Pete Wargent blogspot

PERSONAL/BUSINESS COACH | PROPERTY BUYER | ANALYST

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'I've been investing 40 years & still learn new concepts from Pete; one of the best commentators...and not just a theorist!' - Michael Yardney, Amazon #1 bestseller.

Tuesday, 2 March 2021

Unit approvals drop to 2009 levels

Approvals drop off

There was the expected drop in house approvals ahead of the tapering of the HomeBuilder grants, albeit not so much in booming Perth! 

Plotted on a rolling annual basis the success of the HomeBuilder package can be seen across the state capitals. 


Unit approvals have been less distorted by the grants and have continued to snake lower. 


In fact unit approvals dropped all the way back to 2009 levels in January on a seasonally adjusted basis, reflecting a lack of demand from migrants and fewer willing buyers from the Chinese mainland. 


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SQM Research has generally speaking not seen the very large drop in stock on the market recorded by CoreLogic.

That said, listings were down 13 per cent year-on-year in January according to SQM's latest figures, although Melbourne still had more stock on the market than a year earlier at above 38,000 listings.


The major declines have been driven by the southern capitals, plus Brisbane, and Canberra, with Perth likely to follow suit next. 


There's more detailed analysis of building approvals and other news from James Foster here

Monday, 1 March 2021

ANZ job ads rising

Unemployment set to keep falling

This is good, and suggests that the unemployment rate can and will keep falling to below 6 per cent, if historic trends persist. 

At just shy of 175,000 on a seasonally adjusted basis, job advertisements are now 13 per cent higher than they were at the onset of the COVID-19 pandemic. 


It's not beyond the realms of possibility that total employed could hit a record high of above 13 million within a few short months, despite the slack in the labour force and reduction in hours worked. 

As ANZ pointed out in its release, however, there are still 878,000 unemployed persons and 1.37 million on JobKeeper support, so we're far from out of the woods yet. 

Housing activity trends higher

More loans and supply

There was the expected 11 per cent lift in housing finance in January, though homebuying activity figures is not mooning higher quite as implied. 


The activity has largely been driven by surging first homebuyer numbers hitting record highs on the rebound in reopening Victoria, as well as fresh highs for first-time buyer numbers in Queensland and Western Australia. 

However, history shows that first homebuyer activity will likely drop off a cliff from as soon as the low deposit scheme (FHLDS) is eventually wound back. 


There's also a thumping $4 billion or 141 per cent year-on-year in construction finance lending buried in the headline figures, driven by the HomeBuilder stimulus, which significantly inflates the top line results.


Investment lending has finally begun to increase from depressed levels, up 9 per cent to 6.6 billion in January, though the share of total lending to investors continued its decline to the lowest level since 2009.  

There have been lots of wild claims in the reporting, but a sober and more realistic analysis shows that the average mortgage size has increased only steadily over the past year. 


So, yes, pretty bullish, but the boom in lending has overwhelmingly been driven by refinancing to lower mortgage rates (which is good for household cashflows), construction loans to build new detached homes (which is good for supply and the economy), and a temporary spike in the limited pool of first homebuyers.

That's not exactly a toxic combination at a time when immigration is almost totally switched off. 

In fact, it points to moderating price growth by the middle of the year as the new supply - mostly detached housing, which tends to be delivered relatively quickly - responds to the brightening outlook, and as this cycle's first homebuyers have eventually tapped out.

Housing prices spike in February

February prices

Not sure this will be sustained for long, but CoreLogic looks set to record capital city housing price increases of about +2 per cent in February, and possibly a little higher for the capital cities. 

We'll have to see what the detailed CoreLogic release says, but it looks as though the monthly result is on the cusp of being the strongest since the post-Olympics boom of 2003. 

The gains will be led by Sydney (+2½ per cent) and Melbourne (+2 per cent), with strong gains also to be posted in Brisbane and Perth. 


Best guess looking at the nascent increase in new listings: the pace of price gains will likely begin to settle down a bit by April. 

Podcast Episode 35: Does economics help you to invest?

Low Rates, High Returns podcast

In this week's episode we discuss whether economics can help you to invest?

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


You can listen to the whole podcast series here.

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

Don't forget to leave us a friendly review, as it helps us to get the word out.  

You can also order a copy of our book here, and download a free e-book here.

Saturday, 27 February 2021

Travel ban pushes global property cycle

Auckland locks down again

Auckland went back into a lockdown for seven days today, after a single positive test for Coronavirus.

Sounds totally proportionate...

Disclosure: I bought some Auckland International Airport (AIA) stock last year, so yes, this is annoying, although travel stocks are mostly looking through this sort of stuff now given the increasingly tremendous results from vaccine trials. 

With international travel - and frequently even internal travel banned - Aussies are looking for places to spend their proverbial stimmy cheques.

And just as we've seen everywhere from North Island to New York to Nottingham, that place is mostly real estate.

You can now add the Northern Beaches, North Melbourne, and New Farm to that list, because Australian housing markets are also flying at the moment, as evidenced in this weekend's preliminary auction results:


Source: Domain

In a forthcoming webinar in a fortnight's time, I'll be interviewing former senior economic advisor to the PM Stephen Koukoulas on why we don't think the buying frenzy will last too long (stay tuned for registration details).

Most often what happens is that more willing sellers come to the market as the year progresses, and things calm down a bit as the buyers are dispersed. 

This too shall pass.

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The UK budget looks set to include an extension to the stamp duty holiday and further support for first homebuyers.

The measures themselves do make a clear difference to market behaviour and at the margin.

But more importantly the government's message is very clear: there will be no declines in housing prices for as long as the travel restrictions continue. 

Friday, 26 February 2021

Credit impulse turns north

Lending lifts

Housing credit growth lifted to +3.6 per cent in January, the strongest level since the last federal election in May 2019. 


The credit impulse turned decisively positive in October last year, and has continued to be a decent indicator of turning points.

The impulse indicator may somewhat understate price growth potential due to the distortion of stimulus payments, early superannuation release, and a massive switch across to principal and interest mortgage products which has pushed down credit growth as loans are repaid.


Investor credit growth once upon a time could run at 25-30 per cent, but for the past 18 months has been negative for the first time in history. 

If you use a magnifying glass you can call it positive in January 2021. 

The little credit growth there is has been driven by construction loans, first homebuyers, and upgraders, so there's no benefit in calling for changes to lending standards - markets will begin to sort themselves out in any case as listings begin to increase. 

The latest wages growth figures will show nominal wages growth at all-time lows, so it's hard to see core inflation sustainably getting back to target for a year or three yet. 

Thursday, 25 February 2021

Brisbane guns for Olympics bid!

Internal migration to QLD

The latest construction figures from the ABS showed residential construction picking up, but overall construction activity declined by -1.4 per cent over 2020, with commercial and non-residential construction declining over the year by -4.5 per cent. 

In the residential space higher-density development has weighed heavy, though both approvals and actual construction now appear to have bottomed out in south-east Queensland, where vacancy rates have been tightening as the state benefits from hefty internal migration out of the southern states. 


Olympics hot seat

Yesterday, Brisbane was officially confirmed as the preferred candidate for a 2032 Olympics bid, which would represent a significant boost to south-east Queensland, following on from a somewhat lacklustre Commonwealth Games (most of the events I went to were only sparsely attended).

There are some proverbial hurdles to be cleared yet, but the decision by the IOC's executive board appeared to put Brisbane in pole position.

It remains to be seen if Doha or Budapest launch serious bids to host the 2032 Olympics, but at this stage Queensland looks like a hot favourite. 

Upgrading venues

If the bid was to prove successful then Queensland has plenty of stadia which could be used and/or upgraded, such as Metricon/Carrara (which is only a 25,000-seater), the tired Gabba (42,000 capacity), and my favourite venue Suncorp Stadium at Lang Park (52,500 capacity). 

The obvious choice for a new venue would be a 50,000-seater revamp of the moribund Albion Park Raceway, which would be of benefit to popular adjacent suburbs such as Ascot. 


Nearby Hamilton North Shore would be another obvious beneficiary of funding, while the QEII stadium - the old Queensland Sports and Athletic Centre - in the southern suburbs of the city, could yet see a revival.

One of my earliest television sporting memories was watching the 1982 Commonwealth Games, the winking 'Matilda' kangaroo, and the map logo without Tasmania included, and it would be great to see Brisbane snag the bid.

The state would need to consider significant road and rail upgrades, since Gold Coast and Sunshine Coast would presumably be used as village camps. 

South-east Queensland is already emerging as a leader out of the coronavirus recession, with huge internal migration and housing prices rising, and a successful Olympics bid would secure further confidence and development. 

Wednesday, 24 February 2021

These are the 6 key financing questions property investors must answer

6 financing questions

With mortgage supremo Stuart Wemyss - tune in here (or click on the image below):


Majors' loan deferrals down 91pc

Repayments resume

Some handy stats via the ABA relating to Australia's 4 major lenders:


And as a graph:


Source: ABA

These figures only run to 31 January, so I expect we'd be well below $20 billion today, based on recent trends. 

Still a way to go, of course, but good progress.

Tips for taking action

5 useful concepts

People aren't very good at sitting still and doing nothing.

We like to keep doing stuff. 

But how do we make taking decisive action work best for us?

For more see here (or click on the image below):


Tuesday, 23 February 2021

Westpac updates housing forecasts

Housing outlook

20 per cent price gains are forecast for Sydney, Brisbane, and Perth out to 2022, with the other capital cities pretty close behind:


Source: Westpac

This broadly aligns with the forecasts in our recent Risks and Opportunities Report.

Monday, 22 February 2021

Podcast Episode #34: MMT

MMT explained

A controversial subject this week, for something a bit different - MMT.

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


You can listen to the whole podcast series here.

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

Don't forget to leave us a friendly review, as it helps us to get the word out.  

You can also order a copy of our book here, and download a free e-book here.

Buffett Indicator moons

Buffett Indicator at 228% of GDP

This is worth a read here (or click on the image below) below and does a pretty good job of articulating why I mostly just can't get excited about stocks right now (thanks to Lord Stuart Wemyss for the Twitter share). 

At 228% of GDP that's way out there, and far above the wildest valuations of the pre-tech wreck mania. 

Sure, things can always moon higher, and recent momentum suggests they will, but it's hard to see anything approaching compelling 10-year returns from here. 


In fact, I ended up buying an investment property last year, as I figured using some leverage will see me probably getting better returns over a 10-year timeframe. 

I could potentially get a bit more interested in global stocks if the S&P 500 falls 30 per cent, though even that would only bring the CAPE ratio back to ~25, which itself is hardly cheap. 

Pass.

Sunday, 21 February 2021

Podcast Episode #34: Preview (MMT!)

Podcast preview on MMT

A preview of tomorrow's podcast episode where we discuss MMT:


You can listen to the whole podcast series here.

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

Don't forget to leave us a friendly review, as it helps us to get the word out.  

You can also order a copy of our book here, and download a free chapter here.

Friday, 19 February 2021

The outlook for 2021 and beyond

Markets outlook

I discussed the brightening outlook with Michael Yardney here (or click on the image below):


I've noticed in the Land Registry data that a huge number of Aussies took the opportunity to kill their mortgages outright in 2020, and mortgage serviceability has become so easy, on average, that a boom period for property is a near-certainty.

Shane Oliver showed this week that interest serviceability for households is at the lowest level in about 35 years.


Source: Dr Shane Oliver, AMP

The business case for Airbnb

Airbnb

Today, a look at investing in Airbnb properties here (or click on the image below)


More property markets news here!

Thursday, 18 February 2021

Full-time employment booms back

Employment surge continues

Full-time employed surged +59,000 in January, and total employed jumped to 12.94 million.

93 per cent of the jobs lost have now been recovered, and job ads suggest that a record high of 13 million could happen as soon as the first quarter of this year. 

The unemployment rate dropped sharply again to 6.35 per cent. 

Hours worked dropped sharply in January as more Aussies took a well-deserved holiday, but the recovery continues apace!

Here's the detailed analysis with James Foster...right here.

UK house prices rise 8.5pc in 2020 (Brisbane next off the rank)

UK price rise

The stamp duty holiday and ongoing low mortgage rates saw UK house prices rise +8.5 per cent in 2020. 

The average house price moved up to 252,000.

Source: ONS

This was the strongest increase in six years. 

Of course mortgage rates were already ultra-cheap in the UK and could barely go any lower than they already were. 

It's a totally different story in Australia, where mortgage rates have plunged at a time when most households are unable to travel overseas, and as such are awash with cash.

This is what leads Dr. Cameron Murray and others to forecast Brisbane housing prices to rise by up to 45 per cent through this cycle.

As I've noted here before, assuming mortgage rates stay low for some time prices could rise by a third without troubling mortgage interest serviceability ratios (though paying back the principle might be a different proposition for some new borrowers). 

With so little interest-only borrowing in Australia now debt to income ratios have been declining lately, setting us up for the next property bull.