Pete Wargent blogspot

PERSONAL/BUSINESS COACH | PROPERTY BUYER | ANALYST

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Tuesday, 19 October 2021

Property podcast: Jonathan Giles

Pete's Property Pod

This week on Pete's Property Pod, I talk to AFL star Jonathan Giles about his footy career and journey in property. 

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


You can also listen on Apple podcasts here, at Spotify here, or wherever you normally get your podcast fix. 

Monday, 18 October 2021

Yields creeping higher

Inflation stirs

Faster inflation in New Zealand has led to earlier than expected rate hikes over the other side of the Tasman.

Over in Europe, meanwhile, the Bank of England is also guiding markets towards potential rate hikes over the year ahead.

And yields in the US are recovering towards the levels we were seeing before COVID-19 struck. 

In Australia the 3-year bond yield is now up and away like a meme stock, having been stuck at rock bottom levels until relatively recently. 


Around the world there have been signs of inflation stirring, and there's certainly been a surge in commodity prices, such as seen recently in thermal coal, oil, and gas. 

Reports of slower growth in China hasn't stopped Brent oil approaching $86/barrel - set to breach its 2018 price level - and over the past two months thermal coal prices have exploded off the charts, while there is also an awkward global gas shortage.  


Perhaps the biggest question facing markets over the next year or two is whether inflation is transitory, or if it proves to be more persistent. 

Despite the Reserve Bank of Australia's repeated insistence that rate hikes are off the table until 2024 at the earliest, financial markets are now pricing for an upwards move within the next 12 months. 


It's been over a decade since we last saw a hike in Australia, so it will be quite a novelty when that day does come!

Saturday, 16 October 2021

Sydney reopens to the world

Sydney open for business

New South Wales has flown past its 80 per cent target for fully vaccinated adults. 


New Premier Perrotet has wasted no time at all in reopening travel into New South Wales, with no quarantine requirements henceforth. 


Reuniting families in time for Christmas.

Thursday, 14 October 2021

Employment falls by 138,000

Employment dives again

Employment fell by another 138,000 in September to 12,844,600, which is a cumulative drop of 281,000 since the June peak. 


The decline was again driven by New South Wales, with another 37,000 decline.

Since May employment in New South Wales has crashed by 244,000, although this figure should rebound quite quickly on the reopening. 


The unemployment rate only increased marginally to 4.6 per cent, although this may be a somewhat artificial result. 


After all, the participation rate slumped sharply by 0.7 points to 64.5 per cent.

The wrap

It feels like there is a wide range of uncertainties about what might or might not happen next.

The labour market could suddenly become very tight as the economy reopens.

Indeed, the skilled labour market is already tight in Queensland - and some other parts of the country - with a pipeline of resources projects getting underway. 

But on the other hand there is talk of bringing in two million new immigrants over the next five years, which could obviously create a different dynamic over time.

Following data and news from around the world, including the UK, there are some very unusual and confusing charts and trends happening right now, and the picture will probably only become clearer next year. 

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You can get all the finer details from data king James Foster here.

Wednesday, 13 October 2021

Mortgage size hits $600k

AFG surges

Australian Finance Group, one of Australia's largest mortgage aggregators, reported a very strong first quarter to kick off the new financial year, with $24 billion in mortgages lodged.

This is well up from $18 billion in last year's lull for the prior corresponding period, with each of the major states reporting strong annual increases in lodgements.

The average new mortgage size ticked over $600,000 for the first time (this is higher than system, for a range of reasons). 

After a blip during the COVID shutdowns, the uptrend in the average new mortgage size has resumed. 


The increase is being driven by Queensland, where the average new mortgage size has surged by 19 per cent from a year earlier due to the base effect - although the state level increases over two years are much less dramatic. 


Due to the low interest rate environment, a record 38 per cent of borrowers chose a fixed rate mortgage. 

The share of investor (27 per cent) and interest-only (17 per cent) lending is now increasing, but not yet to high levels. 

AFG expects the regulatory intervention to reduce borrowing capacity, and noted that: 

“In a positive sign of the stability of the market, Loan to value ratios (LVR) were once again down across the board meaning valuations are continuing to outpace the growth in loan sizes and borrowers were not drawing up to the full value of their homes".

Tuesday, 12 October 2021

The vacancies conundrum

Vacancies tick higher

Residential vacancy rates were just a notch higher in September, albeit at just 1.7 per cent nationally, according to the latest figures from SQM Research.

There were modest increases in Brisbane, to 1.4 per cent, and Sydney, to 2.7 per cent.

Still, vacancy rates overall were much tighter than a year earlier, and the trend has been down. 


Vacancy rates remained abnormally high in the CBDs of Sydney (8.2 per cent) and Melbourne (8.4 per cent) due to the absence of the international traveller and student chorts, but elsewhere rental markets have been very tight and asking rents are rising.

This has been against what most people would've reasonably expected to see given the boom in detached house construction, and the closed international borders.


The question is...why? There are a few possible factors. 

There has been a shift away from share houses, and some folks might be renting more than one property through the pandemic restrictions (so some properties might be physically vacant but still rented out). 

Probably the best explanation for me is that Australia's robust population pyramid has never been so skewed towards 20 to 35 year olds - the prolonged absence of international students notwithstanding - and cheaper unit rents have encouraged many into taking their first rental.


Of course, there are many moving parts, as always. 

The AFR reported that New South Wales Premier Perrotet has received advice that Australia will need to see the "explosive" growth of 2 million migrants over the next five years to solve skills shortages. 

I'm not sure we'll see that, but it's an aggressive opening gambit and it does suggest that there will plenty of demand for rentals once the borders are reopened and immigration is restarted in earnest. 

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In other news, stamp and land transfer duty climbed to near $11 billion in New South Wales over the year to August, although the lockdowns will have bitten since.


Meanwhile, the Housing Industry Association reported a modest increase in new home sales last month.


Source: HIA

Where lending changes will put a brake on booming prices

Lending curbs

Via REA and Daily Telegraph here (or click on the image below):


More at BuyersBuyers here.

Saturday, 9 October 2021

Queensland's top growth suburbs

Top 10 growth suburbs

We ran through the list here (or click on the image below):


We'll cover the other states in turn this week. 

Changes to lending standads

Lending curbs

I discussed with Annette Beacher at ausbiz TV here (or click on the image below):


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A solid set of auction results for Melbourne on the reopening, with a fair chunk of properties still selling prior to the scheduled auction day.


Source: Domain

ICYMI: the future of property buying

Property purchase proptech

One from the other day, with Phil Tarrant at SPI...tune in below:


Friday, 8 October 2021

Podcast: meet the experts - Gareth Brown

Value investing

Excited to be joined by Gareth Brown from Forager Funds on this week's podcast here (or click on the image below):

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You can listen to the whole podcast back-series on Apple here.

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

You can download our new e-book here.

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Wednesday, 6 October 2021

Rental markets to tighten further

Vacancies decline again

Rental markets are set to tighten further as the international borders reopen, according to Domain.

The latest Domain index figures for September confirmed further tightening in Melbourne, Perth, Adelaide, Canberra, and Darwin. 

Although there are still some rental vacancies in the major CBDs, overall rental markets are extremely tight, with the trend tightening quickly over the past year. 


The rental shortage in some of the popular regional markets such as the Sunshine Coast is absolutely chronic.

It's only going to get worse from here for renters, as it's about to become harder for landlords to get a loan...again.  

APRA announced today that serviceability buffers would be increased for new borrowers to 3 percentage points.


Of course, we won't get the equivalent of 12 (twelve!) interest rate hikes any time this millennium, so the benefits to the safety of individual borrowers is basically nil, but I guess the move is designed to cool the rate of housing credit growth. 

There will be a modest downward adjustment to borrowing capacity for most new mortgage borrowers, though rules will be less stringent than was the case under the old 7¼ per cent buffer under the APG 223 guidance - as depicted in the stylised example below. 



Overall, this is a fairly modest adjustment to the market, and not a bad one - it buys regulators some time to allow housing markets to come back into equilibrium, which they may do soon as listings increase from here. 

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Natural gas prices are absolutely exploding, with UK gas prices up another 40 per cent in a single day.


Here's the stock price chart of one of our old Russian favourites, Gazprom:


Very healthy dividend returns for anyone buying stock over the past five years. 

The PE has increased to about 9, but comparatively speaking the stock is still pretty cheap, even now. 

The good oil

Oil price doubles

Oil prices are back to their highest level since 2014, more than doubling from their lows.


Accordingly the energy sector is comfortably the top performer year to date. 


And one of the most popular energy ETFs has also more than doubled from the lows. 


Far less convinced about the outlook for oil prices from here, but the dividends will be pretty tidy for those who bought low. 

Nice bit of mean reversion in action.

Highway to the danger zones!

Oversupply danger

With apologies to Kenny Loggins, a look at the Top 10 danger zone suburbs in Australia right now.

Perhaps unsurprisingly, in all 10 cases it is the supply of new units which has created the risk, especially for new landlord entrants to the market considering buying a unit. 

Check out the list here (or by clicking on the image below):


In Sydney and Melbourne too, the higher risks are related to the supply of units and apartments, not detached houses or family homes. 

The Top 10 danger zone suburbs in Sydney and Melbourne are also further discussed in the article below here (or click on the image):


We have a full Investor Special 2021/2 report out next week, so stay tuned for that!

Tuesday, 5 October 2021

Prepare for negative interest rates

Here we go again

The Reserve Bank of Australia kept the cash rate on hold today at 0.10 per cent. 

According to most of what I've been reading, almost everyone in the media and commentary game appears set on the idea of macroprudential policies being reintroduced to restrict credit growth.

The idea will mainly be to limit borrowing for housing - ostensibly to reduce systemic risk - but such restrictions have a tendency to impact small business owners and other borrowers too.  


At the end of the day it doesn't matter what the price of credit is if borrowers can't access it.

And, just like last time, the result will be a relative weakening of aggregate demand, quite likely requiring further monetary easing later. 

Curb your lending

The prevailing viewpoint seems to be that some borrowers need to be pre-emptively protected from taking on risk - nobody must be allowed to fail.

But the people that are to be protected (namely lower income earners, first homebuyers, single income applicants, the young, and essentially those without wealthy parents) will also be those who miss out. 

We saw the introduction of LTI caps in the United Kingdom some years ago, which reduced the number of first homebuyers in the market, but didn't seem to achieve much else worthwhile.

Lending instead switched up to higher income earners, joint income applicants, and equity-rich upgraders.

As I've argued here previously, unless there's clear evidence of pro-cyclical loosening macroprudential (MP) measures should be set-and-forget. 

Applying MP fine-tuning as an independent arm of stabilisation policy complicates both the role and accountability of the Reserve Bank (which has been having enough trouble meeting its targets as it is).

Since we're all marginal borrowers at some point, over-zealous MP chokes off the credit supply to the economy - small business owners also use equity from housing - and exacerbates wealth inequality by shutting out low income earning homebuyers at lower price points.

RBA statement 

The RBA statement today appeared to reiterate that credit growth may be restricted soon.

It’s not clear how this would help, and will only serve to choke off the economic recovery before it's even taken hold. 

The Australian economy contracted by up to 5 per cent in the third quarter of this year, and with housing construction also likely to become a headwind next year it may not be too long before negative interest rates are being contemplated. 

The RBA has previously stated that negative interest rates are extraordinarily unlikely - but they spent years saying the next move in interest rates would be up, and that didn't happen either. 

Here we go again…

Property listings decline in September

Listings tight

Not much chance of the property market cooling this year, with stock levels still 26 per cent lower than a year earlier, according to SQM Research, despite new listings now rebounding. 

There was a small increase in total listings in 5 of the 8 capital cities in the month, but over the year the market has tightened. 

There were big declines in Brisbane and Canberra, however, denoting boomtime conditions in those markets. 

Listings in those two cities were down 32 per cent and 41 per cent over the year, respectively. 


Around the cities, there is a decent number of listings in Melbourne (and possibly now Darwin) to choose from, but no so much everywhere else. 


Aged listings of over 180 days are clearing down, to the extent that older stock is down 54 per cent from a year earlier, according to SQM. 

SQM does expect listings to rise from here as lockdown restrictions are eased.