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.
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Friday, 20 January 2017
Let work commence
A chart worth looking at for those who think engineering construction might continue falling for years to come.
It's clear that the amount of new work commenced has dropped substantially in Western Australia since 2014, as expected.
However, on a rolling annual basis the total amount of work commenced has increased from $61 billion to $70 billion over the past five quarters.
The increase has all been driven by Queensland's rebound, with annualised work commenced increasing from $12 billion to $20 billion over the same time.
Interesting article from ABC here which notes the increase in temporary visa holders to nearly 2 million.
I wrote the same more than a week ago here - and indeed they have used the same graphic - however, it should be noted that the ABC piece is also spiced with a number of (at best) questionable assertions, such as immigration increasing at "a record clip" and so on.
VICtop of the tree
Having experienced a huge surge in the number of hours worked by all employees in 2015 to record highs, New South Wales saw things flatten out in 2016.
Victoria has picked up the mantle, scoring by far and away the best improvement in 2016, with the total number of hours worked surging by 3.4 per cent.
The population of Victoria grew by very strongly by about 2.1 per cent, perhaps even a little more, which helps of course.
Although coming from a low base, it was good to see South Australia in positive territory, with a 1.5 per cent improvement (although this only takes the number of hours back up to where it was in The middle of 2012).
Hours worked declined in Tasmania, and remain at the levels seen way back in 2007.
Hours worked declined in Tasmania, and remain at the levels seen way back in 2007.
Western Australia is still in negative territory, but far less so than was the case as recently as June.
Resources capex still has quite a bit further to fall in Western Australia in 2017, but a number of metrics have suggested that the nadir of the market may be approaching, while mortgage serviceability in the state is now at its best level in 13 years.
Residential property prices fell by 4 per cent in Perth over the year to September 2016.
Youth unemployment has deteriorated lately, a lack of opportunities for the most expendable cohort being a key indicator of a weak labour market.
Thursday, 19 January 2017
A few more jobs
I have wondered to myself why everyone is moving to Melbourne.
I had my suspicions, of course, and now they have been confirmed: it's the only place creating any meaningful numbers of jobs.
A few more jobs
First the good news.
Employment increased by 13,500 in December to 11.986 million, with full time employment up for a third month, this time by 9,300.
After a great 2015, annual jobs growth was quite meagre in 2016 at just 91,500 or 0.8 per cent.
In the preceding calendar year the equivalent figures were 310,000 and 2.7 per cent.
Unemployment ticks up
The unemployment rate ticked up to 5.8 per cent in December, although in trend terms the unemployment rate has been flat for months at 5.7 per cent.
Western Australia saw its monthly unemployment rate decline from 6.9 per cent to 6.6 per cent, but since the trend data is calculated using Henderson moving averages, the trend ticked a little higher again in December.
Around the states, unemployment rates converged towards each other in December. If you think about, it that's what should happen over time.
2016 a soggy year, except for Melbourne
Overall, it was a weak year which followed a very good year for the labour market figures.
Although total employment did increase in 2016, the uplift was driven by 120,900 part time jobs while full time employment actually declined over the year.
The total number of hours worked in the economy increased by only 0.5 per cent from a year earlier.
While I've learned not to place too much stock in monthly employment figures at the state level, it's clear that by far the best performer was Victoria, which saw its total number of employed persons increase by nearly 119,000.
In doing so, the Victorians accounted for all of the increase in employment last year.
It's just goes to show how strong a multiplier the construction industry can deliver.
Resources construction 4 years beyond eak
It's now about 4.5 years since the resources construction boom peaked in 2012.
The latest figures showed a further 4.7 per cent decline in activity over the third quarter of 2016 to $20 billion, well down from the 2012 peak of $34.2 billion.
We're now getting pretty close to the end of the contraction, which is good news.
WA takes the pain
Although the resources capex contraction is sometimes still cited as evidence of a possible recession this year, in reality engineering construction activity is now rising (or at worst is flat) in most states and territories.
Arguably the Northern Territory will eventually see a further decline as its major LNG project transitions to production, but at the moment all of the declines are being accounted for by Western Australia, a state which is already in recession anyway.
With engineering construction in WA down from a quarterly peak of $12.2 billion in 2015 to $5.4 billion in Q3 2016, the state is finally taking its medicine.
Queensland went through the same painful process in 2014 and 2015, but now activity is steadily rising again, driven by new roads, railways, bridges, harbours, telecoms, and other heavy industry infrastructure construction.
Engineering construction activity was up for the quarter in Queensland, Victoria, South Australia, Tasmania, the Northern Territory, and the ACT.
As Western Australia still has a way to fall before extension of existing iron ore projects to replace depleted reserves stabilise the figures - and because there is also a bit of a drop to come in the Northern Territory post-Ichthys - my rough calculations suggest that resources cliff was about 85 per cent complete by the end of September 2016.
And that figure may even be closer to 90 per cent by today.
Building activity slows
No data release seems to create quite as much confusion as the building activity figures.
Construction work in the residential sector is always apparently either booming or crashing, depending on who you believe, or commonly it's both.
Still, where there is discord may we bring harmony, by breaking it all down into three simple parts, starting with...
Part 1 - Commencements ease back
Commencements fell again by 2.8 per cent to 55,070 in the September 2016 quarter, following a 7.2 per cent decline in the June quarter.
Dwelling starts fell in most states, even in New South Wales where the appetite for building is strongest, although the 'trend' figures still show NSW arcing higher.
Following on from sharp falls in unit and apartment approvals, it's no surprise that it was declines in this sector which have led the fall in commencements, particularly in Melbourne.
This in part represents nervous developers backing away from flooding the apartment markets further, as well as a failure to secure pre-sales in some cases.
Part 2 - Completions
Despite the huge boom in building work done over recent times, completions still hadn't run too high by the end of September, with 51,070 completions in the quarter, split between 27,773 houses and 22,666 units.
The main reason for this is simply that it takes considerably longer to build a block of apartments than it does a detached house.
Despite this, apartment completions are starting to flow through in the most populous states, particularly in New South Wales and Queensland, although Victoria dropped back in the quarter as some developers reportedly moved into a "go slow" mode.
Part 3 - The pipeline
The most important thing to note from this release is that although the appetite for commencing new developments has cooled substantially, there were still more than 221,000 dwellings under construction as at the end of Q3 2016, including more than 150,000 units, townhouses, and apartments.
Although some small inroads had been made into the apartment construction pipeline, the bulk of multi-unit project completions had yet to hit the market.
Given the sheer scale of the pipeline, perhaps it shouldn't be a surprise than an unprecedented number of approvals have not yet seen a shovel lifted in anger, with 42,591 approvals sitting in housing market Limboland.
Of course, there will always be some approvals waiting in this phase, yet 42,500 is just way, way above the historic norm. These are not normal times!
Overall, the market does seem to be correcting itself gradually with developers pulling back on new project commencements, and slowing the rate of completions in some cases to allow capital city population growth to play catch up.
What the figures do show is that the full impact of the high rise boom had barely even begun to take shape by September 2016, so watch out for weakening apartment rents and and prices as 2017 rolls on.
The value of residential work done in Q3 declined, contributing to an awful negative GDP print for the quarter, and the sector is likely to become a headwind for the economy as the year progresses.