Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory & buyer's 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.

"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

Saturday, 29 April 2017

Non-banks come to the party

Investor loans rise

The Reserve Bank of Australia (RBA) released its Financial Aggregates for the month of March 2017, which showed year-on-year growth in investor credit rising to 7.1 per cent, with total housing credit moving a notch higher at 6.5 per cent.

With average credit card balances well down in recent years as I analysed in more detail here, other personal credit continues to shrink. 

Business credit growth also moderated to 3.4 per cent over the year to March, leading to total annual credit growth of 5 per cent. 

Fibonacci ratio!

The Reserve Bank of Australia (RBA) figures therefore showed that investor loans were still accelerating in March, with total housing credit rising to $1.66 trillion. 

As housing credit outpaces business and personal lending the total share of outstanding private sector accounted for by housing has increased to a record high of 61.8 per cent. 

Alas, I don't believe that the magical 61.8 per cent figure is the trigger for a Fibonacci retracement - not least because the lines between 'housing' credit and redrawn equity that is used for the purposes of small business became blurred long ago.

The rise of non-banks

APRA also released is Monthly Banking Statistics for the month of March, which also showed an increase in housing investment loans, but with credit increasing at a somewhat slower pace than reported by the RBA.

This all but confirms that some of the higher risk business has been flowing to institutions not governed by APRA, or non-bank lenders such as Liberty Financial and Pepper Group, both of which have recorded strong loan growth lately.

Indeed, we've seen plenty of evidence of this first hand in the market in recent times. 

Whether they admit it publicly or not, valuers tend to treat transactions financed through some of the non-banks with added caution, often reflected in lower or more conservative valuations.

Other transaction types which are seeing valuations come in low include off the plan apartments and new homes on fringe housing estates where there are few directly comparable sales. 

The Commonwealth Bank of Australia (ASX: CBA) has the largest total housing loan book, though Westpac Banking Corporation (ASX: WBC) reports a higher volume of housing investment loans in aggregate. 

Looking at the growth in investment loans for a few of the selected banks shows how some of the majors have been gradually winding back the growth rates in their investment mortgage books so as to avoid bumping up against APRA's arbitrary 10 per cent cap (Westpac's figures included a substantial revision in October 2015, accounting for the apparent jump). 

Several of all the banks with smaller market caps still have growth in investment loans tracking at above 10 per cent limit, leading AMP to cease refinancing investor loans and ME Bank to give higher loan-to-value (LVR) loans the flick.

AMP may also be offering some customers incentives to switch from interest-only to principal and interest loans. 

APRA viewpoint

A speech this week by Chairman Wayne Byres pointedly remarked that APRA does not target house prices, but noted that recent regulation is likely to see an increasing differential in mortgage rates between owner-occupier and investment loans. 

We have certainly seen plenty of reporting of increase in investment loan mortgage rates - particularly on interest-only loans - although these are coming from an exceptionally low base, and conversely some owner-occupier products have seen rates dropped a bit. 

Perhaps not surprisingly the speech revealed that APRA opted not to reduce its 10 per cent cap due to the high volume of new apartments in the pipeline in the eastern capital cities, although a new cap has been introduced on interest-only lending

Lenders most likely to experience imminent impairments include those with a heavy exposure to the housing markets of regional Queensland and Western Australia.


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Inflationary pressures?

Survey says..."bom bom".

Nothing much to see here, as the annual percentage change in the producer price index comes in at just 1.3 per cent.

The quarterly increase was driven by the prices received for electricity, gas, and water supply.

Manchester surge

Manchester leads

Manchester leads the UK housing market, with price growth hitting a 12-year high.

Price growth across the 20 City Index average 6.4 per cent over the year to March 2017, some way faster than the national average. 

Source: Hometrack

Some of the regional cities are now seeing solid price growth, after a rough trot through the recession.

Reported Hometrack:

"Attractive affordability levels, record low mortgage rates and an improving economic outlook are all supporting demand for housing. 

Together with limited availability of stock for sale this is creating scarcity and an upward pressure on house prices."

Friday, 28 April 2017

ScoMo address (Budget emojis)

'Scalpel not chainsaw'

An interesting address by Treasurer Scott Morrison in Sydney yesterday in the lead up to the May Budget, in retort to some 'smart aleck' quips from Shadow Treasurer Bowen.

From a housing market perspective, ScoMo strode forth to bat each of Labor's proposals calmly and serenely to the fence.

Capital gains tax increase...thwack.

Negative gearing quarantining...swat.

Banning borrowing in self-managed super funds...clonk. 

A short section of the speech is copied below:

Source: Scott Morrison MP
Non-bank lending

To be fair, there was plenty of common sense in the speech. 

The plan of attack appears to be to ratchet back interest-only lending over time with APRA's oversight, while getting jobs and the economy moving again, to eventually stimulate inflation and wages growth. 

Morrison also noted that foreign investor interest is declining.

Given that rental price growth is likely to be moderate at best in the face of the apartment building boom, an accelerating economy and in turn mortgage rates rising to 6 per cent or above would naturally calm property investor activity.

One of the challenges with low interest rates is that macroprudential measures do not "get in all the cracks" as evidenced by the rapid rise of non-bank lenders such as Pepper Group.

Budget emojis

How, then, does Morrison intend to get the economy moving again?

In short, by borrowing and spending.

The government proposes a change to the way that the Budget is reported, differentiating between bad debt (sad face) for recurrent expenditure and good debt (happy face) for investment in major growth producing infrastructure assets, such as transport or energy infrastructure.

The Budget will now report a net operating balance (NOB?) in addition to the underlying cash balance to differentiate between recurrent expenditure and investments in productive capital, including infrastructure.

If the process is well managed, taking on debt for investments that increase productive capacity seems eminently sensible in an era of low interest rates, and it is something I've mentioned here on several occasions.

The types of assets we can expect to see funded include inland rail and a second airport for Sydney, assets which should deliver a rate of return far in excess of the cost to the Budget in interest charges.

The challenge of course will be to pull this off without incurring a downgrade, Australia being one of only ten countries with a AAA rating from all three of the major ratings agencies.

We'll have to wait for Budget night for all the details, but on paper this sounds promising.

Stamped out

Stamp duties explode

From the sublime to the ridiculous, state governments levied an outlandish $20.6 billion in stamp duties on conveyances in FY2016.

This figures was up by 77 per cent since FY2012. 

So much for investors "rorting" the system by savings a few thousand in net rental losses!

In New South Wales, where the bulk of property investment activity has taken place, stamp duties collected increased by an absurd 122 per cent over the five year period.

And that's with even more to come in FY2017!

Total state and local government taxes, including land taxes, increased from $33.5 billion in FY2012 to $49.6 billion.

The increase in total property taxes over the same year year period was therefore not far off 50 per cent!

As such, property alone accounted for well over half of taxation revenue for state and local governments at 52 per cent, up from 46 per cent in 2012.

No doubting that more property taxes will be the call, though. Always is! 

Blame game

A short piece I did for the Brisbane Courier Mail yesterday (click image).

Thursday, 27 April 2017

Export prices biggest annual gain since 2009

Terms of trade lift

A huge lift for the terms of trade in the first quarter of 2017.

Export prices rose by 9.4 per cent to be a stunning 29.1 per cent higher year-on-year!

This is the largest annual increase in the index since the China stimulus boom of March 2009.

Import prices lifted marginally in the quarter, but remained marginally lower over the year to March.

The gains were largely driven by coal and especially iron ore export prices, which absolutely belted higher until February. 

The result has been a series of massive trade surpluses for Australia.

This is an amazing boost for national income while it lasts, but don't forget that iron ore prices have fallen sharply since February

In fact, the news for the remainder of the year is unlikely to be quite so rosy.

See here at Business Insider for more details.