Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 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 finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete 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'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go Hmmm...one of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Thursday, 19 October 2017

How'd you like them apples?

12 on the bounce

Goodness me, a thunderous +371,500 increase in Australian employment over the year to September 2017, for a massive increase of +3.1 per cent in the total number of employed to nearly 12.3 million. 

That makes it 12 months in a row for employment growth.

Meanwhile jobs vacancies have also increased to the highest level on record, meaning that there's likely to be at least some more good news in the post. 

Better still, the jobs boom has been driven by full-time jobs, with a cracking uplift of +316,000 over the year to September. 


The unemployment rate fell to 5.5 per cent, to sit at the lowest level in 4.5 years.


Female participation hit the highest level on record, while the total monthly number of hours worked was up by +3.4 per cent from a year earlier, the best annual result since those morose financial crisis days.

In trend terms, hours worked were a slightly more moderate +2.9 per cent higher. 


She'll be apples

Although things are looking a bit bleak in the Northern Territory, there has been positive news across most states. 

Although Victoria (+113,600) added the most jobs in absolute terms over the year, by far the fastest rate of annual employment growth is now held by Queensland at a thumping +4.1 per cent, following a prolonged dry spell. 

If this persists, it will likely result in a further rise in interstate migration to Queensland. 

New South Wales added another +21,100 jobs in September, and the seasonally adjusted unemployment rate in the state fell to a post-crisis low of just 4.6 per cent (and it's lower still in Sydney).

Plotting the figures in trend terms reveals a marked improvement for South Australia too. 


The wrap

Overall, there has been an massive increase in employment over the past year, especially full time employment. 

The good news is that it seems to have spread across the states. 

Household formation to surge

Formation

A valid point is raised here by fund manager roger: there's an awful lot of focus on population growth in Australian property market analysis, and not nearly enough on trends in household formation. 


The comment was posted in relation to another finely balanced article on roger's blog, entitled "PREPARE TO LOSE ENORMOUS [PROPERTY] WEALTH".

roger was prompted by one of the blog readers that had linked to a thing I wrote about accelerating population growth hoovering up the excess apartment supply in Melbourne. 


What can I say? Melbourne's riotous population growth has hoovered up the excess supply, and Victoria's population is now growing by ~150,000 per annum. 

In fact Melbourne is now diving headlong towards a rental crisis and increases in rents as the supply rolls over.

Formation rising

roger is quite right to note that household formation rather than population growth drives housing market demand.

The rate of household formation had been outpacing the rate of population growth in Australia for years, but echoing global post-financial trends this dynamic reversed during the last intercensal period from 2011 to 2016, partly due to under-building (at least initially), and partly driven by affordability challenges.

However, household formation is now expected to outpace population growth over the next two decades, according to research by BIS Oxford Economics, with the average household size resuming its downward trend. I'll take a look at the reasons why below. 

Let's not go over old ground, except to note in passing that roger's analysis of 18 months ago in May 2016 - partly derived from building approvals figures - concluded that Australia had an oversupply totalling in the hundreds of thousands of dwellings. 

The thing is, Australia will never have a massive oversupply of unsold new dwellings - projects simply don't get financed and built unless enough units are pre-sold.

It's true that the market anticipates demand incorrectly we can end up with an oversupply or mismatch of rentals temporarily, and sometimes in a downturn listings can rise sharply if owners dash for the exits.

But we haven't got hundreds of thousands of dwellings too many; not with the ramp up in headcount.

First homebuyer return

Since the introduction of new incentives, the number of dwellings financed by first homebuyers bolted to the highest level in 92 months in August 2017, so households are now being formed apace, especially in the two most populous states. 


There's much, much more to household formation than just this, though.

Recall I showed from the 2016 Census figures that Australia's migration programme has led to a demographic tsunami, being millions of 25 to 32 year-olds in Australia, about to swamp the housing markets, heavily focused on Sydney and Melbourne. 

Separate figures reporting the characteristics of recent migrants showed that it's overwhelmingly now the capital cities that are about to be swamped, because new migrants flock to the capital cities, and end up staying there. 

Many first-timers are electing to rent where they live, and are instead buying investment properties as their first step onto the ladder, so the real number of first-time buyers is tracking at close to the long run average. Plus there's the trend towards co-ownership, as recently reported

The 'bank of Mum & Dad'

Perhaps as significantly, there are the parents buying homes for their kids, which is new household formation not reported in the first homebuyer finance numbers. 

We are now seeing this going on practically all the time at auctions in Sydney and Brisbane - to be blunt, it pushes up prices - and evidently it's a big thing down in Melbourne and Geelong too. 



Cate Bakos of Cate Bakos Property in Melbourne notes that it's not only the first homebuyer sector that's being impacted by inherited money:

"Parents are impacting competition levels significantly. Firstly in the first homebuyer concession range - which is already screaming along with heightened borrowing capacity - and secondly the upgrader stakes. We are seeing and hearing of parents paying it forward with inheritance money."

Affordability has been a drag on household formation to some extent since the financial crisis.

However, this is projected to be more than offset by an ageing population - empty-nesters and downsizers - more divorces, more separations, widowhood, and a nascent yet growing trend towards lone-person households living in apartments. And that's before we mention all the empty dwellings.

Over the longer term, the ABS forecasts that the number of households will increase by well over 50 per cent to 12.7 million over the 25 years to 2036.

Boom & bust time

SQM Research's Louis Christopher has had a few minor skirmishes with fund manager roger in recent times, so it's intriguing - to me anyway - that SQM forecasts in its base case scenarios home prices rising in 2018 in all eight of the capital cities.

SQM has been Australia's most accurate forecasting house over recent years. 

SQM's base case scenario is upbeat about the prospects next year for Hobart (+8 to +13 per cent), Melbourne (+7 to +12 per cent), Sydney (+4 to +8 per cent), Adelaide (+0 to +4 per cent), Canberra (+5 to +9 per cent), and Brisbane (+3 to +7 per cent). 

And SQM also sees a positive turnaround for the resources capital city housing markets of Perth (+1 to +4 per cent) and Darwin (+1 to +4 per cent) in its base case. 

See here for more details of this year's Boom & Bust report. 

Touch too much

ASX catches a bid

"Sell everything!" came the cry.

"Get into cash and wait for better value!".

Unfortunately, the high priests of market timing might have had their holy garments pulled down a bit here. 

Wonder of wonders, the ASX has finally burst out of its tight trading range, having briefly traded above 5,900 in April and May. 

It's been stuck in a narrow band ever since. 

Until now...


Might it be time to dust of the 'XJO 6000' hats at last?

We dare to dream.

Wednesday, 18 October 2017

Investor beach ball submerged

Investor loans slowed

A nice pick-up in commercial lending to businesses in August 2017, which will hopefully flow through to business investment. 

Personal lending has dropped by a quarter since 2010 and is tracking at around the lowest level in 15 years. 

However, business lending is up +15 per cent from a year earlier, which is a positive for the economy. 


Lending for major renovations looks solid, but no more than that, while owner-occupier property lending is rising strongly in trend terms. 

The crackdown on investor lending has been marked. 

Mortgage Choice reported that interest-only loans accounted for only 14.64 per cent of loans written in September, down from 35.95 per cent in April. 

Thus the repricing of interest-only loans has been swift and effective. 

Interestingly, the slowdown in investor lending appears to have most impacted the states where investor lending was already moderate. 

The one state that does not appear to have been slowed too much is Victoria. 


As for the Top End, investor lending in Darwin is now well and truly dormant.


The heady mining boom years, but a distant memory in the Northern Territory!

The wrap

A solid result, then, for business lending. 

Although property investment loans have been slowed significantly, it may be too early to write off investors completely.

International experiences from countries such as New Zealand and the UK have shown that while macroprudential measures are effective in the short term, over time lenders and investors may find new ways to get business done. 

It's a bit like trying to hold a beach ball under water, sometimes. 

The one genuine fix would be higher interest rates. 

Arrears fall again

Home loan arrears improve

Mortgage arrears fell further, down to just 1.10 per cent in August, according to S&P.


In New South Wales, delinquencies fell to just 0.79 per cent. 

In fact, there were solid results in every state and territory in the month, reflecting improved labour market conditions.

More detail from Scutty at Business Insider here

Tuesday, 17 October 2017

Steadier-as-she-goes

Rental price growth to stabilise

One of several contributors to weak inflation in Australia in recent times has been the soft growth in rents, driven by a combination of record apartment building, a surfeit of rental accommodation in some pockets, and fading demand in the resources capitals.

However, the latest vacancy rate release from SQM Research suggests that the peak of the disinflationary impact may now have passed.

In other words, rental price growth has probably stabilised nationally. 

In fact, SQM now records very strong growth in asking rents for houses in Hobart and Canberra - there are very, very few homes advertised for rent in Hobart, where the vacancy rate is just 0.4 per cent - while Adelaide's rental market appears to have been steadily tightening. 

Adelaide's vacancy rate of 1.6 per cent in September was well down from 2 per cent a year earlier. 


While vacancy rates are still elevated in the resources capitals, it looks as though Perth and Darwin landlords might be through the worst now, at least as measured by vacancy rates. 

September's vacancy rates in Sydney (2.1 per cent) and Melbourne (1.9 per cent) suggested markets close to relative equilibrium, reflected in moderately rising asking rents year-on-year in those cities, both for houses and apartments. 

Passive smoking

Roll up, roll up!

Fair cop, we've all enjoyed hating on Australia's share markets at various points over the past decade, while the rest of the world has apparently been partying. 

In Britain, the FTSE index recently crunched out another record high, while in the US a raft of share market indices have been shattering records seemingly by the day. 

In Australia, by contrast, share market indices have remained well below their previous highs. 

That's partly been because valuations in the resources sector have been hurting since the heady pre-financial crisis peak. 

The truth is, though, on average Australian companies pay out much higher dividends than in other parts of the world.


We do love a payout, which is handy for those moving into the income phase of their investing lives. 

Add in the dividend component and Australia's main accumulation indices - which record the total returns from shares including dividends - are at all-time highs. 


That's pretty good news for Australia, since as a nation we have significant exposure to domestic shares. 

Indeed, household wealth is all set to pass $10 trillion within the next few months, placing Australian households among the richest in the world, nestling in just behind the Swiss. 

Monday, 16 October 2017

The changing face of immigration

Immigration shifts

Annual long-term arrivals into Australia hit a record +777,430 in August 2017, +6.5 per cent higher than a year earlier, although the recent record surge does appear to be running out of steam.

This trend does have significant implications for the absorption of all those new apartments in the capital cities. 


The number of short-term arrivals from overseas also boomed to a record in August 2017, both on a monthly basis at 764,700 (seasonally adjusted) and in annual terms at 8.7 million. 

With more Aussies making overseas trips too, it's becoming harder and harder to get a read on who is actually in the country at any given point in time, for what reason, and for how long. 

The world is becoming more and more fluid in this respect. 

Good time...& a long time?

More of the 'short-term' arrivals are coming for longer trips too, another trend which distorts the picture. 

Of the annual short-term arrivals, more than 1 million of them intended to stay for at least 3 months, and many for up to a year. 


Notably the annual number of short-term education arrivals boomed to 567,000 to be +12 per cent higher than a year earlier.

One assumes that most of these would spend a good deal of time here, thus passing the 12/16 rule and being included in net overseas migration, but it's impossible to say for sure. 

All we can say for certain is that there are more international students enrolling and commencing courses than ever before, especially from Asia, and particularly in Melbourne and Sydney.


And as for where short-term visitors are coming from, the growth has largely been coming from China, which broke yet another record in August in seasonally adjusted terms. 


There were more than 1.6 million short-term arrivals from China and Hong Kong over the year to August, comfortably more than anywhere else, and the numbers just keep on growing.