Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory, 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.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

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

Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email pete@allenwargent.com

Wednesday, 22 February 2017

Wages growth still stuck in a rut

Wages growth in a rut

Private sector wages grew by just 0.4 per cent in the December quarter, while public sector wages grew by 0.6 per cent, according to the Australian Bureau of Statistics (ABS). 

Over the year private sector wages growth of 1.8 per cent was well behind the 2.3 per cent growth seen in the public sector.


Nationally across all sectors annual wages growth remained stuck at 1.8 per cent, equalling the record nominal low seen in the preceding quarter. 


Mining struggles

Perhaps not surprisingly the weakest wages growth was seen in the mining sector at just 1 per cent in 2016.

The strongest wages growth was seen in services sectors such as healthcare and social assistance (2.4 per cent wages growth in a strongly expanding workforce), and education and training (2.4 per cent). 

Manufacturing wages grew by 1.8 per cent, as did wages in the construction sector. 



Reflecting the weakness in the mining sector, Western Australia had the weakest growth in wages in 2016 at 1.4 per cent. 

Improving Tasmania moved to the top of the pile with wages growth of 2.4 per cent, while conditions have also improved a little of late in New South Wales (2.1 per cent) and Queensland (2 per cent).



It's interesting to note that over the history of the data series - and particularly through the resources boom - Western Australia has posted by far the strongest increases in wages, and thus some mean reversion may be in play. 


Despite annual wages growth of only 1.8 per cent, wages growth continues to outpace inflation, and as such real wages have continued to grow. 


Overall, a weak result as widely expected, but the huge rebound in commodity prices together with some other brighter data suggest that the nadir of the quarterly wages growth cycle may soon have passed.

Picture by Ryan McGuire

Tuesday, 21 February 2017

Iron ore turns parabolic

Bazinga

Did I say I'd cut down on the rapid fire iron ore price posts?

Oops, sorry about that!

The spot price blazed $2.52/tonne higher today to yet another new multi-year high of $94.86/tonne.

The latest move is turning borderline parabolic.


The iron ore price is now up by an astonishing 148 per cent since its nadir, which should help to get Australia's persistent budget deficit back into some kind of better shape.

It's almost as if the Aussie dollar doesn't believe in the rally, and as a result the spot price in Aussie dollar terms is now ~A$124/tonne.

Leveraged iron ore producer Fortescue Metals Group (FMG) salso aw its share price nudging multi-year highs today before closing at $7.15, for an almost unfathomable turnaround story.

Meanwhile BHP Billiton Limited (BHP) is enjoying the now enormous rebound in commodity prices, reporting a return to profit today in its half year results to 31 December 2016.

Picture by Ryan McGuire

NSW stamp duty boom continues in 2017 where it left off

Stamp duty gift keeps giving

New South Wales stamp duty and land transfer receipts were back up to $9.4 billon over the year to January 2017.

The rolling annual number of transactions is down from previous heights, though remains high with so many apartments being constructed. 


With a record construction boom and rising Sydney dwelling prices, it shouldn't be a surprise that stamp duty and transfers paid rose to record highs in FY2016.

In fact, the NSW state budget surged into a massive $4.7 billion surplus in 2015-16.

This result was miles ahead of forecasts and left the state government with net debt of less than zero.

Yes, the state government moved into a cash positive position for the first time ever.  

To complete the virtuous circle, billions of these funds need to be rolled into urgently required infrastructure projects, not least to plug the hole in the economy that will be left by declining housing construction from 2018 forth. 

Party continues

Plenty more where this came from in 2017 as apartment completions hit the market (recall too that the 2016 NSW Budget introduced a 4 per cent surcharge purchaser duty on the acquisition of residential real estate by foreign persons from June 21, 2016.).

It's important to recognise that the record windfall represents a surge in pre-sold apartments as much as any recent increase in market liquidity, as stock on market levels to date remain relatively low.

The number of transactions jumped to above 25,000 in November 2016, and total receipts seared to an unprecedented $1.78 billion in the month.

Just to put that number in context, the prior year equivalent figure had been only $729 million, and the previous record for any individual month was just $1.2 billion.

The November number was so much higher than the prior year that it seemingly defies logic, although there had been a change in purchase duties for non-residents, and then there was the $16 billion Ausgrid sale.

In January 2017 there were 17,473 transactions, a slightly lower figure than in the prior year.

---

UK asking price growth slows

Asking prices slow

The rate of UK house price growth has slowed to +2.3 per cent according to Rightmove and its asking price index, which is some way below the rate of growth recently recorded by the Halifax and the Office for National Statistics.

A slowdown in asking prices may be no bad thing, if it means that more properties actually transact.

The early part of 2016 was punctuated by a flurry of buy-to-let activity to avoid the April 2016 stamp duty deadline, which naturally we aren't seeing this year. 

Solid growth was still recorded in the East of England (+4.8 per cent) and the South East (+3.1 per cent), while we're also starting to see some price growth in the North West in markets such as Manchester.


London saw its asking prices jump by +2.3 per cent in the month of February back up £641,116.

Asking prices in the capital over the past year are now flat however, with the inner London market unusually accounting for the weakness.

It's not hard to imagine what's happened to the premium sector of the market where in some cases liquidity has all but evaporated. 

There have been significant falls in asking prices in the most expensive boroughs, with prices down sharply in Kensington & Chelsea (-14.6 per cent, including -14.4 per cent or £360,000 in just one month), and Hammersmith & Fulham (-10.8 per cent year-on-year).

Granted, the enormous monthly fall in asking prices in part likely represents premium properties not being listed as much as actual price falls, but even so the weakness in the premium sector of the market is apparent. 

Don't shed too many tears, though, for the average asking price in Kensington & Chelsea is still well over £2.1 million even after the February decline. 

The absurd stamp duty brackets will fail to raise any worthwhile extra revenue, since transaction levels  in some premium markets have simply dried up. 

Nationally average days on market have increased a bit from 68 to 79 days since this time last year, while stock levels are down, albeit marginally. 

What is to the detriment of the expensive boroughs can be a gain for the cheaper end of town.

There has been some sprightly growth in some of the boroughs we like, including Greenwich (+7.4 per cent), and Croydon (+6.4 per cent), while Camden was top of the tree for asking price growth over the year to February 2017.

Decline, Road Sign, Warning, 14

Monday, 20 February 2017

RBA remarks on housing

Luci Ellis on housing

It's fascinating to get a glimpse inside of the mind of Luci Ellis, once head of Financial Stability and possibly a Reserve Bank of Australia (RBA) Governor of the future.

There's surely no need for me to rehash her speech in full here. 

A couple of interesting points to look at briefly here, though.

Firstly, although there is a lot of mortgage debt around in Australia: "...we say that most of the mortgage debt in Australia has been borrowed by those most able to service it".


A valid point, though I also believe that household debt levels are stretched for many lower income earners, a factor also acknowledged by the Reserve Bank rhetoric in the speech.  

And secondly, the RBA noted that the big decline in home ownership for 25 to 34 year old age group happened years ago, and therefore is not related to recent price gains. 

In fact, home ownership rates in this cohort even appear to be gradually rising in the RBA's chart.


This second piece of analysis is arguably bonus, since it relies upon figures from as long ago as the 2011 Census.

I believe the most recent Census - assuming everyone filled out their surveys given the website challenges! - will show home ownership rates dropping in Sydney, if perhaps not so much elsewhere. 

I discussed both of these points in more detail during the recent Devils & Details podcast with Business Insider here

Still, an enlightening speech!

House Insurance, Protect, Home, Care

Sunday, 19 February 2017

Sydney completions rise; so does population

Supply ramps up...

One of the questions I get asked more than any other relates to Sydney's property market and the looming supply of new apartments. 

I recently looked at which LGAs are set to become flooded with apartments and which aren't in a bit more detail here

It's certainly been an interesting construction cycle in Sydney.

In 2009 annual dwelling completions had fallen as low as 13,041, which incredibly was the lowest level of completions since 1953. 

Extraordinary.

Lately there has been a mighty surge in Sydney dwelling approvals which peaked at 56,415 in October 2016, driven by record high rise apartment approvals, while completions are now hitting their straps too, rising to 33,310 over the year to November 2016.

The Sydney region here includes the Central Coast and the Illawarra.



Source: NSW Government

In Melbourne developers have reportedly slowed the rate of completions due to fears of oversupply, but to date there is little sign of developers in Sydney playing a similar hand. 

...& so does population growth

It doesn't always make me popular, but I generally don't do those binary blog posts that tend to pepper the internet - not least in the real estate space - but in the real world nothing is all good, just as nothing is all bad. 

While the ramp up in dwelling completions has been a worthy supply response, it's only when you map the results against population growth that you begin to see why to date the impact on the market has been muted. 

The interim 2016 figures for population change in the Sydney region have surged as high as 94,099 according to the NSW Government (the interim figures are sourced from the Australian Bureau of Statistics, Sydney Water Connections, and research by the Department of Planning & Environment). 

The population of the Sydney region also increased by about 80,000 persons in financial years 2014 and 2015 respectively, thereby increasing by more than 322,000 in only four years, comfortably outpacing demand from the 100,328 dwelling completions over the corresponding four-year period. 


Source: NSW Government

Note that these 2016 population projections are interim figures and may be revised.

But if they are close to being accurate they suggest that the ratio of Sydney population growth to completions in Sydney is still quite high at around 2.8. 

Given that most completions these days are for smaller dwelling types - and that many are seemingly kept empty anyway - perhaps the supply response to date has yet to bridge much of the inherent shortfall from the nadir of the cycle, which lasted broadly from 2007 to 2012. 

I took a look at approvals and net completions by dwelling type at the LGA level in a little more detail here

Remember that there during 2016 there was a record number of apartments under construction, so those completions figures are going to run some way higher yet. 

City, Cityscape, High Rise, Metropolis

Sydney Saturday

East is east

Television crews out in force. 

Coffee vans with their stalls set out as the buzzing crowds line the streets. 

What, pray, is being auctioned off here?

A fine Picasso, perhaps?

A rare and select manuscript of the Dead Sea Scrolls?

Er, well, no it's just a Sydney terrace, and not even a particularly good one. 

In fact, it was a deceased estate with no parking on title, a veritable "renovator's delight" in euphemistic real estate parlance. 

I lost track of the bidding after 15 minutes or so (my double-shot long black had gone cold by then), but I gathered enough to know it was well beyond the executors' reserve price and well into the $2m range. 


My long held thesis for the Sydney market is that the traffic in the city will over time become so gridlocked that eventually sought after properties close to the CBD in the eastern suburbs and lower north shore will become treated much like rare Picassos.

I didn't see much to change that opinion on Saturday. 

Thoroughfares such as Oxford Street and Bondi Road are more like car parks than through-routes these days as the Sydney population passes 5 million. 

To be fair, the construction of the Sydney CBD & SE light rail is causing some of the traffic disruption right now. 

Last weekend the final auction clearance rate for the eastern suburbs was 96.7 per cent, while the lower north shore wasn't all that far behind. 

The preliminary auction clearance rate for Sydney this weekend as reported by Domain was a punchy 83 per cent.

The median auction price was similar to the corresponding weekend last year at $1,227,500. 


Bigger listing numbers and auction volumes are expected next weekend. 

Hammer, Court, Judge, Justice, Law

Saturday, 18 February 2017

Foreign nationals drive UK employment higher (what next?)

UK employment hits record high

I don't have that all that many British blog readers, truth be known, but this release is well worth a look, not least for what it represents in a global context. 

UK employment has kept on keeping on in the face of all manner of referendum-related uncertainties, to hit a record high of 31.84 million. 

Employment was up +302,000 from the corresponding period a year earlier.

The stimulus has worked, at least for the jobs market. 


The employment rate, meanwhile, hit a new highest level since comparable records began in 1971, at some 74.6 per cent. 


Unconventional monetary policy may have blown share market indices such as the FTSE 100 and FTSE 250 up to unprecedented heights, but there can be no argument that the impact on getting the unemployment rate down has been positive.


Probably the weakest part of the release was the unexpected monthly slowdown in earnings growth.


Nevertheless, it's another good set of numbers for the UK economy.

Interestingly, the growth in employment over the past year was largely driven by foreign nationals.

The wrap

With the pound having fallen post-Brexit referendum, it seems likely that there is some inflation in the post for Britain. 

In fact, globally economies appear to be on the mend, and in many cases inflation is returning, with interest rates seeming likely to move tentatively higher over time.  

Even in the beleaguered Eurozone there have been some better numbers of late than we have become all too accustomed to. 


There will still be challenges ahead, of course, but the 'end of alchemy' could soon be upon us.

World, Europe, Map, Connections, Network

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Friday, 17 February 2017

Fitch: House price growth to slow, just generally...

So, I tweeted a few articles today, just for fun...


Underutilisation

More hours wanted

The Australian Bureau of Statistics (ABS) now provides monthly figures on underemployment and underutilisation, which is a useful addition to its Labour Force survey.

Historically these figures have only been reported quarterly.

Being a new data series, there are no seasonally adjusted or trend figures yet available. 

However, one thing that has become clear since the end of the resources construction boom is that in terms of underutilisation Western Australia has gone from star pupil at an underutilisation rate of 11.8 per cent straight to detention at 17.1 per cent. 


The labour market in Tasmania, on the other hand, generally seems to have improved a bit.

Book, Bored, College, Education, Female