Pete Wargent blogspot

PERSONAL/BUSINESS COACH | PROPERTY BUYER | ANALYST

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Saturday, 8 May 2021

Mistakes to avoid when buying a home

Property pitfalls

I discussed in the news here (or click on the image below):


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A big day of auctions in Melbourne with nearly 1,250 listed.


Source: Domain

Plenty of supply there, and more to come with detached house approvals running at record highs.

The Federal Government always had a goal of ensuring property prices stayed buoyant until the international border reopens, and they will guarantee that it in the forthcoming Budget. 


Goldilocks payrolls for asset values

NFPs miss big

Markets were expecting a massive gain for US payrolls as states opened up in April, perhaps up to a million jobs been added back.

In the event it was the biggest fizzer in nonfarm payrolls history, with a print of only +266,000.


It rarely pays to get too hung up on one month of figures, but it was nevertheless a big miss. 

After accounting for revisions, 14 million of the 22.1 million jobs lost have been recovered to date, or about 63 per cent. 


The unemployment rate ticked a notch higher to 6.1 per cent (although it's looking a lot happier than 14.7 per cent a year ago!). 


Naturally this was a disappointing result, but with jobless claims continuing to fall it seems likely that the next 8 million jobs can still be recovered over the next 2-3 years as the U.S. economy reopens in full.

Stimulus settings

This was a Goldilocks result indeed for asset valuations, giving the Federal Reserve further breathing space and offering evidence that the American economy isn't overheating (even if speculative activity across markets has become a virtual laughing stock). 

On specifically stocks, investors and punters have sent U.S. indices to valuations we've never seen before across a range of metrics, seemingly betting that the $10 trillion or so of stimulus will lead only to transitory inflation. 


 
Valuations are so high that historical valuation metrics point to the potential for huge declines from 4,235, where the S&P index is today. 



Of course there's no guarantee of mean reversion any time soon - history shows it can take a long time to play out, although it has always happened eventually - but if the focus is on not losing money then these are wild times. 


Have a great weekend!

Friday, 7 May 2021

Data not dates?

Data not dates

Just the first inkling of hawkishness from the Reserve Bank's Debelle yesterday?

The Reserve Bank of Australia has repeatedly stated that here will likely be no interest rates moves before 2024, at the earliest, including at its Board meeting earlier this week.

And yet...

The full speech from Debelle you can see here, where it was underscored that rising house prices are not to be targeted by monetary policy.

Meanwhile, the data does continue to improve apace, with iron ore exploding to a record high $201.88/tonne (62% Fe) overnight, reflecting strong steel prices and an escalation of political tensions between Australia and China.

Nothing much changing any time soon, but one to watch over the second half of the year if the unemployment rate does fall towards 4½ per cent. 

Roy Morgan Research noted that employed figures progressed to record highs according to their April surveys as 13.29 million, despite the winding back of the Federal Government's JobKeeper program. 

Wednesday, 5 May 2021

Dwelling approvals near record

Perth house surge

Further evidence that the housing boom will slow in H2 2021, as dwelling approvals increased 17 per cent (following February's 20 per cent increase) to 23,176, on a par with the record high.


Detached house approvals actually were at a record high of more than 14,000 in March, driven by a super-surge in Perth, Melbourne, and indeed most other locations. 

It's a good example of the sharp impact of government incentives, and since houses can be built relatively quickly, the economy will benefit immediately. 


Unit approvals have now settled at well below previous highs, with developers anticipating the rising demand in Queensland. 


Overall, these are very strong supply response numbers, which will likely dampen price growth in the housing market in the second half of the year. 

ANZ reported that interest-only loans on its Australian home loan portfolio continued to shrink to just 10 per cent of the book in 1H21, down from 18 per cent a year ago.

There's also a great deal more IO loan expiry to come over the next 18 months, so there's little to fear from a household debt binge perspective - there's never been so many people paying down their mortgage debt.

Delinquencies are proving dramatically in Western Australia, which is great to see. 

Vendors lift asking prices (SQM)

Listings absorbed

Property stock levels picked up to 41,000 in Melbourne, as more apartments came on to the market.

Overall, stock levels remained relatively tight elsewhere through April. 


Melbourne listings are 19 per cent higher than a year earlier, but nationally stock listings of 262,000 were about 10 per cent lower than the 293,000 seen at the same time last year. 


Overall aged listings have generally been absorbed, suggesting that buyer activity has been strong.

SQM noted that vendors are aggressively lifting asking prices, led by sizeable increases in Hobart and Sydney, with Brisbane and Adelaide not far behind. 

Even so, asking prices have not increased everywhere, or for all property types, so it's not quite the countrywide boom that's often implied. 

Normally we see a winter lull in listings, but that probably won't happen this year, with home appraisals continuing to track at high levels. 

Investors just getting started

Investors return

Investment lending finally began to pick up momentum in March, increasing 12.7 per cent to $7.8 billion.

In 2015 monthly investment lending briefly topped $10 billion, so given the increase in incomes and housing equity since then, plus the huge decline in mortgage rates, investor lending still potentially has room to double from here. 


First homebuyer numbers, on the other hand, may well already have peaked. 

Although first homebuyers in Sydney continued to surge, elsewhere the peak of activity appears to have been near the beginning of the calendar year. 


New South Wales was also the standout for owner-occupier lending, with steadier results elsewhere, suggesting that the strongest capital city price growth this year might be seen in Sydney, Brisbane, and Melbourne, although results will vary significantly by property type and location (and all markets have seen a significant increase in lending). 


The average loan size has trended higher over the past year, though not dramatically, with household incomes bolstered by stimulus cheques. 


RBA a bit more hawkish

Overall, a solid result with housing finance excluding refinancing increasing to $30.2 billion, which is 55 per cent higher than the panicked result for the same time last year. 

It's amazing how much can change in a year. 

The Reserve Bank left the target cash rate on hold today at 0.10 per cent, and continued to state that the conditions for a change would likely not be met until 2024 at the earliest.

Interestingly the RBA held off switching from targeting the yield on April 2024 to November 2024 bonds until the July meeting, which could prove to be a hawkish signal if not followed through, and there's a fair amount of economic data to flow between now and then. 

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Commodity prices have ripped 35 per cent higher over the year to April 2021, driven by bullish iron ore price action. 


The figure would be even higher if using spot prices for the bulk commodities, with a massive 43 per cent lift. 

Tuesday, 4 May 2021

Memestocks, shitcoins, and land prices

Inflation MIA

Yes, there's certainly some inflation around, but it's not showing up in the CPI basket just yet.

In saying that, the monthly inflation gauge from the Melbourne Institute did pick up in April, especially as the base effect kicks in.

I discussed this on ausbiz TV this week with Annette Bleacher here (or click on the image below):

Monday, 3 May 2021

Job ads 28pc above -pre-pandemic levels

Advertisements piling up

The hot streak continues with job ads recorded an 11th straight monthly gain, according to ANZ.

Job advertisements are now about 28 per cent up on pre-pandemic levels, at 196,600.

We haven't seen 200,000 job advertisements for a dozen years in Australia. 


With backpackers and working holiday visa applicants having been sent, erm, packing, there is already some evidence of labour shortages across some of the lowest paid sectors. 

It has been estimated that up to 150,000 could lose their jobs as the JobKeeper stimulus ends, so we'll have to see how that impacts washes through. 

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Australia opened its state vaccination hubs to those aged over 50 today, so it will be interesting to see how supply keeps up with the rampant demand. 

From May 17 vaccine availability will be expanded to GP surgeries, with 15.8 million doses expected to be made available during this phase of the rollout, according to today's media reporting.

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Fun, Fitness, Finance...

In this new mini-series we discuss our 4Fs mental model.

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


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Australia needs to step up the vaccine rollout

UK vaccine effect

The United Kingdom has nailed its vaccine rollout, with 34½ million people already having received at least one dose, and following a big swing to second doses in April some 15 million have now had a second dose too.

It's been a tremendous collective effort.


NHS England reported only three COVID-19 deaths today, over two dates, showing how effective these vaccines have been against the virus. 

With about 28 million tests being carried out per month, statistically it will be nigh on impossible for deaths within 28 days of a positive COVID test to reach zero, but things are not far off that level now, and weekly deaths are still down by more than 30 per cent week-on-week.


Looking at deaths by date of occurrence, the daily numbers will jag around a bit now we're into single digit territory, but the new is very positive.


Moreover, total deaths have been tracking below the 5-year average for about six weeks now, so the pandemic phase is long since over. 

The median age of death with COVID in the UK has been 83, and the good news is that the hospitals have continued to empty out apace. 


And there are now very few serious cases for a population of around 68 million, so ventilator equipment is being shipped off to India where there is a far more pressing need for it. 


This dramatic vaccine impact shouldn't be too much of a surprise - Israel led the way with vaccinations, and has seen the country's positivity rate fall to just 0.1 per cent, and virus deaths have essentially ceased. 

Europe plays catch-up

Brits are now looking forward to a glorious summer and are busy booking their summer holidays in Europe (as are Americans), especially in those destination countries where the COVID threat is fading.

Continental Europe was slower off the immunisation mark than the United Kingdom, but things are ramping up now, and Germany has crunched through nearly 15 million doses over the past month alone.

We saw last year that the warmer summer weather effectively suppressed the virus in Europe, and since we have vaccines this time around one might expect the end to be in sight by the end of this month for Greece, Portugal, and a range of other countries.

Australia laggard

Moving on to Australia, I think we're all quite bored of reading about the politics of COVID now. 

As the political dithering on quarantine and statewide lockdowns for single positive tests wear on, the simplest solution simply appears to be getting on with the blasted vaccine programme. 

Only 2¼ million doses have been administered to date, and the rollout has been steady rather than spectacular to say the least. 


Vaccinated Europeans and Americans will soon be travelling for business and leisure again, so Australia needs to crack on with vaccinating its vulnerable so it can become outward facing once more.

Experience from elsewhere in the world appears to show that a turning point is reached once 40 to 60 per cent of the population has received a vaccine dose, and reopening can happen while the virus remains in decline. 

That implies that Australia may need to vaccinate 10 to 15 million people before such a level of immunity is reached.

As for the threat of jail for Aussies returning home from India - what a disgrace, and a clear contradiction of what is stated on the passport. 


In summary, get on with it.


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As an interesting aside, scanning the coronavirus updates on the Worldometers website, it's notable that the global population continues to accelerate towards 8 billion, up from 6 billion in 2000, and only 4 billion in 1974.

More than 3 million people have been reported as dying with COVID since the pandemic began, but at the global level this will be tiny blip on the inexorable rise to 8 billion.


Mortality rates have improved dramatically over the past few decades, which paradoxically means there are more elderly persons within the virus risk categories. 

Sunday, 2 May 2021

Property market implications of the vaccine rollout

Vaccine rollout delays

We discussed some of the implications here (or click on the image below):


Our latest Residential Risks & Opportunities Report is available for free here - the next quarter's report will be out next week. 

Friday, 30 April 2021

Consumers clear personal debts

Paying off debt

Personal credit growth was extremely low over the year to March 2021, at -11.7 per cent, as consumers took advantage of stimulus payments and record low interest rates to clear debts.

Credit growth across the economy slumped to an extremely low level at just 1 per cent year-on-year. 

Annual credit growth has only been lower than that once since the early 1990s recession, during the financial crisis in November 2009. 


There was, however, further confirmation that first homebuyers and upgraders are taking advantage of record low mortgage rates to buy property, as monthly housing credit growth increased to 0.54 per cent in March, the highest level since June 2017. 


Annual housing credit growth thus increased from 3.8 per cent to 4.1 per cent.


There was a lot of permabear analysis of daily home values when prices were falling, but that seems to have dried up now.

The bigger picture is that the pulse of housing credit suggests that annual housing price growth will likely accelerate to double-digit levels by around the middle of the year, before probably calming down in the second half of the year as supply responds. 


Investors are now returning to the market, but the growth in investor credit remains near record lows as more interest-only loans continue to reset and the stock of IO loans continues to diminish. 


Overall, very, very low credit growth across the economy at just 1 per cent, but in my opinion a strong three years likely lies ahead for housing prices.