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, 14 July 2020

Rental vacancies are falling sharply

Rental vacancies plunge

Kudos to Louis Christopher of SQM Research for correctly anticipating that rental vacancies would fall to be lower than a year earlier following a strong trend reversal in online listings. 


There's another narrative to overlay here, and that being the resources capitals could fair surprisingly well from a rental market perspective now. 

Following Vale's Brazilian operations closures the iron ore price has ballooned to US$111/tonne following strong gains in the futures markets, and this tends to be positive news for Western Australia. 


Sure enough Perth and Darwin saw huge year-on-year declines in rental vacancy rates in June.

Perth's vacancy rate has dropped from 3.2 per cent a year ago to just 1.5 per cent.

In Darwin the equivalent decline has been from 3.1 per cent to 1.8 per cent.

Brisbane saw a modest decline from 2.5 per cent to 2.4 per cent, with suburbia faring very well, though the Brisbane CBD itself has a high vacancy rate of 14 per cent.

Hobart (0.9 per cent), Adelaide (1 per cent), and Canberra (1.1 per cent now all have tight rental vacancy rates following recent declines. 

The bulk of vacancies remain in the CBDs of Sydney (13.8 per cent), Melbourne (8.8 per cent), and Brisbane, as well as in Melbourne's Docklands (16.2 per cent)...and Palm Beach, which has a very high vacancy rate. 

But despite this, vacancies did decline in the largest two CBDs, as well as across Sydney and Melbourne more broadly.


The wrap

Clear signs here that rental vacancies are tightening, with national vacancies falling from 2.5 per cent to 2.2 per cent in June.

That means a decline from 86,398 vacancies May to just 77,132 in June.

One of the mechanisms through which empty rentals are filled is a lower median price of property rented, and asking rents are a few per cent lower than a year earlier, especially in Sydney. 

Although international travel is severely impeded, people are naturally likely to gravitate towards Australia and New Zealand over time, while the supply of new rental housing has dropped very sharply. 

Vacancy rates still remain high for now in the CBD areas of Sydney, Melbourne, and Brisbane, and at Melbourne's Docklands. 

Many of these units and studio apartments were previously short stay lets, Airbnb, and student rentals. 

Rethinking the recession

Savings glut

Freelance economist and journalist raised and articulated some very interesting points in a Twitter thread yesterday, especially with regards to luxury goods and items expenditure.


Firstly, he noted, Treasurer Frydenberg has unleashed an enormous and unprecedented fiscal stimulus, to complement the Reserve Bank's five interest rate cuts and A$50 billion in government bond purchases. 


In aggregate, this will more than offset the drop in wages paid this year, and we do know that there's been a savings glut among many of those better off Aussie who haven't lost their jobs. 


Secondly, noted Murphy, luxury car sales jumped to multi-year highs over the past month, with Mercedes sales soaring to an all-time high. 


And thirdly, the international border closure is set to keep an additional $18 billion of spending at home.

This is a tricky thing to measure, but we do know that since 2008 there have been more short-term departures from Australia than visitors to these shores, as Aussies increasingly enjoyed the stronger dollar and their new-found wealth from the resources boom. 


Indeed, the monthly tourism trade surplus has ripped higher by about $1.5 billion since March, so extrapolating that out over a year does get you to about $18 billion. 


Not all of this money will be spent on travel and tourism services, but most of it will ultimately be spent somewhere. 

Some, for example, will find its way into premium housing...


And other funds will be directed to coastal property...


And plenty already appears to be worming its way into luxury items, such as a new Mercedes. 

The wrap

The global savings glut means that the world's wealthy will still have ample capital to spend over the year ahead, and for some time they've been denied the opportunity to spend much of it on skiing trips and frippery.

The official unemployment rate in Australia is expected come in at around 7 to 8 per cent this month, but the effective unemployment rate is probably nearer to double that level.

So there's no question that the recovery from this induced economic coma will be a prolonged and at times arduous one. 

But also don't be shocked if there's a range of surprisingly bullish trends in some sectors and asset classes. 

MOAR housing stimulus

Stamp duty reform?

Will there be further measures announced by the Treasurer on July 23 to boost the housing market?

I discussed with Scutty and Nadine Blayney on a socially distanced ausbiz TV here (or click on the image below):


Tesla to the moon

Tech boom partying like 1999

It's like Y2K bug all over again, as the Fed provides the liquidity and Tesla balloons an intraday high of $1,795.

The market cap just soared past US$330 billion.

US$330,000,000,000. 


Parabolic!


Monday, 13 July 2020

Podcast Episode #14: Groupthink, social physics, and leverage

Podcast Episode #14

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


You can check out our full series at Apple podcasts, or you can tune in at SoundcloudStitcher, or Spotify.

Don't forget to leave us a friendly review, as it helps us to get the word out. 

Thanks! :-)

CAPE: what's too hot, and what's not?

CAPE crusaders

A brief look at some of the world's stock markets - see here (or click on the image below):

Sunday, 12 July 2020

Podcast Episode #14 preview

Podcast preview

Here's a sneak preview of Episode #14, which is out tomorrow morning:


Into the deep freeze

Second wave

In brighter news, there's been no COVID-19 community transmission to speak of in Australia this week...ex-Victoria.

Unfortunately the Victorian government's shocking mismanagement of hotel quarantine means that there's now a potentially nasty second wave of the virus spreading exclusively in that state. 


With another couple of hundred cases over the past 24 hours Victoria now has 1,124 active cases. 

Elsewhere local cases have essentially been running at zero all week, which is a great result. 


Victoria will now go into another lockdown, this time for at least six weeks, which is a disastrous hammer blow for the local economy.

Auctions slump

Sydney recorded rock solid auction results on Saturday, with the median price of property sold under the hammer rising to $1,260,000.

In Melbourne. however, auction success volumes and results have unsurprisingly begun to plummet as consumer confidence has been demolished by the lockdown announcement.

Alas it's now only a matter of time before someone rolls out another 'tale of two cities headline'...sigh.


To date Melbourne's housing prices have fallen by about 3 per cent since April.


Look out below

I'm not usually in the business of making serious predictions, which are usually broad brush and often prove to be pointless.

But these sorts of auction results in Melbourne have normally been commensurate with something close to double digit pace declines in housing prices, and in all likelihood may point to a 10 to 20 per cent decline in Melbourne's market.

Given that Greater Melbourne is Australia's second largest economic hub - and that it's long been accounting for such a significant share of growth - the decision to lock down for six weeks has all but cruelled the chance of a meaningful recovery any time soon.

Research across half a century of historical data from the Bank of England has shown that falling house prices lead to fear of negative equity, falling confidence, and consumers declining to spend, borrow, or invest.

If the Federal government wants to stand any chance of getting the Australian economy back on its feet this year the Treasurer should announce on July 23 a temporary stamp duty holiday for the remainder of 2020 (and fund the difference for the states by making use of bond yields at record lows).

Alternatively, and more sustainably, broaden the GST and raise the rate to 12.5 per cent.

Get onto it!