Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

'Huge fan of your work. Very impressive!' - Scott Pape, The Barefoot Investor, Australia's #1 bestseller.

'Must-read, must-follow, one of the finest 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, Business Insider.

'I've been investing 40 years yet still learn new concepts from Pete; one of the finest young commentators' - Michael Yardney, Amazon #1 bestseller.

'The most knowledgeable person on Aussie real estate - loads of good data & charts...most comprehensive analyst I follow in Oz' - Jonathan Tepper, Variant Perception, 2 x NYT bestseller.

Thursday, 24 May 2018

What's the real deal with mortgage stress?

Sydney approaches full employment

Greater Sydney leads the way in the wages growth test tube, with its annual average unemployment rate falling to the lowest level since 2008, at just 4½ per cent in April 2018. 

Total employment in Sydney has exploded an ear-splitting +128,600 higher over the past year alone to a record high of 2¾ million.  

Just to put that in some perspective, only three years earlier total employment in Sydney was 2½ million, so the harbour city has been creating jobs at a truly thunderous rate. 

From an unemployment rate perspective Adelaide now takes out the most improved award, although the underlying labour force metrics in the South Australian capital are a tad uninspiring at best. 

In somewhat brighter news for employment hunters, the median duration of job search has improved very steadily over the past year, and that now includes for Greater Perth, after a very lean run.

Finally for today, S&P's Prime SPIN mortgage arrears came in at 1.18 per cent in March 2018, broadly unchanged from 1.16 per cent in February (and from 1.16 per cent a year earlier). 

From a macro perspective, then, nothing meaningful to report in terms of mortgage stress. 

Around the traps, only the figures Western Australia (2.37 per cent) revealed any actual signs of mortgage stress, with arrears either benign or falling in most states and territories. 

Source: S&P Global

Stress at the margin

There's a lot of debate about mortgage stress at the moment, with some people seemingly almost willing the figures to run higher. 

The truth is the picture is quite mixed around the regions.  

For most homeowners that have been in the market for some years, stress is very low with mortgage rates hitting some of the lowest levels in living memory, and this is reflected the unprecedented level of mortgage buffers that we saw in 2017.

But there are some parts of the country, including Perth, Gladstone, and a number of others, where employment opportunities have either been sparse or very sparse. 

Accordingly there have been some marked shifts in internal migration, as workers relocate to cities where employment growth has been stronger, most notably Melbourne in recent times.

In some cases, where households are in negative equity this may not be possible, and in it's in these situations where mortgage stress can become punishing. 

Fortunately there are relatively few pockets of Australia where negative equity is widespread, with many of the underperforming high-rise apartments owned by investors (including non-resident investors). 

Overall, while the picture remains mixed around the country, it has been consistent with a steadily improving labour market.

It's worth watching arrears trends in Western Australia closely, as this has been the state where the economy has been weakest over a period spanning several years. 

Wednesday, 23 May 2018

Construction boom changes shape

Construction work shifts

Brisbane's apartment construction boom is now fading fast, with total construction work done falling by 33 per cent from the peak and further declines to come as the market rebalances.

Melbourne is keeping residential construction activity at elevated levels due to its sheer growth in headcount. 

Mining cliff been & gone

In positive news, the downdraft from the resources cliff is also now yesterday's news, with engineering construction work done 12 per cent higher than a year earlier in trend terms. 

This is brighter news for Western Australia, where engineering construction has now been trending higher for 6 months.

Queensland took its medicine earlier in this regard, and engineering work has been on the rise for 2 years. 

New South Wales continues to enjoy its infrastructure boom, with engineering work 21 per cent higher than a year earlier, and up by a thumping 45 per cent from the 2015 trough.

This is important stuff for the economy, with construction employment recently breaking record highs, both in absolute terms and as a share of the workforce. 

Tuesday, 22 May 2018

Soft indicators

Driven round the bend

For something a bit different, here's a look at what's happening in Western Australia with regards to new car financing. 

At the peak of the resources boom there had been a grand surge in new vehicle finance commitments.

I can well remember seeing the same dynamic up in the Northern Territory; it was literally driven by the same factors.

The number of new cars and station wagons financed remains at the lowest level since 2010, reflecting the low level of consumer confidence.

On the other hand, the annual number of used vehicles financed has now been rising for 11 months.

There are quite a number of indicators that have followed this pattern, suggesting that the worst of the downturn is now in the rear view mirror for the WA economy. 

Rise of Airbnb

Short stays

Australia is becoming more and more...and more popular with tourists and short-term visitors to see family and friends. 

The trend is predominantly being driven by Chinese and Asian tourism.

The same trend is also been pushed along by the lower dollar since the peak of the mining boom.

In New South Wales annual short-term visitors are fast closing in on 3.5 million. 

This potentially has some significant implications for the dynamics of the housing market.

Hotels are typically very expensive in cities such as Sydney - certainly in the areas close to the city.

It wouldn't be a surprise to see more landlords turning to Airbnb to maximise rental income, in turn absorbing some of the rental supply through this cycle.

Sydney's estimated resident population is also now growing at faster than 100,000 per annum for the first time.

There are now more than 5.1 million residents in the harbour city. 

The long term fundamentals of Sydney land and dwelling prices are arguably stronger than ever before, at least in the landlocked and more desirable parts of the city. 

Monday, 21 May 2018

Brisbane rentals turn the corner

Brisbane bounce

Still patchy, but the rental market in Brisbane is gradually now picking up.

Source: SQM Research

This follows data on stronger population growth, and slowing dwelling starts. 

UK asking prices eke out a new high

Rightmove hits new high

UK house asking prices rose by a modest +0.4 per cent (or +£1,228) this month, which was just about enough to push the national average to a new record of £305,732, some revisions to previous months notwithstanding. 

The average asking price for London has been pulled down by some of the premium London boroughs, such as as Fulham, Kensington & Chelsea, and Westminster, according to Rightmove figures. 

Some other London boroughs such as Croydon and Greenwich have been recording modest price growth. 

Around the regions strong performance in Manchester has helped to drag the north west of England to the top of the tree. 

Generally speaking, while the labour market has created millions of jobs and the unemployment rate is at the lowest point in about four decades, the UK economy is growing below potential. 

Saturday, 19 May 2018

Devils & Details: Tune in now

As promised, click the image below to tune in.

Interesting to get Colgo's view on how the Irish housing bubble played out.

Friday, 18 May 2018

The must read articles of the week

Find them here at Property Update.

By the way, have you signed up for this year's Wealth Retreat yet?

It's coming up soon at Gold Coast - I can't wait!