Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyers agents, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"Blog is great - loads of good data and charts. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

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Sunday, 4 December 2016



I've noted on this blog before that when I first came to Sydney before the Olympics, I worked as a courier and delivery driver near the airport in Mascot.

It was a great job for me at the time, not least because it partly involved the delivery of wine, with many of the premium vino subscribers being European itinerants on 12-month holiday visas (alas, they often had to fly home leaving no time to consume their final case). I'd never have classified myself as a wine connoisseur...and yet! 

Back then, Sydney felt much smaller and quieter - contrasting with today, the centre of the city itself was practically dead at weekends - and suburban Mascot was mostly just a commercial area with relatively little traffic during the working week, comprising warehouses for cargo and storage, a few pie/chook/cake shops and carwash cafes, Clancy's (now an IGA), a few pubs and hotels. 

In short, quite a relaxed and cruisy place to be a delivery driver, and a huge disparity with the areas surrounding London's hectic airports. 

There was some residential living in the suburb. In fact, a few of the other warehouse casuals were packed into the more dated homes with front verandas in Mascot, Kiwis and Irish mainly. 

Some of the older housing has been replaced by apartments (it wouldn't be a surprise if a few of those dated houses had burned down, a number of them were practically being used as 'hotboxes'), and swathes of the old industrial space has also been rezoned for apartment blocks.

The drive from the airport at O'Riordan Street/Botany Road towards the City is virtually unrecognisable today, such has been the extent of the redevelopment. Entire new suburbs with train stations have sprung up out of the industrial wastelands.

Inner suburbs outperform

If you're a long term investor in property over a horizon of, say, 20 years plus - and the high transaction costs often determine that you should be - then you can only have very limited control over the vagaries of the construction cycle through investing in landlocked and supply-constrained suburbs.

The preceding residential construction boom in Sydney finally peaked in 2004. This construction cycle gradually began to ramp up from a nadir for dwelling starts in Q1 2012, with apartment commencements rising virtually ever since.

At this stage in the cycle people love to talk about greedy investors pushing up prices, yet if you buy counter-cyclically vendors are practically trying to ram sales down your throat, so keen are they to get out of the market. Ups and downs, peaks and troughs. 

My basic thesis when it comes to Australian property has always been that there are certain desirable inner capital city areas, close to the beaches, employment, the city, and transport nodes, that will outperform the averages through the inevitable ups and downs of the cycles.

The specifics of those locations and property types do change a bit over time, but the principle of where pressures on land values are greatest are fairly constant. While affordability will always be a constraint to some extent, as the population grows there will be a greater demand for the geographically limited supply of desirable land close to the city. 

That's not to say outer suburbs can't do well at various points in the cycle - outer Western Sydney has seen some outlandish price gains over the past 4.5 years, for example - but the growth won't be sustainable.

Population density

The population growth in Australia has been heavily focused on four capital cities plus parts of coastal south-east Queensland, and is projected to become even more so over the coming decades.

There have always been some congested roads in Sydney (the Grand Parade has long been a shocker, for example) but only really in the last year or two that the traffic has become so much noticeably worse, with the population of the harbour city now moving beyond 5 million. 

Because I spend so much more time interstate these days, my initial experience of Sydney is often the airport and suburban Mascot - on one trip this year the taxi took more than half an hour to even escape the airport!

Experiences globally have shown that once a city reaches a population of around 5 million, logistical and liveability challenges become just that much greater. 

None of us likes sitting in traffic, of course. But the reality is with a global population of 7.5 billion rising towards an estimated 10 billion before over the next four decades, the aim in our cities should be fewer automobiles on the road, not more. China alone is now poised to surpass 300 million motorists as its urban population expands relentlessly towards 1 billion

Public transport use soars in 2015-16

The use of public transport in New South Wales as measured by passenger trips soared by a thunderous 72 million or 12 per cent over the last year to 678 million trips.

Trips by rail transport increased by 10.7 per cent to an unprecedented 363 million. Bus trips increased by 12.8 per cent to 290 million. Light rail is still in its relative infancy, but the number of trips increased by 66.7 per cent year-on-year.

Ferry trips, unsurprisingly, were unchanged, and I wouldn't expect them to increase much in future either, unless capacity is increased. 

The increased popularity of Opal Cards - which now appear to be actually working properly according to the data! - was cited by the audit office as one of the drivers of the surge of activity on public transport. 

While the incentive of more free trips is no doubt a factor, alone it clearly can't explain an extra 72 million trips on public transport! 

Obviously the real reason is that driving in Sydney is becoming less attractive over time as the city matures and becomes more densely populated, in line with other world cities.

The wrap

Studies by Grattan and others have shown that outer suburban areas struggle with access to employment within a 45 minute drive, and as such public transport hubs are growing in importance, especially rail links.

Domain recently reported that home values had doubled or almost doubled over the past decade in a number of Brisbane suburbs, most of which were within a few kilometres of the CBD, such as South Brisbane, Newmarket, Cannon Hill, Camp Hill, Balmoral, and Wilston (while large price gains in Sunnybank were obviously driven by the vast influx of Chinese capital and immigrants).

That's no surprise, as it's where desirable land is at its most scarce, and demand is highest.

Over the past year Pyrmont in Sydney has delivered another ripping 22 per cent capital growth. Surry Hills is another suburb I expect to see continuing to benefit from a combination of Chinese investment and the CBD & SE light rail project.

Prices in the eastern suburbs such as Bondi have delivered stunning returns, although Bondi Road has morphed into something akin to a car park over the last year or three, so I expect strong price pressures will steadily shift shift closer to the Junction at BJ, and later towards towards Randwick, Coogee and Maroubra as the light rail comes online.

Public transport links, particularly train and light rail links, are gradually morphing from a 'nice to have' to becoming an essential. 

Summer starts in Sydney

Softer start

A huge week of auctions to kick off summer in Sydney with some 1111 homes going under the hammer as the long summer break approaches. 

Although this was a large number of auctions, activity levels are still some way down on a year ago. 

The preliminary auction clearance rate according to Domain was down a bit to a still-strong 75.8 per cent.

Patchier in parts

While the inner suburbs are still firing, there were plenty of examples of auctions passing in out west, while auction after auction in both Bankstown and Blacktown failed to deliver a positive result, and likewise Cabramatta.

While on the 'B' theme, in the east almost everything in the four suburbs of Bondi that is touched is turning to sold, and the same is true of Randwick and Surry Hills.

Meanwhile the north shore suburbs such as Lane Cove and the northern beaches (Dee Why, Manly, etc.) continued to power on relentlessly.

The sheer strength of results in suburbs to the north of the coathanger through this cycle has been something to behold.

In Marrickville in the inner west, everything sold under the hammer. 

There are some signs that affordability is biting, with attention shifting to properties in the lower percentiles in the popular suburbs.

Indeed, the median auction price for units increased to $892,500 from $850,000 last week. 

On the other hand, the median auction price for detached houses slipped a little from $1,410,000 top $1,380,000.

This dynamic took the reported auction median overall down a notch to $1,200,000 on the day.  

On a 4pMA basis, the median reported auction price was down a little from the record high of $1.27 million a fortnight ago to $1.23 million.

Not lot to go now until Christmas when everyone can take a well-earned breather.

Saturday, 3 December 2016

US unemployment lowest since in nine years (4.6pc)

Pushing on a string 

It's become popular to argue that in Australia interest rates aren't heading lower in this cycle because low rates don't work (just 'cos...).

Yet the evidence from overseas, to me at least, seems to suggest that low rates have been working, albeit gradually. 

In the UK, for example, we've seen the unemployment rate fall from 8.5 per cent to 4.8 per cent.

That said, while I'm no expert in inequality, it's been clear to see that investment, jobs growth, house price growth - in fact growth in almost everything - has been skewed towards London and the south east at the expense of the regions. 

In turn, this is leading to swathes of disaffected voters, and all the political implications thereof. 

I'm not very familiar with the US, but I imagine a similar story could be told, with stock markets soaring to record highs and the gains in wealth being share iniquitously. 

Anyway, a 60-second look at the latest US jobs report from the Bureau of Labor Statistics...


Employment increased for a record 75th consecutive month, with nonfarm payroll employment up by +175,000, broadly in line with expectations. 

The results for September (+208,000) and October (+142,000) were revised up and down respectively, the twin revisions netting out to 'not a lot'. 

Over the past three months employment has increased by +176,000 per month on average. 

The recovery may not have been spectacular, but it sure has been consistent: over the past 81 months since early 2010, total employment has increased by +15.6 million. 

As you can see in the chart below the pace of employment growth has eased back this year, from the rollicking pace of 2014, but the average gains per month have been strong enough to keep downward pressure on the unemployment rate. 

Over the first 11 months of 2016 employment growth has averaged ~180,000 per month, which remains well ahead of the estimated rate required to keep unemployment low and stable.

Unemployment rate lowest since 2007

The unemployment rate dropped from 4.9 per cent to just 4.6 per cent, the lowest level in the nine long years since August 2007. 

The number of unemployed persons per job opening is also now close to its lowest level since the recession, suggesting that slack in the labour force is declining.

Interesting to consider that with the unemployment rate this low, it's being debated whether the appropriate policy response is a splurge of spending on infrastructure (investment in infrastructure, of course, is a sound idea, but a debt-fuelled splurge may not be the way to go). 

Earnings blip

All payroll reports have their weak aspects and this one was no exception.

The composition of employment growth hasn't been great lately (part time employment), while average hourly earnings declined by 3 cents in November to $25.89. 

This takes the annual growth in average hourly earnings back down to under 2.5 per cent from 2.8 per cent in October.

The wrap

Broadly in line with expectations, and so it's expected that rates will be hiked in December.

The Aussie dollar is now being 74.5 US cents.

Weekend reads: Must see articles of the week

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Friday, 2 December 2016

Retail delivers again

Retail improves

The third quarter of 2016 was pretty much a write-off for economic growth in Australia.

The fourth quarter seems to have gotten off to a brighter start, with retail turnover increasing by +0.5 per cent to a record $25.6 billion. 

This follows on from a +0.6 per cent increase in September, so things appear to be looking up. 

Total industry retail turnover was up by +3.5 per cent over the year to October.

Queensland upgrade

Queensland had seen some unusual looking results in recent months, but retail turnover bounced back to increase by +0.8 per cent in October. 

With the exception of South Australia, all states saw an increase in turnover in the month. 

Year-on-year retail turnover growth in Queensland is now the second strongest in the nation, with all states and territories now in the black. 

Nowhere can touch the Australian Capital Territory, though, where annual growth has surged to +8.3 per cent (see here for why)


While department stores are hurting, cafes, restaurants and takeaways have seen turnover rise inexorably, up by another +7.3 per cent over the year to October. 

The sector now accounts for a seventh of total retail turnover on the ABS series, an unprecedented high. 

The wrap

Back-to-back strong reports for retail trade, suggesting that consumption in the economy could experience a reasonably good run-in to Christmas.