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 of the world's most popular & widely-read financial publications.

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

Tuesday, 25 November 2014

ABC Cuts 10 Percent of Staff (and SA Production)

ABC Cuts 10 Percent of Workforce

The  ABC network finally announced the details of its $254 million of cuts yesterday.

Despite the protests of Christopher Pyne that it must surely be cheaper to produce television programming in Adelaide rather than Ultimo (i.e. inner Sydney), the ABC proceeded to announced that television production in Adelaide would be terminated.

Kate Ellis MP also voiced her concerns about the "devastating impact" on Adelaide and South Australia, issuing a media release stating that the state had been let down by Tony Abbott and Pyne.

"Abbott Government cuts to the ABC will have a devastating impact on South Australia with confirmation today of the closure of South Australia's TV production, the closure of the Port Augusta regional office, and a massive loss of local jobs."

Indeed, this is a point of concern which we have been highlighting on this blog page for a very long time - Adelaide needs reinvigoration, job creation, investment and infrastructure. Absolutely the last thing it needs is more cuts.

Our analysis of the recently released State Accounts showed that a combination of public sector payrises and exports have just about kept the state's nose above water, but only just, with annualised Gross State Product and State Final Demand failing to show many convincing signs of life.

Employment Growth Stall

This could never be good news at any time, but this is exactly the opposite of the type of news which Adelaide needs in its current situation.

The Productivity Commission has already reported on the likely impact of the shuttering of the automobile manufacture industry which is expected to cost a devastating 40,000 jobs, with South Australia and Victoria the areas to be severely impacted.

Other reports have stated that the economies and employment markets of Adelaide and Melbourne could take until 2025 or even 2027 to recover from the job losses from the closure of the car manufacturing industry.

Total employment growth in Adelaide has already been negative for a period of time closing in on five full years, even before the impact of auto industry job losses takes its hold.

Regional Offices to Close

The ABC also announced that it will close its regional radio bureaus in Morwell, Nowra, Port Augusta, Gladstone and Wagin in favour of production in Sydney and Melbourne. Reports

"Among the other high-profile cuts: the Adelaide TV production studio will close, TV production in smaller states will wind down and be based in Sydney or Melbourne, and regional radio bureaus will be shut down in Wagin, Morwell, Gladstone, Port Augusta and Nowra."

The total number of resulting regional jobs losses is unlikely to be large, but this point is significant since it is very much reflective of a wider trend away from regional employment and towards the large capitals.

Regional employment in South Australia in aggregate has never recovered from the early 1990s recession as the chart above implies, there being more regional employment in the state in the late 1980s than there is today.

This is far from being only an issue for South Australia, however. As highlighted by the chart below the larger states have also failed to create regional employment over the past eight years – there were more full-time positions filled outside the respective state capitals in 2007 than there are today.

Right across our chart packs the data is revealing similar trends, with only Queensland and to some extent Western Australia producing any meaningful growth in regional employment of note in recent years.

Low Mortgage Defaults

The level of impaired loans across bank mortgage loan books is remarkably low at the present time, a point reinforced by the recent Q3 results reported by monoline mortgage insurer Genworth, as we looked at in some detail here.

In part this is thanks to prevailing low interest rates and the stress tests enforced by lenders in Australia. Consider the following points made by Bill Evans of Westpac in this recent enlightening Business Spectator Article:
  • 65 percent of property investors with Westpac loans are ahead on their repayments
  • 90 plus day delinquencies are just 0.47 percent for the portfolio and only 0.37 percent for investor loans
  • Westpac uses a serviceability buffer of 180 basis points over the standard mortgage rate of 5 percent
This is welcome news, especially since there is very little realistic prospect of there being even 25bps of interest rate hikes on the immediate horizon, let alone 180bps.

Concluded Evans:

"Overall, lenders are adopting prudent lending practices...the case for Australia’s property markets being unbalanced due to excessive investor activity is not strong. In time I expect that the RBA will also reach such reasonable conclusions."

Unemployment and Credit Report Risk

One of the factors which can cause mortgage defaults and thus property markets to unravel – high interest rates – is decisively off the table for the foreseeable future.

As one might expect to be the case through a real estate cycle, while property owners are presently benefiting from low interest rates, the trade-off is that one of the other main factors which can cause a material property correction, a weakened labour market, clearly is in evidence...particularly in certain regions of Australia.

Note that we’re not saying here that there is necessarily any cause for panic or scaremongering (regularly accused of this), rather than one should keep a very close track on unemployment rates around Australia, since the general trend has been up over recent years.

Moreover, the property advisory sector is chock-a-block full of vested interests who all too rarely highlights risk areas such as rising unemployment rates to potential buyers of real estate.

Last week I looked in some detail at how a few of the regions of Australia have unemployment rates which are running too high for comfort.

Highlighting many of the very same regions as my blog post last week, this week Veda released its Australian Credit Scorecard listing - featuring prominently in its Top 10 Worst Regions for Potential Credit Default in Australia: Logan-Beaudesert (1st in the country), Ipswich (2nd in the country) and Moreton Bay (4th in country).

Of perhaps less significance, all of the top regions for credit scores were located in Sydney and Melbourne.

Not a lot more to say on that except that rising regional unemployment is definitely an issue to keep a close eye on. Listed below are a few regions which might warrant a glance.