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.

Wednesday, 10 December 2014

Housing Finance Continues to Rise in October

Housing Finance Rises Further in October

The value of Housing Finance continued to rise in October both for owner-occupier loans and for investment lending, but the figures revealed marked variations across the states and by loan purpose. 

Let's take a look in four short parts...

Part 1 - Owner-Occupier Loans Flattening

The seasonally adjusted number of owner-occupier loans has hit a plateau and is now threatening to roll over.

The below chart shows that despite talk of a frothy property market, the number of loans written to owner-occupiers has never scaled the same peaks as has been the case in preceding years, despite a significant increase in the Australian population to nearly 23.75 million today.

However, the value of loans written did rise month-on-month. 

While both owner-occupier and investment loans increased by another 1 percent in October, the rate of increase over the last 12 months has been heavily skewed towards investment lending, which is drawing the attention of the regulators (APRA).

The value of owner-occupier loans, however, now appears set to flatten.

Investment lending now comprises some 41.4 percent of the market as at October 2014, a dramatic shift in this market cycle which needs to be understood by those wanting to buy outperforming property types in outperforming locations. 

If owner-occupier refinancing is excluded, more than half of the lending market is now for investment loans, at a monstrous 50.8 percent.

In short an overwhelming bulk of funds flowing into Australia's property markets are now being directed into investment housing markets, which are typically located in the inner and middle-ring suburbs of Sydney, Melbourne, Brisbane and Perth. 

Part 2 - State Versus State

Furthermore, the increase in lending is not being felt evenly across the states. 

The trend in the number of loans written to owner-occupiers in New South Wales and Queensland is very strong and trending upwards, but the chart has now rolled for Victoria. 

Western Australia also appears to be flattening, while South Australia has fallen into decline, having never really gotten going in this cycle in the first place.

The rolling annual value of owner-occupier commitments shows a very strong 17 percent increase in New South Wales and a 14 percent increase in Queensland. Commitments in Victoria are also up by 11 percent. 

While it's hard to see in absolute terms on the chart below, sleepy Tasmania is showing signs of awakening with a 16 percent increase in owner-occupier commitments in rolling annual terms.

The strongest performing markets in 2015 will be Sydney (again) and now Brisbane finally appears set to come to the party after a troubled half decade. 

On the other hand both the number of loans written and the value thereof is in an established 6-7 month downtrend in South Australia despite record low mortgage rates, reflecting the weakness of the state's economy, labour force and muted consumer confidence.

Part 3 - New Dwellings

Naturally enough most owner-occupiers continue to buy existing dwellings, with a larger proportion of new dwelling stock today being mopped up by offshore investors, this particularly being the case in respect of inner city apartments.

While there has been a strong recovery in new dwelling commitments since 2012, the uptrend is weakening considerably.

Similarly the value of loans written for new dwellings appears to be peaking out.

Part 4 - Renovations and and Construction Finance

Finally for today, the value of major renovations has remained very flat given how low standard variable (SVR) borrowing rates are. 

New South Wales is in a decent uptrend for "Alterations and Additions" and there are signs of life in Queensland and Victoria, but disappointingly there is once again no worthwhile net contribution to Q4 GDP to be found here. 

Discouraging data which is driven partly by generational shifts towards apartment dwelling in our opinion.

Significantly brighter news in terms of the value of loans written for the purposes of construction, with a strong increase continuing through this cycle.

The Wrap

The economy in New South Wales is robust, with strong labour markets, construction and population growth leaving Sydney set for another solid year in 2015. 

The other mover for 2015-17 looks set to be Brisbane

With the honourable exception of Hobart, elsewhere markets appear to have hit a dispiriting plateau.

There could yet be a second wind for some other state markets due to likely interest rate cuts early in 2015, but by that time remaining market momentum may easily have faded.

The last piece in puzzle before we release our final 2015 forecasts will be the Lending Finance data for October 2014, which will be released on Friday revealing the allocation of investor credit by state.

You can track how our 2014 market forecasts played out here.


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