Pete Wargent blogspot


'Must-read, must-follow, one of the best analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Markets & Economics Editor, Sydney Morning Herald.

'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.

Thursday 30 June 2022

Job vacancies surge on

Job creation boom

Job vacancies increased again in the 3 months to May, to a record 480,000. 

That's an increase of 272 per cent from the nadir of two years earlier. 

New South Wales has over 145,000 vacancies, but actually every state and territory has rebounded viciously. 

The number of unemployed persons increased to 548,000 in May, but now there are just 1.1 unemployed persons per job vacancy, which represents an extremely tight dynamic (in Western Australia the skills shortages are chronic). 

If those jobs could be filled before immigration ramps up, the unemployment rate would fall to under 3 per cent. 

More likely there will be an acceleration of visa processing. 

The boom rolls on!

Wednesday 29 June 2022

John McCann: This is why land prices have soared

Property Pod

This week on the Pod I chatted to John McCann from PSP Property Group on trends in construction costs, and where there are bottlenecks in land supply.

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

You can tune in at SpotifyApple podcasts, and so on. 

You can also tune in at Youtube here:

House price 10-15pc off highs in Sydney

Housing downturn

House prices in Sydney are about 10 to 15 per cent off their absolute highs.

We discussed in a live webinar last night - watch below or here at Youtube:

Tuesday 28 June 2022

What a 3% cash rate could mean for property prices & households

Livewire piece

A few musings of mine at Livewire Markets here (or click on the image below):


I'm doing a live webinar tonight at 8pm - link here (or click on the image below):

Queensland dominates population growth

Moving to SEQ

Australia's population growth rate was picking up again by the end of 2021.

But still the population increased by only +128,000 in 2021, or +0.5 per cent.

I expect to see this reverting to +1.5 per cent or close to +400,000 next year. 

Victoria experienced a population decline in 2021, with an accelerating interstate migration to Queensland throughout the year. 

Queensland dominated population growth with +73,700 or +1.4 per cent.

Net interstate migration to Queensland was still accelerating in the December quarter, soaring off the charts to a record high of more than +50,000 in 2021. 

You can see this first hand in Queensland's rental market, which is becoming extremely tight.

Census figures also confirmed a decline in the average household size to 2.5 persons, which accounts for much of the rental crisis. 

The population count between the 2016 and 2021 Censuses recorded an increase of 2.02 million, which was surprisingly high given the two years of pandemic travel restrictions.

Saturday 25 June 2022

Will we get another 500k temporary visa holders?

Visas rebound

Every third person I speak to at the moment seems to be jet-setting off to Portugal, or Italy, or Turkey.

I'm just planning a European trip myself, in fact.

Domestically, flight activity has also returned very close to pre-COVID levels.

So in the short term, at least, we should probably expect labour force tightness and capacity constraints to continue.

And on the plus side, this might mean some temporary respite from rental market pressures. 

But there are signs that things are starting to revert.

Australia saw its number of temporary visa holders crash by more than ¾ million through the pandemic, from 2.41 million at the end of 2019 to just 1.64 million in Q3 2021.

Plotting the latest available statistics, and we can see that the rebound is now well and truly on.

By May 2022 there had been a rebound in temporary entrant visa holders of more than ¼ million.

International student visa numbers have rebounded strongly, but to date visitor and working holiday visa holder numbers have not (click to expand the image below for the details by category):

Source: Australian Government

It's not quite clear how many temporary visa holders will come back, and how quickly they might do so, but the trend on the chart and the record high number of job vacancies implies anywhere up to an increase of another 600,000 might be on the cards. 

The warmer summer months tend to be a strong drawcard for both permanent migrants and temporary visitors alike.

Students tend to disappear overseas over the Xmas break, but these figures suggest that the traditionally busy January to March period could see immense pressure on hotels and short-stay accommodation, as well as the wider residential rental markets. 

For context the latest rental vacancy rate was a 16-year low of just 1 per cent in May, which equates to around 36,500 rental vacancies, according to SQM Research.

New arrivals into Australia are overwhelmingly renters initially, previous research has found.

Do what you do best, outsource the rest

Property Pod: Outsourcing

Is being 'busy' actually a good thing?

Consider outsourcing - this week on the Pod I discuss how to outsource with Cheryl Leong from the GrowthHub.

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

You can also tune in at Apple Podcasts, Spotify, and the usual places. 

And, of course, at Youtube:

Friday 24 June 2022

Inflation expectations falling, falling...

Peak inflation

A huge subject which clearly deserves a far more detailed post and attention than it's going to get on a Friday arvo (especially when I'm heading to Brisvegas for the weekend). 

Supply disruptions tend to resolve themselves in time, and having previously soared, many commodity prices are now dropping (iron ore is down 20 per cent, wheat prices are well off the highs, crude oil is now almost in freefall, and so on), while shipping container and ocean freight rates are also now declining, albeit from sky-high levels. 

Meanwhile rising interest and mortgage rates are also dampening demand in the U.S. economy. 

Inflation hysteria is naturally running rampant in the media, but consumer price inflation is considered to be a lagging indicator, and markets are now looking ahead to the other side. 

Indeed, 5-year inflation expectations have declined to just 2.7 per cent in the U.S., which is already lower than where expectations were in the Autumnal months of last year. 

In Australia, a good deal of the consumer price inflation has yet to flow through to the official measures, particularly for household energy and power bills, and possibly for rents, which means that the headline rate of inflation won't peak until the last quarter of the year (and therefore won't be reported until early next year). 

Your guess is as good as mine, really, but this suggests to me that the cash rate will be heading higher for the remainder of this year, ostensibly to combat the rising official inflation figures, but then flattening out thereafter as consumer sentiment and demand plunges. 

In fact, it's implied that the US funds rate could be on its way back down next year, though a lot can change between now and then.

Have a great weekend!

Household wealth peaks at $15 trillion

As good as it gets

Household wealth rose by 1 per cent to a record $14.9 trillion in the March quarter.

Average net worth per capita in Australia has increased to $575,000, to be 31 per cent (or $136,000) higher than pre-COVID levels. 

Household wealth of $14.9 trillion divided by around 11 million households equates to an average household net worth of approximately $1.35 million.

Since the end of March, however, the ASX is well down, Sydney and Melbourne home values are down, super balances are down, and cryptocurrencies have crashed. 

So $15 trillion is about as good as it gets for now. 

Thursday 23 June 2022

Bedpan boom

Healthcare employment soars

Employment increased by +114,000 over the 3 months to May, driven by a surge in professional, trade, and services roles.

Over the past year healthcare employment has soared +179,000 higher to 2.02 million, accounting for almost 15 per cent of jobs. 

There has also been strong growth in professional, scientific, and tech roles over recent years, with total employment rising from 1 million to 1.3 million over the past five years. 

Mining employment also increased +24,000 to 303,000, and is now higher than the peak of the resources investment boom years. 

On the other hand, manufacturing employment slumped -80,000 lower over the year, to a fresh multi-decade low of only 831,000 (down from 1.2 million in the late 1980s). 

Construction employment remains some way below its 2018 peak, but overall has held up a lot better than I expected at that time (in part thanks to the successful HomeBuilder and renovation stimulus packages).

There will be all the usual carping about 'the wrong type of jobs' but on the volume measures of under-employment and under-utilisation the labour market is as tight as we've seen it.

After an alarming spike around May 2020, the economy has come storming back!

As a result of this, one third of businesses are reportedly struggling to find staff, and wages and hourly rates of pay are now finally on the rise, after a decade of underwhelming pay increases. 

Wednesday 22 June 2022

Land tax reform to drive tilt to medium-density living

Stamp duty phased out

The New South Wales budget announced the first stage of stamp duty reform. 

We discussed the key impacts here (or click on the image below):

Also see more thoughts on this gamechanger for first homebuyers from Chris Bates at LinkedIn

Job ads cresting

Job vacancies peaking

There's a job for everyone who wants one right now, with skilled job vacancies soaring to their highest level since records began in 2006 at 298,400 in May, according to the Australian's Government's National Skills Commission. 

All states and territories recorded a monthly increase, but the growth in advertisements was mainly driven by Western Australia (+1,300) and Tasmania (+430) this month.

Elsewhere it appears that the growth in job vacancies is finally running out of puff.

Particularly in New South Wales, Victoria, and Queensland, it seems likely that May could have been the peak for skilled vacancies. 

75 per cent of recruitment activity has remained focussed in the capital cities, despite a doubling of job vacancies in regional Australia since from their pre-COVID levels (capital city advertisements are also up by 67 per cent). 

The impacts of this are easy enough to see in regional Australia, sand there are still plenty of shortages in evidence, leading to shop closures, airline delays, and other capacity constraints in the economy. 

How do construction cost increases impact property?

Construction costs surge

I wrote a guest post on construction costs for Rich Harvey here (or click on the image below):

Thursday 16 June 2022

The Big Picture – economic and property trends

Big Picture podcast

I joined Michael Yardney to discuss all the latest news.

After recent news and data flows you can more likely pencil in 50 basis points for the next interest rake hike - otherwise, as you were!

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

Unemployment bottoms out at 3.9pc

Strong payrolls

Very good numbers for May, with full-time employment rising by around 70,000, and employment at a record high.

I previously wrote in a report somewhere that employment could hit a record high of 13½ million this year - I didn't consider that it might happen by May, though!

Queensland has added a thunderous +124,000 employed over the past year, and the state's unemployment rate is now just 4 per cent. 

The participation rate also surged to a new high of 66.7 per cent, and the unemployment rate sneaked higher from 3.86 per cent to 3.90 per cent. 

More than 780,000 Aussies worked fewer hours than normal due to illness, and there was plenty of disruption from flooding over the past couple of months.

Under-utilisation fell to a 4-decade low.

Overall, a strong set of numbers that sees the economy still powering on in May.

Consumer confidence has crashed to 1991 levels, so although there is clearly still some momentum, things may start to fall apart a bit henceforth. 

Simon Pressley: These are the housing markets with the brightest outlook

Property Pod

This week on the Pod, we take a look around the ground with Simon Pressley.

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

You can also tune in at Apple podcasts, Spotify, and all the rest.

Or you can dial in at Youtube here:

Wednesday 15 June 2022

Vacancies fall to a new 16-year low

Vacancies drop again

SQM Research reported rental vacancies falling to just 36,478 in May, down from 39,616 in April.

A year earlier there were more than 62,100 vacancies, so this has been a large decline as average household sizes have declined. 

Thus the national rental vacancy rate fell to a fresh 16-year low of 1 per cent, down from 1.8 per cent a year ago.

Melbourne seems to be filling up again, with the rental vacancy rate down from 4.7 per cent at the peak to just 1.7 per cent now, and reports of apartment rents rebounding fast.

Sydney and Brisbane continue to tighten, while increasingly popular Adelaide is becoming extremely tight with only 710 vacancies for a vacancy rate of just 0.3 per cent.

Part of the inflation story this year is going to be rising rents.

From Louis Christopher at SQM:

Tighter rental markets to come as arrivals figures tend to ramp up from September onwards, and apartment projects are being aborted all over the place. 

SQM Research's full media release can be found here.

Consumer confidence back to 1991 levels

Confidence crunch

Horrendous consumer confidence numbers, and this was before the RBA speech:

Household views on financial conditions are in freefall, dropping by more than 10 per cent.

A hiking cycle has never previously started with consumer confidence already at such low levels, which suggests to me that it will be short-lived. .

Doesn't look like we'll have too much of a demand problem going forward... 

RBA interview on ABC

RBA interview

A clear and interesting interview from the RBA Governor, given to the ABC last night.

As the Governor points out, although there's been plenty of criticism of policy there is also a lot of hindsight bias at play.

In 2020, Australia was facing an Armageddon scenario with the prospects of tens of thousands of virus deaths, 15 per cent unemployment, and inflation expectations were in the gutter.

Now we have record high employment, the unemployment rate is now at 50-year lows, and it seems from the NAB Survey that labour costs are also on the rise. 

Some key points from the interview:

-headline inflation is now expected to reach 7 per cent

-for a range of reasons inflation isn't expected to peak until the fourth quarter of the calendar year (higher energy and power prices won't feed through to households until then, being one reason)

-the annual rate of inflation will then start to decline - for example, petrol prices are up 30 per cent over the past year, but even if high prices do stick around, the rate of change will go back down to zero 

-a supply response is clearly now underway globally

-interest rates will rise over the coming months...but how far is as yet unclear

Tuesday 14 June 2022

NSW set to axe stamp duty

Stamp duty slash

The NSW Premier Perrotet has suggested that next week's state budget will involve a switch away from stamp duty towards an opt-in land tax for prospective buyers.

Economists have almost unanimously supported such a move for years.

Removing the frictional costs of moving home should make the optimal use of the dwelling stock and make the labour force more mobile, delivering a jobs and growth dividend (there are currently around 400,000 jobs vacancies - a record high - so some mobility clearly wouldn't go amiss!). 

The challenge has been getting the electorate used to the idea of a forever tax on a forever home, which could increase over time with land value inflation. 

The NSW State government aims to get around this by phasing in the proposal over time, and by allowing buyers to 'opt in' for the land tax option.

Lenders may need to make reverse mortgages more readily available in time for asset rich but cashflow poor retirees. 

The NSW proposal is for the top 20 per cent of properties to continue paying stamp duty to prop up revenues (the State Government is likely to rake in almost $15 billion in FY22 from stamp and transfer duties, which is a spectacular windfall, and miles above the $9 billion in FY21).

One of the appealing aspects of the land tax transition is that there will ultimately be a smoother and more predictable tax revenue stream for the government. 

Federal support

The proposal may need Federal support to get it across the line, but if New South Wales is successful then other states may follow suit in time.

The ACT is the only other jurisdiction to tackle property tax reform, but went too hard on the property rates, and the rental market has been a nightmare ever since.

With a vacancy rate of 0.6 per cent renting a unit in Canberra costs $560/week, which is higher than anywhere in the country...even Sydney. 

Houses cost almost $800/week to rent in Canberra now, which seems wild given how much land there is out there.

Juicing the market

Sydney's median house price hit $1.6 million in the first quarter of this year, meaning a purchase attracting stamp duty of more than $72,500, so the change is potentially a big deal for the market.

Of course the property lobby loves the idea of the proposed transition, since it will mean less friction, more property transactions, and therefore more agency fees. 

As first homebuyers won't have to save the stamp duty, such a shift will immediately juice prices from the lower end of the housing market up, the savings being quickly capitalised into property prices. 

We may also see far more 'flipping' of property, especially once renovation costs come back down to earth. 

As for whether the slated economic benefits ever come to fruition, that's another question entirely, and we'll have to wait and see. 

I discussed the proposed switch with Brooke Corte on Nine Money last night here (or click on the image below): 

Monday 13 June 2022

Crypto winter

75bps on the table

Thanks for all the emails and DMs about crypto. I recently spoke at at an event in Queensland (mainly real estate) where I was asked dozens of questions about various coins and NFTs, but it's not my thing, so I don't blog anything about it here.

All I could venture at the event was that if I was 25 I'd probably be balls deep in the space, but since I'm 45 with kids and doing OK without it, it's basically not for me.

A significant part of the pitch was crypto was a hedge against irresponsible central banking and money printing, and you can't really argue with that.

However, the US Federal Funds rate going from 0 to 1 per cent has taken the global market cap in the space down from US$3 trillion to US$1 trillion this year. 

Fair warning, there's a decent chance of a 75 basis points hike this month, and the Funds rate may reach 3 per cent next year (which is important because risk-free returns are much easier to come by). 

Be careful out there.