Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go Hmmm...one of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Monday, 30 June 2014

RBA shows investors lead

New home sales plateau

New home sales slipped in May for the first time in 2014, down by 4% on the month, suggesting that investment in new housing may be set to plateau.

Sales of detached new houses were still up by a very healthy +5.7 q/q, but this was offset by falls in multi-unit sales in the month, which declined quite sharply to be down by -5.2% q/q.

Notably, and concerningly, the HIA cited a "shortage of titled land in Sydney and Perth", which will continue to put upwards pressure on those two housing markets, especially since they both have very heavy population growth numbers (click image):


Source: HIA

New dwelling sales fell again by another 6% this month in South Australia, down to just 490 in the month of May.

A weak market, where city dwelling prices declined in Q2.

Today's release from the Housing Industry Association (HIA) appears to be consistent other recent data sets - including softening building approvals, and construction finance for owner occupiers which seemingly hit a peak back in March 2014 (click chart):


Housing finance for construction investment actually peaked in February 2014 (click chart):


Established stock under pressure from investors

However, a closer look at today's more timely Financial Aggregates data from the Reserve Bank, tells a slightly different story (click image):


Housing credit growth is tracking at +6.2% year-on-year, having increased by +0.5% m/m in May.

More notably, drilling into the data shows that investor credit for housing jumped by another +0.8% m/m in May to be up a scorching +8.3% y/y.

Why? 

Because domestic investors are focusing on established dwellings which offer far superior bang for the buck.

A large percentage of new housing stock is presently being sold offshore, perhaps as much as 40% of it in Sydney and Melbourne according to a UBS report today.

The new housing market may be hitting a plateau, but the established market certainly has not done so.

Housing credit for investment as recorded by the RBA's Financial Aggregates has now increased for an incredible 66 consecutive months, and with interest rates stuck down at record lows the trend look set to continue.

Inflation to soften

On a related note, the TD-MI inflation gauge was stuck dead flat at 0.0% m/m in June to be +3.0% y/y.

While the 3.0% reading sits at the top of the Reserve Bank's 2-3% target range, the inflation seen previously was largely a result of the falling Aussie dollar as opposed to labour market pressures or wages growth, and thus is likely to soften again in the 2nd half of 2014. 

In fact, this month's 0.0% m/m reading may just be the start of that very softening.

Interest rates on hold for ages yet; established dwelling prices to keep rising.