upon in this morning's Statement, but the risks to Australia remain "contained" in the Council's view. 


Despite the comments to the contrary, the inflation battle is basically won in Australia, with comparatively very little movement in consumer prices since August 2023 i.e. 7 months ago. 

Looking ahead, now it's largely a question of fine-tuning the soft landing without sending too many households into mortgage default.

Most labour market indicators are also weakening significantly, so there are some risks ahead to be managed. 

Australia's 3-year bond yield has ticked down to 3.59 per cent as markets position for lower interest rates ahead. 

---

P.S. Whenever you’re ready…here are 5 ways I can help you manage your own money and go next level wealth:

  1. Boom or Bust – 20 minute online workshop for investors

Register for my next free online training - Boom or Bust? How to change your investment plan - book in here

You also download a free copy of my e-book The Only 6 Ways to Become Wealthy here.

    2. Download our property buying guide

Download our free property buying guide here

You can also check out a few of our recent property investment purchases here

Get in contact with us today if strategic property investment is your thing. 

    3. Subscribe to our Top 10 Podcasts for Investors

Listen in to our podcasts

The Australian Property Podcast is one of Australia's biggest business podcasts.

And our enormously popular Low Rates High Returns Show also remains available on Spotify.

    4. Subscribe for my free daily blog

Subscribe for my free daily blog with well over 3.5 million hits here

You can also catch up with me daily on Twitter here, where I'm active daily and have over 13,800 followers. 

By the way, I'm a 7-times published author on finance and investing, so you can check out some of my books here

5. Work with me privately

For a limited time you can book in a free diagnosis call with me here, so book in a call today.