Pete Wargent blogspot


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Saturday 29 February 2020

Autumn avalanche

Autumn avalanche

Lest it wasn't already obvious, for whatever reason I seem to have developed an obsessive-compulsive routine of reporting on all ABS releases.

I'm not entirely sure why this has become so.

It does at least force me to keep abreast of what's going on in the economy - and it keeps me somewhat honest in terms of my analysis - but, anyway, it is what is is.

Due to a quirk of the calendar, the next week will see what Commsec referred to as the 'Autumn avalanche', being a veritable cascade of data releases.

Just to get ahead of the game, then, here's what will come out on Monday...

CoreLogic will report a broad-based increase in housing prices on Monday for the month of February, driven by gains in Sydney (+1.6 per cent), Melbourne (+1.2 per cent), and Brisbane/Gold Coast (+0.6 per cent).

Perth will also record a gain of +0.3 per cent, while vacancy rates have fallen in the Western Australian capital all the way down towards 2 per cent.

At the 5 capital city level, this equates to a gain or +1.2 per cent, the index being weighted as it is towards Sydney and Melbourne.

You can click on the chart below to expand it: 

The quarterly gains were +4.7 per cent for Sydney, +4.2 per cent for Melbourne, and +2 per cent for Brisbane/Gold Coast. 

The pace of gains is generally expected to cool as 2020 rumbles on, as more sellers gradually come into the market, and as yields are gradually eroded.


In other news, the latest data flows out of China were absolutely horrendous.

It's hard to recall ever seeing anything out of China as bad as this, and there must surely be a stimulus response in the post.

Interbank futures have moved remarkably quickly over the past two days to price in a highly likely RBA interest rate cut on Tuesday, and indeed two rate cuts are now fully priced in over the months ahead. 

Weekend reads

Must see reads

This weekend at Property Update, a look at the financial implications of home ownership, and the slowdown in construction activity:

You can sign up for the free Yardney podcast here.


After a somewhat quieter week, there's an avalanche of news due out next week, including the Australian National Accounts, the Reserve Bank's March Board Meeting, and much more besides.  

Plunge protection team

Paging the PPT

Some interesting chats with my brothers on WhatsApp overnight: Korea in lockdown, parts of Italy the same, stockpiling of's all happening.

The virus itself is one thing, but the ensuing disruptive impacts will be quite another, and are tearing a huge hole in global growth. 

There was more carnage across international markets, with the FTSE back down to 1999 levels and red screens all across the world.

Since The Fed practically targets stock markets these days, Powell put out a soothing press release, which in turn led to a face-burning rally into the close for US stocks.

Source: Federal Reserve

Stock futures rallied after the close.

Closer to home, markets have moved quickly to price in two further interest rate cuts at least.

As I type this Australia's 10-year bond yield hit a record low of 0.69 per cent.

Friday 28 February 2020

Credit growth a notch higher

Lending trends

There was another relatively sedate 0.3 per cent growth in monthly housing credit in January, despite the solid increase in new lending flows, as more owners opt to use lower rates to pay down debt faster. 

Annual housing credit growth was a little higher at 3.12 per cent, having bottomed out two months earlier. 

Up until the end of January there was still little evidence that the rebound has been driven much by investors, with homebuyers dominating the figures.

Business credit growth was a bit stronger at 0.5 per cent in January, helping total credit growth over the year to January move very slightly higher to 2.55 per cent, while personal credit growth was still hugely negative at minus 5 per cent, at least on the Reserve Bank's aggregate measures. 

The housing credit impulse points to capital city housing prices moving into positive territory year-on-year, even in spite of accelerated mortgage repayments. 

Fixed mortgage rates are now available from record low levels, although it's wise to seek the counsel of a licensed broker since all products are not made equal. 

Forecasts for both Q4 2019 and Q1 2020 are very weak due to all of the domestic and global disruption to travel, consumption, supply chains, investment, construction, and trade, bringing further policy stimulus into sharp focus.

Subtracting that growth for the economy leaves not a lot but government spending. 

Thursday 27 February 2020

CapEx burned again

Investment slumps

Private new capital investment is now finally increasing in Western Australia, as renewed mining investment begins to pick up. 

With the honourable exception of Canberra, everywhere else saw significant declines in the 2019 calendar year, and in some cases very significant declines.

Overall, this resulted in a disappointing 3 per cent decline in capital investment in the fourth quarter of 2019, and a 6 per cent decline over the year. 

The prospects for the first quarter of 2020 appear to be similarly bleak.

Mining capex is finally off the mat and trending slowly higher, but unfortunately services investment has gone into reverse gear with business confidence having been undermined.  

There was an optimistic year-on-year improvement in capex plans, but it's hard to place too much weight on these estimates given the potentially severe disruption to the global landscape now underway.

To date there's no sign of any slowdown in virus cases, with today marking a new high in the number of confirmed cases outside China (wherein data is generally considered to be opaque).


Opening calls for European markets look ugly again, and there's been some sharp moves in Fed funds pricing, with a cut priced in for April, and two by July. 

Wednesday 26 February 2020

This is why your philosophy sets the sail

Your personal philosophy

See here for the reason why your philosophy sets your course (or click on the image below):

Crumbling foundations

Construction wind-down

Residential construction work done was 13 per cent lower year-on-year in the final quarter of 2019 as apartment and townhouse construction activity continued to plunge in Sydney and Brisbane.

Melbourne's cranes have largely remained in situ as the population growth hub of Australia (as I can testify in person this week). 

Attached dwelling construction work has fallen by 17 per cent over an 18 month period, and there's plenty more to come here too. 

Commercial construction has held up reasonably well, especially for healthcare centres and similar activity, but engineering construction was also 8 per cent lower over the year, so there are (literally) some big holes to fill here in the Aussie economy. 

Overall, this was a nasty miss, with construction work shrinking by 7.4 per cent in 2019, and this is before the full force of the bushfires and coronavirus will hit home in the first quarter 2020. 

Total construction work done in the quarter was under $50 billion, well down from $66 billion at the peak in Q3 2017. 

Further policy stimulus is unequivocally required, and this is not just the opinion of commentators, but well reflected in financial markets too. 

Source: Fidelity


Another messy open in European markets.

Transfers off their cycle lows

Stamp receipts recover

The number of property transfers if now tracking higher than a year earlier, bringing the annual number of transactions off their cycle lows.

Stamp duty receipts have yet to recover by as much, partly because previous asset sales have dropped out of the annual figures.

The recovery also features more first-time homebuyers, so which may bring the average transaction price a little lower. 

There's finally a bit more volatility in markets with crude below $50 and the S&P 500 shedding about 250 points or 7 per cent over the past few days. 

Tuesday 25 February 2020

Which are the key factors for property?

Drivers and demand

It's not all that long ago that the Reserve Bank said that interest rates weren't the sole driver of asset prices.

You've got to look at population growth and supply, they said, citing Perth as an example. 

Now the tune has changed a bit, and there's caution about further easing because of the potential impact on asset prices.

Which factors have the biggest influence on property?

I take a look in the short post below at Property Buyer:

Monday 24 February 2020

Investors set to return

Mortgage offers

So far the property rebound has been all about first homebuyers, upgraders, and downsizers.

But if we see more deals like this Westpac offer it won't be long before investors begin to return.

Via Redom Syed at Confidence Finance:

Source: Confidence Finance

Auctions trend is strong across the capital cities, with more listings finally coming online, but these being met with more motivated buyers.

Source: Corelogic

Sunday 23 February 2020

The 4Fs: finances

4Fs framework

A look at the next part of our 4Fs model: finances.

See here or click on the image below:

Saturday 22 February 2020

Weekend reads and more

Must see articles

This weekend a look at the eroding of vendor discounts in Sydney and Melbourne property, as well as the latest news on auctions and vacancy rates.

See here or click on the image below:

You can also subscribe for the free Yardney podcast here.

Have a great weekend!

Friday 21 February 2020

Some trend pointers for property investors

Average earnings increase

Plenty of people bemoaned the record low nominal growth in Australia's wage price index in calendar year 2019, myself included.

Through a prolonged period of high levels of immigration the workforce has clearly become more casualised, and there's been widespread underutilisation as well as wage theft. 

On the other hand, the latest average weekly earnings figures show that there are still plenty of dollars sloshing around some parts of the economy. 

Over the year to November 2019 there was +3.3 per cent growth in average weekly earnings, driven by solid +3.4 per cent growth for full-time employees in the private sector.

That's well ahead of the rate of inflation of about +1.8 per cent. 

Full-time ordinary time earnings for males increased by +3.2 per cent, which is plenty better than some of the numbers we've seen for men in recent years (while the equivalent figure for females was robust at +3.5 per cent):

For average total male earnings there was very solid growth in Victoria (+5.5 per cent) in particular, as well as in New South Wales (+3.8 per cent). 

In the mining boom glory years male workers drew in extremely strong rates of pay in the Top End - I even lived in Darwin myself for a short time - but those days have long gone, and many workers are leaving the Northern Territory as gravity and mean reversion take hold. 

You can click on the below chart to see how male full-time total earnings have progressed over time by state and territory, with the impact of the end of the mining construction boom in evidence for the resources state figures:

Sector trends

Overall, average weekly earnings increased by +3.2 per cent over the year to November 2019 to a new high of $1,659, which was a stronger result than the +2.5 per cent seen a year earlier.  

Thus while growth in the wage price index has been benign, it's clear that some earners and sectors have been faring reasonably well. 

Higher income earners may include healthcare specialists, construction workers and project managers, engineers, and some of those in tech roles...especially employees based in Melbourne and Sydney. 

Indeed, construction topped the industry sectors for adult ordinary time earnings in 2019, with major infrastructure projects seeing some big pay packets being offered, including in inner-city Brisbane. 

Fixed rates fall further

More cuts

ANZ is the next to go, following on from CBA, with fixed mortgage rates cut further.

The 2-year fixed rate home loan is now down to 2.68 per cent:

There have also been substantial cuts for investor and interest-only loans.

As ever, always consult with a mortgage professional before locking in a fixed rate, as these products may not allow unlimited additional repayments!

Thursday 20 February 2020

MOAR capacity

Spare capacity

Challenging times for policymakers.

I don't know of a single obsever who believes that the unemployment rate is going to fall to below 5 per cent this year, let alone towards full employment, however low that might prove to be.

There was another soft result from SEEK's job ads series, down by 7 per cent over the year to January, and the labour force update for January was also distinctly underwhelming. 

Employment increased by +13,500, as the annual growth in employment to decelerated further to +1.94 per cent.

Part-time employment growth (+2.8 per cent) has continued to outstrip the growth in full-time positions (+1.7 per cent). 

Employment growth remained solid in Victoria, to be up +91,000 over the year, with Queensland next up at +67,000, but New South Wales (+43,000) has clearly come off the boil, and there's all but nothing meaningful to speak of elsewhere. 

With the participation rate ticking back up a notch, the unemployment rate jumped from 5.09 per cent back up to 5.28 per cent in January, which was disappointing, if unsurprising. 

The disruption to the economy in January saw the unemployment rate in Victoria saw spike quickly to 5.4 per cent in seasonally adjusted terms, suggesting that far too much slack remains. 

The smoother trend figures plotted below show only New South Wales (4½ per cent) as remotely sitting in the right postcode. 

Finally, the trend result for monthly hours worked was just +1.3 per cent higher year-on-year, which is also a lacklustre read and well below the rate of employment growth.

Overall, it wasn't a terrible report, but the widely predicted increase in spare capacity does appear to be playing out, with more of the same likely to be in the post as the Chinese travel ban persists throughout February and beyond. 

Wednesday 19 February 2020

Labour market no longer tightening

Labour market chartfest

Bit of a labour market chartfest today.

Skilled vacancies fell from 171,000 to 168,000 on a seasonally adjusted basis in January, to be 11 per cent lower than a year earlier.

Somewhat disingenuously, you could try to spin this as a monthly increase in 'trend' terms, I guess...

In New South Wales skilled vacancies were 14 per cent lower than a year earlier, and in Victoria ads were down by 9 per cent over the same time period. 

The headline figures aren't nearly strong enough to point towards a tighter labour market, or an improvement in wages growth, although at least Western Australia saw a 5 per cent increase in advertisements. 

Wages growth slows

Private sector wages growth slowed to just 2.16 per cent in the December quarter, according to the ABS, while public sector wages growth also slowed to just 2.25 per cent. 

Victoria had been the shining light for potential income growth, but even here private sector wages growth is now slowing again as labour market slack persists. 

Despite this setback, wages growth was still 'fastest' in Victoria at 2.7 per cent over 2019, with Western Australia steadily improving but bringing up the rear at 1.7 per cent.  

Overall, wages growth was already slowing to just 2.2 per cent late last year...and that's before the Chinese virus kicked in.

There hasn't been a worse annual result for a calendar year since the data series began in 1997.

There was some wage price growth in healthcare (3.1 per cent) driven by NDIS funding, but otherwise it's a bit of a quagmire.

A period of slow wages growth was inevitable after the mining boom peaked, but that was 7 years ago now - more recently the economy has been running well below potential needlessly.