Pete Wargent blogspot


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Tuesday, 31 January 2017

Investor credit accelerates again

Conditions improve

A much better month for business credit, which grew by 1.1 per cent in December.

In fact, business credit growth was strong for the fourth quarter in its entirety after a miserable May to September period, which may reflect the generally improving conditions in Q4. 

The most noticeable point from the Reserve Bank's Financial Aggregates release was another big jump in housing investor loans in December, taking annual investor credit growth up from 4.6 per cent in August to 6.2 per cent by the end of the calendar year. 

We know from data elsewhere that this is once again being driven largely by Sydney and Melbourne, in that order. 

This may be the end of the easing cycle, but then we've heard that before.


Thanks to instances of 'switching' of loan purpose from owner-occupier to investor, technically the outstanding value of investor credit is below where it was back in June 2015, but the more reliable figure for total outstanding housing credit shows an increase of 6.3 per cent for calendar year 2016. 

And the total credit aggregate grew from $2.5 trillion to $2.65 trillion in 2016.

Unusually, business accounted for a greater share of outstanding credit in December, while consumers are eschewing the traditional forms of personal credit, reflecting the increasing use of offset accounts are other methods of reducing interest charges. 


Jumping Off, Diving, Fly, High, Extreme

Consumer confidence tidy

Miles above the quarter-century average FWIW.


Shopping, Kermit, Money, Euro

Monday, 30 January 2017

How to build a great team

Choosing your great team

A fair few years have been swept under the bridge now since I studied Business Management, but with quite a bit of real world experience under my belt I thought it might be an opportune time to look at how you might go about building a great team.

The process all starts with attempting to pick out the right people in the first place, which is probably 80 per cent of the battle in my experience, the rest being largely fine-tuning. 

A chap with many letters after his name, Mr. Donald Tosti, designed the following 'Energy Investment Model' framework to profile the four different types of members of a team. 

In an ideal world, what you want are life's players or winners, with a high level of energy and a relentlessly positive attitude.

Of course, everyone wants to hire these people, so it's not always that easy!

At the other end of the scale there are the 'walking dead', those sad folks with a low level of energy and a negative attitude to boot, what the SAS might refer to as 'energy sappers'. 

These people are often life's victims: every challenge or problem is someone else's fault. 

The model is meant to be flexible rather than fixed, and many of us have had bad days or have worked in the wrong jobs where we spent some time in this quadrant!

The Royal Marines would instantly dismiss candidates they expect to reside in this category, and if you want to build a great team, then you must do the same. 

Take a look through your social media feeds. Do you know any people who fit this category? Me too. 

In reality, many team members are often likely to be positioned somewhere in the top right quadrant (cynics, that love a good whine!) or bottom right quadrant (spectators), and these people may require coaching into the top right quadrant over time.

In my experience, there is far more hope for winning a cynic over than a spectator or drifter with no energy and an ability to continually resist change or taking action. 

Spectators might speak positively of the group on occasion, but they rarely contribute anything meaningful. 

Probably most people I know and associate fit into the cynic category, at least on my Twitter feed. They are typically very competent, but are often in some way frustrated.  

"FIFO" (fit in one)

If you're serious abut building a great team, then you need to set about coaching the hopefuls towards the top right quadrant, and if they don't conform, then it's time to implement FIFO.

In this context, I don't mean 'first in first out', I mean, 'fit in or...erm, you know, Foxtrot Oscar'.

This may sound harsh, but this blog post is about how to build a great team, not an average team.

The dynamics of how a team then develops its respective roles and characteristics is known in MBA-speak as "forming, storming, norming, and performing"

This is Tuckman's Stages of Group Development model, and Tuckman later added "adjourning" as a fifth stage - during these stages you can fine-tune how the team operates.

But, for me, I reckon 80 per cent of the battle is getting the right people on board in the first place. 

Try to find the positive players who will consistently support the improvement of your team with their actions and their deeds. 


Absolute mayhem in Sydney today, with the Chinese New Year celebrations ongoing. 

It took my taxi half an hour and a $35 fare to get out of the actual airport, which I think is close to a new record for me. 

It's great to be back in Sydney, though!

Sunday, 29 January 2017

Manchester house price growth at a 12-year high

UK city prices rose in 2016

UK house price growth was steadier in 2016 at the national level. 

However, there was still a solid 7.2 per cent growth in Hometrack's 20 Cities Index, which records results for the major conurbations only. 

In London, price growth steadied to 7.3 per cent, with the top end of the market likely to feel the pain of excessively high stamp duties in 2017. 

Even Cambridge saw price growth slow after another truly spectacular run.

Source: Hometrack

After a harsh correction and slow recovery, it's no surprise to see price growth in Manchester up to a 12-year high. 

With an urban population of more than 2.5 million, the north west is one of the regions of England with genuine price growth potential.

In particular, there are good opportunities in Manchester in the £250,000 to £400,000 price bracket.

Between £400,000 and £925,000, I'd look at London. 

You can read about our Manchester buyer's agency service here

US economy decelerates

Slow down

US real GDP increased at an annualised pace of just 1.9 per cent in the fourth quarter of 2016 according to initial estimates, missing market expectations of 2.2 per cent and well down from the 3.5 per cent seen in the preceding quarter. 

As a result, the economy grew by just 1.6 per cent over the calendar year, well down from the 2.6 per cent seen in 2015, and the weakest result for a calendar year since 2011.

The slowdown in the quarter was in part related to a downturn in exports, and an acceleration in imports.

On the plus side for the US, following some 75 consecutive months of job gains wages growth has reached its fastest rate since 2009 as the economy approaches full employment.

Saturday, 28 January 2017

Happy NY!

From Wan Chai.

Heading back to Australia today.

Mind you, Chinese New Year is a huge event in Sydney too these days.

In the month of February 2016 there were well over 300,000 visitors to Australia from China, Taiwan, and Hong Kong, a six-fold increase since the year of the Sydney Olympics in 2000. 

The big numbers might straddle January and February this year.

But either way, recent trends - including the price of my hotel, I should add - suggest it's going to be a big one.

It's the year of the rooster, and hopefully Sydney Roosters (I say that every year, though). 

Price pressures still subdued

PPI subdued

The Consumer Prices Index figures this week showed that price pressures remain subdued in the Aussie economy.

On Friday morning, the ABS released the equivalent figures for the Producer Prices Index, which followed a similar theme. 

Although there were some price increases, including a 0.7 per cent rise in the building and construction sector, these were largely offset by declines in some manufacturing sectors. 

Price increases into the residential construction sector have been curtailed despite record building activity, thanks to a combination of moderate wage increases and only benign inflation in materials prices. 

The inputs into the house construction increase saw a 0.4 per cent increase in the December quarter.

Overall, the annual increase in final demand prices was up by only 0.7 per cent over the calendar year. 

Futures markets anticipate a steady cash rate over the next 12 to 18 months.

Export prices lift off

Terms of trade jump in Q4

We saw earlier in 2016 a huge rebound in the spot prices of Australia's key commodities, iron ore and coal. 

It takes time for spot prices to be reflected in Australian export prices, but we can see that his has now begun to happen, with the exports index having been driven higher by mineral export prices. 

The export price index jumped by 12.4 per cent in the December 2016 quarter, while the import price index has also declined by 4.6 per cent over calendar year.

The quarterly gains the export price index were largely driven by a huge 59.9 per cent leap in the prices received for coal, coke, and briquettes.

So, it's a surprisingly strong improvement for Australia's terms of trade. 

As you can see in the chart above, Australia hasn't benefited from such a strong improvement in its terms of trade since 2010.

Much energy will be directed to guessing the result of GDP for the fourth quarter after the negative print in Q3. 

I'm not inclined to humiliate myself by 'guesstimating' the result now, but the improving terms of trade do suggest that nominal GDP and national income should present well, even if the headline GDP result is weak.

In essence, this is the opposite of what we have been seeing in recent times, which has been strong GDP but weak income growth. 

Weekend reads

Your must-read articles of the week summarised for you here are Property Update (or click image below).

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Thursday, 26 January 2017

Australia Day

A public holiday today, to be enjoyed by Australia's resident population of 24,340,800.

Last year on Australia Day the resident population was under 24 million.


Aussie Day Party

Dow 20,000

"Well, there it is."

It's not very good measure of, well, anything but the average share price of a few companies really.

But social media will love it.

Wednesday, 25 January 2017

Rents down in Perth & Darwin in 2016

Rental growth slow

Within the Consumer Price Index figures, the ABS produces some very useful quality-adjusted figures on rental price inflation. 

The data series shows how rents can rise very fast when investors are spooked out of the market, such as between 1985 and 1987 (changes to tax legislation) and 2008 (global financial crisis).

When investor activity is high, on the other hand, the growth in rents is likely to be weaker, and this is also the case when low interest rates make buying a home comparatively more attractive than renting. 

In this context, nationally annual rental price growth is at its lowest level in more than 22 years, at 0.6 per cent.

In Perth, annual rental growth has turned negative to the tune of -7.2 per cent.

Darwin is by some margin the weakest rental market, with rents declining by -8.2 per cent in 2016.

On the other side of the ledger, Hobart is the tightest capital city rental market, with quality-adjusted rents increasing by 3.5 per cent in 2016. 

A look at the long-run figures shows that despite the supply response real rents in both Sydney and Melbourne continued to rise to all-time highs. 

In real terms, at the city level Brisbane rents are certain to move lower in 2017 due to the inner city apartments overbuild. 

Inflation under target again

Inflation subdued (except vegetables)

Very few signs of inflationary pressures, then, with year-on-year declines in the prices of clothing and footwear, transport, communication, and recreation and culture. 

In the December 2016 quarter there was a jump in the price of tobacco (more excise) and automotive fuel, leading to a headline inflation result of 0.5 per cent. 

The only other noticeable price increases have been for vegetables, which jumped by 12.5 per cent over the year, with a lack of supply particularly impacting the price of potatoes, capsicums, broccoli, and cauliflower. 

The annual figure for headline inflation ticked up a little to 1.5 per cent, but remains well below the target range of 2 to 3 per cent.

Core blimey

The more closely watched core inflation figures (known as the 'trimmed mean' and the 'weighted median') also implied a pace of inflation below the target range, if only just, though to one decimal place both measures were rounded down to 0.4 per cent. 

Year-on-year both core measures were very soft at just 1.6 per cent and 1.5 per cent respectively.

If you were looking for signs that the low point for inflation is now in the rear view mirror, the increase in non-tradables inflation - a proxy for domestic prices pressures - to 2.1 per cent would add weight to your argument. 

Interest rates

The figures received a mixed response, particularly with regards to the outlook for interest rates.

It certainly seems odd that folks are talking about interest rate hikes with annual inflation remaining so far under the target range.

If the prices of iron ore and coal start to fall again in 2017, which seems more than likely, then there might yet be further rate cuts to come. 

Futures markets take the balanced view that the cash rate is likely staying right where it is for 2017 in its entirety. 

Alibaba and the fifty-four per cent increase

Open sesame

A folk tale of mystery and intrigue indeed, from Alibaba's quarterly for the December quarter of 2016.

There is a lot of conjecture about whether China's reported economic growth of +6.8 per cent is real or made up. 

It's often argued that the true rate of growth is much lower, but there is also some evidence that stimulus has gotten things moving again in 2016. 

In that context, a quick look through Chinese e-commerce group Alibaba's latest quarterly results for December 2016 is enlightening.

Being traded on the New York Stock Exchange (NYSE : BABA), the numbers should be somewhat less rubbery, if not exactly water-tight.

Summary financials

Year-on-year revenues for the 3-month period were up by a blistering 54 per cent to RMB53.2 billion (US$7.7 billion), with revenue for the "core commerce" or retail segment up by 45 per cent from the prior year to RMB46.6 billion (US$6.7 billion).

Source: Alibaba

The group now reportedly has half a billion mobile monthly active users. 

If SEC filings and summary financials aren't your thing - and who could blame you? - visualise instead a PowerPoint presentation featuring lots of charts like these and you'd have the general picture...

Source: Alibaba

The group reported strong growth in cloud computing operations, mobile revenues, digital media and online marketing services (more clicks!), plus growth within some recently consolidated acquisitions. 

The group reported an astonishing US$4.9 billion in free cash flow in the quarter (on a non-GAAP basis), sending the share price blazing through $101, up from below $61 during the early part of 2016.

These enormous figures imply that billions of dollars are available to invest in growth in engagement "globally at a record scale".

NSW stamp receipts shatter all-comers records (Ausgrid)

Stamp mania

With a record construction boom and rising Sydney dwelling prices, it shouldn't be a surprise that stamp duty and transfers paid rose to record highs in FY2016.

In fact, the NSW state budget surged into a massive $4.7 billion surplus in 2015-16.

This result was miles ahead of forecasts and left the state government with net debt of less than zero.

Yep, the state government moved into a cash positive position for the first time ever.  

To complete the virtuous circle, billions of these funds need to be rolled into urgently required infrastructure projects, not least to plug the hole in the economy that will be left by declining housing construction from 2018 forth. 

Although there was all of the usual carping about the NSW budget - which had forecast that stamp duty receipts would hold up in FY2017 - what the critics failed to calculate is that Sydney is the midst of a construction boom combined with asset sales (the folly of analysts believing they are smarter than market insiders and public company CEOs, despite asymmetric information).

The number of transactions jumped to above 25,000 in November, and total receipts seared to an unprecedented $1.78 billion in the month.

Just to put that number in context, the prior year equivalent figure was only $729 million, and the previous record for any individual month was just $1.2 billion.

The November number is so much higher than the prior year that it seemingly defies logic, although there had been a change in purchase duties for non-residents, and then there was the $16 billion Ausgrid sale.

No surprises then that the YTD budget has been blown out of the water, with annualised receipts rising to $9.3 billion by December, thereby tripling the levels seen at the beginning of the decade. 

Plenty more where this came from in 2017 as apartment completions hit the market (recall too that the 2016 NSW Budget introduced a 4 per cent surcharge purchaser duty on the acquisition of residential real estate by foreign persons from June 21, 2016.).

It's important to recognise that the record windfall represents a surge in pre-sold apartments rather than any recent increase in market liquidity.

What an extraordinary windfall for NSW, with excessively high property taxes now bankrolling the entire shebang. 

Tuesday, 24 January 2017

Soggy with damp patches

2016 slowdown

First, the good news! Total employment increased to 12,093,400 in seasonally strong December, the highest number of employed persons in Australia's history. 

After a blistering year for jobs growth in 2015 when more than 300,000 jobs were added, the last calendar year was considerably slower, with employment growth sagging to +89,2000 or +0.74 per cent. 

Greater Melbourne, in essence, added the new jobs on a net basis last year. 

The main change during the year was that annual employment growth in Greater Sydney slowed all the way back to 1 per cent, from a massive 4.2 per cent at the 2015 peak.

And in Greater Brisbane, employment growth stalled.

It's not all bad news, though. 

A whole range of metrics confirmed that the economy went into a very soggy patch in the third quarter of the year, reflected in a negative GDP print, but there does appear to have been a bit more momentum picking up towards the end of the calendar year.

Around the major capital cities, only Greater Sydney is in fine nick from an unemployment rate perspective - sporting an unemployment rate of under 5 per cent - followed by Brisbane and then Melbourne.  

In Greater Perth, the trend is still upwards. 

Around the traps...

The ABS figures don't cover all sub-regions in detail, but it's clear that the resources-influenced regions have endured a tougher stretch since the peak of the resources construction boom in 2012.

That said, it does seem that in many areas employment may now be forming a base.

You may snort with derision - as indeed you are entitled to! - but Louis Christopher of SQM Research believes that some of the hardest hit mining regions such as Karratha in Western Australia may now be passing a housing market nadir. 

It's usually well worth taking careful note of his market analysis.

Lending finance jumps to 9-year high

Lending bites

There was a 14.8 per cent seasonally adjusted jump in commercial finance in the month of November, taking commercial finance up to 5.9 per cent higher than a year ago. 

Property investment loans were a key driver of the increase, although housing finance for owner-occupiers was flat in the month.

Click on the charts to expand them, as always! 

Piecing it all together lending finance spiked 9.8 per cent higher in November, following a 0.6 per cent rise in October. 

All up, then, total lending finance jumped to $76.3 billion, the strongest monthly result since 2007 and the third strongest month on record.

In trend terms, total lending finance is now just a fraction below the highs recorded in 2015. 

There has been a small rebound in commercial lending to the mining industry since September, supported by the commodity prices surge, while the construction, storage, and transport sectors have seen moderate increases. 

Animal spirits?

Business seem to be making some use of low rates, with the economy and full-time hiring apparently picking up a bit of pace again into the end of 2016, following a soggy patch.

It very much looks as though interest rates will be on hold for a long while to come now, but Wednesday's inflation figures will be watched closely as always. 

Monday, 23 January 2017

NSW investors blow the doors off

Sydney investors return

November's Lending Finance figures revealed a considerably improved month for commercial loans, with a 14.8 per cent increase in commercial finance. 

Personal finance also increased by 6.4 per cent, while lease finance was up 3.1 per cent.

So it was a much improved month for lending overall.

By far the most striking trend, however, was the return of property investors to Melbourne, and especially Sydney.

Investor loans were 23 per cent higher than in November 2015 in Victoria, with investor lending having been hindered by macroprudential regulatory measures in the preceding year.

In New South Wales the value of loans was fully 40 per cent higher than in the prior corresponding period, confirming suspicions that parts of the Sydney property market were off to the races again at the end of calendar year 2016.

At the other end of the spectrum, the value of investor loans in resources state of Western Australia was down by 13 per cent year-on-year.

Mortgage arrears are also likely to show further increases in the Northern Territory, with dwelling prices in decline and elevated vacancy rates.

Note that the figures for the value of loans written are not adjusted for population growth.


The all-important inflation figures will be released on Wednesday morning.

Market consensus for core inflation is 0.5 per cent for the quarter and just 1.6 per cent annualised, well under the 2 to 3 per cent target range.

Headline inflation could come in a bit higher, with market consensus of 0.7 per cent (from a range of 0.3 to 1 per cent).

This will be the most important domestic release of the week.

In June the annual rate of inflation was the lowest seen since 1999 at just 1.3 per cent.


Real Estate Talk

Catch me on this week's Real Estate Talk show here (or click the image below).

Sunday, 22 January 2017

New housing finance topping out

Topping out

I recently wrote here how it looked as though new home finance had shaped into quite a neat double top formation.

In November, finance for new owner-occupier purchases increased a bit, but overall the trendline does suggest that a second peak is forming. 

The slight rebound ties in with the rebound in new home sales in the month, previously noted here.

Mainly investors buying new

It's often said that investors mainly invest in established housing, with charts produced to prove it.

Of course, with the total dwelling stock only increasing by less than 2 per cent over the year to September 2016 to 9.76 million, it stands to reason that most investors will buy established - there just aren't that many new properties in any given year. 

I have been more interested to know what percentage of the new housing stock was purchased by owner-occupiers, but nobody I have asked seems to know (or even care about) the answer.

The housing finance figures show that owner-occupiers financed the construction of only 68,200 homes and the purchase of just 31,490 dwellings. 

What the housing finance figures don't capture is that some owner-occupier buyers of new homes are cash buyers.

But nevertheless, it's clear that largely the buyers of new dwellings are investors, albeit many of them from overseas.

Saturday, 21 January 2017

Weekend reads: Must see articles of the week

Summarised for you here at Property Update (or click the image below).

It was particularly noteworthy that New South Wales land values have now increased to $1.5 trillion.

You can subscribe for the free Property Update newsletter here.


Serviceability improved

CoreLogic released its Housing Affordability report for December 2016.

The ANU in Canberra supplied household income figures, derived from the Census and ABS State National Accounts data at the regional level. 

It showed that on the one hand, the deposit hurdle has increased. 

On the other hand, mortgage serviceability has improved across the board since before the financial crisis, thanks to lower interest rates. 

Source: CoreLogic

Note Perth, Brisbane, and Darwin, where serviceability levels have improved dramatically.

You can find the full report here.

Friday, 20 January 2017

Queensland leads engineering rebound

Let work commence

A chart worth looking at for those who think engineering construction might continue falling for years to come. 

It's clear that the amount of new work commenced has dropped substantially in Western Australia since 2014, as expected. 

However, on a rolling annual basis the total amount of work commenced has increased from $61 billion to $70 billion over the past five quarters. 

The increase has all been driven by Queensland's rebound, with annualised work commenced increasing from $12 billion to $20 billion over the same time. 


Interesting article from ABC here which notes the increase in temporary visa holders to nearly 2 million. 

I wrote the same more than a week ago here - and indeed they have used the same graphic - however, it should be noted that the ABC piece is also spiced with a number of (at best) questionable assertions, such as immigration increasing at "a record clip" and so on. 

New home sales rebound

A bit of a rebound for new home sales in November, according to the HIA.

Detached house sales were up 5.2 per cent, and multi-unit sales were up 9.3 per cent.

Source: HIA

Working all the hours?

VICtop of the tree

Having experienced a huge surge in the number of hours worked by all employees in 2015 to record highs, New South Wales saw things flatten out in 2016. 

Victoria has picked up the mantle, scoring by far and away the best improvement in 2016, with the total number of hours worked surging by 3.4 per cent. 

The population of Victoria grew by very strongly by about 2.1 per cent, perhaps even a little more, which helps of course.

Although coming from a low base, it was good to see South Australia in positive territory, with a 1.5 per cent improvement (although this only takes the number of hours back up to where it was in The middle of 2012).

Hours worked declined in Tasmania, and remain at the levels seen way back in 2007. 

Western Australia is still in negative territory, but far less so than was the case as recently as June.

Resources capex still has quite a bit further to fall in Western Australia in 2017, but a number of metrics have suggested that the nadir of the market may be approaching, while mortgage serviceability in the state is now at its best level in 13 years. 

Residential property prices fell by 4 per cent in Perth over the year to September 2016.

Youth unemployment has deteriorated lately, a lack of opportunities for the most expendable cohort being a key indicator of a weak labour market. 

Thursday, 19 January 2017

Have you wondered why everyone is moving to Melbourne?

A few more jobs

I have wondered to myself why everyone is moving to Melbourne.

I had my suspicions, of course, and now they have been confirmed: it's the only place creating any meaningful numbers of jobs. 

A few more jobs

First the good news.

Employment increased by 13,500 in December to 11.986 million, with full time employment up for a third month, this time by 9,300.

After a great 2015, annual jobs growth was quite meagre in 2016 at just 91,500 or 0.8 per cent.

In the preceding calendar year the equivalent figures were 310,000 and 2.7 per cent. 

Unemployment ticks up

The unemployment rate ticked up to 5.8 per cent in December, although in trend terms the unemployment rate has been flat for months at 5.7 per cent. 

Western Australia saw its monthly unemployment rate decline from 6.9 per cent to 6.6 per cent, but since the trend data is calculated using Henderson moving averages, the trend ticked a little higher again in December. 

Around the states, unemployment rates converged towards each other in December. If you think about, it that's what should happen over time. 

2016 a soggy year, except for Melbourne

Overall, it was a weak year which followed a very good year for the labour market figures.

Although total employment did increase in 2016, the uplift was driven by 120,900 part time jobs while full time employment actually declined over the year. 

The total number of hours worked in the economy increased by only 0.5 per cent from a year earlier.

While I've learned not to place too much stock in monthly employment figures at the state level, it's clear that by far the best performer was Victoria, which saw its total number of employed persons increase by nearly 119,000. 

In doing so, the Victorians accounted for all of the increase in employment last year. 

It's just goes to show how strong a multiplier the construction industry can deliver.