Pete Wargent blogspot


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Friday, 24 September 2021

Household wealth rises 20pc

Record wealth

Household wealth rose 5.8 per cent or $735 billion in the June 2021 quarter to a record high of $13.4 trillion.

And that's a time when population growth has stagnated.

AS a result, the average net worth per capita has jumped by 20 per cent over the past year to $522,000. 

The average wealth per household is now around $1¼ million.

The stock market rebound and superannuation balances have played their part. 

And with the dwelling stock now valued at nearly $9 trillion, after accounting for nearly $2 trillion in mortgage debt, housing comprises more than half of Australian household net worth. 

Households own most of the rental stock in Australia, and as such the share of total housing credit going to the housing sector is now above 60 per cent, up from about 40 per cent a quarter of a century ago.

Since many small businesses also secure business loans using their home as collateral, the housing market is highly financialised, and as such the asset class has become too big to be allowed to fail.

The good news is that gearing ratios have moderated in sympathy with rising prices, and mortgage repayments have eased in the lower mortgage rate environment. 

Meanwhile CBA economists estimate that during lockdowns households have socked away some $230 billion in excess savings, leading to a massive war chest of cash and deposits. 

Six years ago American economist Scott Sumner predicted that the 21st century would be characterised by an unprecedented number of 'bubble' claims, due to a misunderstanding of the impact of low real interest rates on asset valuations. 

And that's certainly been the case in housing, with headline-grabbing bubble calls ranging from the U.S. to Canada, to Australia, New Zealand, Germany, the United Kingdom, and a range of other countries besides, none of which have burst.  

Wednesday, 22 September 2021

Curb your exuberance

RBA on financial stability

The RBA's Michele Bullock spoke on financial stability and housing today, with a rising clamour to stop expensive housing markets (mainly in Sydney).

It's worth noting that even Sydney doesn't make the top 200 most expensive housing markets in the world from a property price to income perspective.  

There weren't too many surprises in the speech. 

As noted here previously investor and interest-only lending aren't likely to get much looked at because IO loans are essentially a non-issue these days, and with rental vacancies are near record lows the market needs property investors.

So that leaves higher debt-to-income lending (6x), which may be clamped down upon next year if the market is still rising then.

This would likely impact new housing estates and the first homebuyer segments of the market, but experiences overseas have suggested mixed results, including a corresponding increase in joint income borrowers, and more lending at exactly the DTI cap or just below.

In the UK we saw a sharp drop in first homebuyer activity as a result of debt to income caps, for example, but there was an increase in joint income applicants and higher earning upgraders. 

Household debt is generally higher in Australia than in many countries, partly because households (rather than the government or corporations) own most of the rental stock.

Even so, credit to income ratios have barely changed since 2006-7, when mortgage rates were way higher than they are today...almost on a different planet. 

Household balance sheets have been bolstered by the stimulus too, with households sitting on about  $1½  trillion of cash and deposits. 

If anything, financial stability risks from household debt have decreased sharply over the past 15 years.

Mortgage repayments are pretty comfortable overall at the moment, with mortgage rates having fallen by more than 100 basis points over the past couple of years. 

In summary: watch this space. 

No cooling measures are likely any time soon, but they could come into play next year if property price growth accelerates. 

Tuesday, 21 September 2021

End of the tunnel

Second wind

It may feel right now as though the lockdown and border closures pains will never end, but the good news is that Australia's vaccine rollout is gathering pace again.

2,034,000 doses have been administered over the past week, taking the total to date to well beyond 25 million doses in real time. 

And the pace is picking up to an impressive rate...

New South Wales is now at 9.2 million doses administered, with 84 per cent of adults (those aged 16 plus) having received a first dose. 

At the current pace 80 per cent will be double-dosed in New South Wales within a month, by around October 18.

Victoria is still about seven weeks away from that milestone, but the pace has suddenly picked up there too. 

The supply issue has now been pretty much righted, so the pace of the vaccine rollout is unlikely to slow down from here until hesitancy kicks in. 

The future of property buying

SPI show

I joined the great Phil Tarrant on the SPI podcast here to discuss property trends and the future of property buying (or click on the image below):

You can find out more about BuyersBuyers here

Podcast: Small caps investing with Alan Edmunds

Small cap investing

This week on the podcast we talk about small cap stock market investing.

There are many nuggets of wisdom in here from Alan about how to find your own way towards investing in a style that fits your personality. 

Small caps aren't for everyone, but as Alan points out, if you want to make outstanding returns, you have to do something different from the crowd. 

Note how Alan discusses how his personal situation - stable relationship, mortgage free home in Sydney, and super fund managed by someone else - have allowed him to direct his energy into a more focussed small cap portfolio (which have delivered superb returns, as recorded in Alan's newsletters). 

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


You can listen to the whole podcast back-series on Apple here.

You can also tune in to the full podcast series at SoundcloudStitcher, or Spotify.

You can download our new e-book here.

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Monday, 20 September 2021

SEQ is booming

SEQ boom

No doubt there will be a reopening wave in Victoria.

But for now, south-east Queensland is booming.

See here for more (or click on the image below):

Friday, 17 September 2021

RBA lower for longer

Lower for longer

I discussed with Annette Beacher at RBA here (or click on the image below):

Hat tip to Ricardian Ambivalence for neatly summarising Governor Lowe's shifting views in a far more succint manner than I ever could, in this blog post here.

Where are today's housing market risks & opportunities?

Risks & Opportunities

We discussed with Open Agent here (or click on the image below):