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).

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.

Tuesday, 22 August 2017

Will Australia be hiking rates soon?

No.

No sign of wages growth picking up yet.


Inflation is likely to be revised lower in the fourth quarter too.

End of 2018, maybe.

Monday, 21 August 2017

Iron ore +50pc since June

Hello...

Bazinga!

Amazing news for owners of shares in Fortescue Metals Group (ASX: FMG), which reported a monster net profit after tax of $2.7 billion (US $2.1 billion) today. 

That's an increase of +112 per cent from the prior year. 

The dividend was tripled to 45 cents per share, while future payout ratios will be higher too.

That's one heck of a payday for Mr. Forrest. 

The dividend in FY2015 was only 5 cents per share. 

FMG racked up US$3.5 billion in free cash flows in FY2017, helping the group to massively reduce its debt pile. 

Fortescue aims to have its costs down to US$11-12/wmt in FY2018, which is a truly extraordinary cost performance from US$48 in FY2012. 

Meanwhile, the price of Australia's most valuable commodity has a rocket under it.

The below charted benchmark iron ore spot price closed just shy of $80 at $79.93/tonne. 


That's now well over $100/tonne in Aussie dollar terms.

A budget bonus indeed, to help at least in part compensate for lower than forecast wages growth!

FMG's share price soared by +6.36 per cent to $5.85.

Melbournites don't wait to buy land...

Melbourne outstrips regions

It seems that Melbournites are not waiting to buy land...they are opting buy land and wait.

At least for now.

Melbourne has accelerated to record monstrous population growth in recent years, while the regions of Victoria have largely flatlined ex-Geelong.

You can make your own assessment of whether high population growth is impacting the Melbourne housing market, but the land sales figures look pretty damning. 

The pressure appears to be starting to tell, as vacant land sales are being gobbled up at the fastest pace ever recorded, according to Oliver Hume's quarterly data.


Model of a modern Valuer-General

Rising land values have been a key input into rising house prices in Melbourne.

Median vacant land prices in metropolitan Melbourne increased by +3.7 per cent in calendar year 2016, according to the Valuer-General, rising from $219,000 to $227,000.

Median house prices in metro Melbourne rose for a fourth consecutive calendar year from $600,000 in 2015 to $635,000 in 2016.

Median unit values increased far more steadily over the year, up from $487,000 to $494,000.


The ratio of land prices to house prices on this data series hasn't changed a great deal over more than three decades, to some extent reflecting what is actually being measured, with the vacant land sales often located in fringe or secondary locations.

Perhaps this is the subject for a longer blog post another time, but the Valuer-General report always cautions about too many generalisation being drawn from the headline numbers. 

House and land prices in regional Victoria have lagged Melbourne substantially over the past 10 years to 2016, at least in aggregate.

Metro Melbourne median house prices have now more than doubled over the past dozen years, and have quadrupled since 1998. 

In 2016, regional house prices rose by +2.6 per cent to $320,000.

This represents an increase of $100,000 or +45 per cent over 10 years, before accounting for stamp duty and repairs, maintenance, and other holding costs. 

Sunday, 20 August 2017

Jobs market: not as slack as you might think

Slacking off?

R. Gittins wrote an enlightening and thought-provoking piece here about the true extent of unemployment in Australia. 

It is well known and all too often pointed out that the headline rate of unemployment understates the reality.

But, as R. Gittins elucidates, lumping together all unemployed and underemployed persons can similarly provide a somewhat misleading picture. 

An important but rarely reported metric, he notes, is underutilisation in volume measures, taking into account how many more hours of work unemployed and underemployed people are looking for. 

I charted the two cited catalogue series below.


These numbers aren't seasonally adjusted so it's generally best to compare like-for-like periods.

What the chart shows is underutilisation falling from 7.9 per cent in May 2015, to 7.7 per cent in May 2016, and then to 7.5 per cent in May 2017. 

Thus, yes, underutilisation is clearly higher than it might be.

But it has also been very steadily falling over the past two years.

In other labour market news, the trend youth unemployment rate has also improved a bit over the last couple of years. 


But here too, there's a way to go before we see single digits again. 

Youth unemployment can be an important bellwether for labour market conditions, as the least experienced staff can be most expendable in a downturn, yet may be hired again as the outlook brightens. 

Saturday, 19 August 2017

The next property market to rip...

...will be Geelong.


In early March I wrote a bit about some of the likely drivers here.

You've been...Amazoned

The new black - crashes

Granted, technically it's not Monday morning, yet still it seems as good a time as any for a spot of quarterbacking.

You've already heard of being friendzoned.

Well, now, there's being Amazoned.

Footlocker (NYSE: NL), a company with the well-known wide economic moat of, erm, selling runners and footwear, has been touted in some parts as being an outstanding value play. 

No doubt, there's been an ill-advised fashion trend towards wearing sneakers with suits, and an even less advisable fad for wearing yoga pants on shopping visits. 

But fashion trends will come and go.

Meanwhile, US retail has been coming under serious pressure, so it's got to be considered a risky sector right now. 

In short, it's not a great time to be reporting a material decline in comparable revenues. 

And it's certainly not a great time to report a quarterly that massively misses Street expectations.

EPS for Footlocker was reported at 62 cents per share against a market expectation of 90 cents per share.

Same-store sales, a key market metric in the retail sector, dived by 6 percent.

Comparable sales are also expected to remain well down over the remainder of the year.


The share price was already down by a third in 2017, so arguably the market has long sensed a bad report coming. 

But not this bad.

Perhaps unsurprisingly, another 28 per cent was erased from the market cap during Friday's trade.

Investment, or speculation?

People often say that investing in property is speculation, while buying shares in profitable companies is investing. 

It's a valid argument to a point, and especially where people are betting on short term price movements. 

But is it necessarily true? 

Absent a takeover or merger, companies like this ultimately have a life cycle and seem quite likely to be worth zero one day in the future. 

Working out when that day is and how long the dividend stream runs for...well, to a certain extent that has to be speculation too. 

To be fair, I don't think trainers as a fashion item are going away any time soon, though there will be a lot of competition in the space. 

As for property speculation...to be honest I can't say I've ever stressed too much over the years about owning property on Sydney harbour, especially with 90,000-odd new heads converging on the harbour city each year. 

But you can call it speculation if you want.

In the meantime, it's straight off to the clearance rack for Footlocker!

Weekend reads: must see articles of the week

Summarised for you here at Property Update (or click image below).



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Friday, 18 August 2017

England house prices hit new high

Edging higher

A 30-second look at what's been going down in Britain's housing markets. 

The average UK house price hit a new high of just a tad over £223,000 in June 2017. 

This is £10,000 higher than in June 2016, and £2,000 higher than last month.


England drove the gains, with prices there rising by +5.2 per cent over the year to a record high of £240,000, while prices in Northern Ireland remain more than 40 per cent below their peak. 


London has the most expensive market at an average house price of £482,000, while the industrially challenged North East was the cheapest at an average price of £130,000.


The East of England recorded the fastest annual pace of growth at +7.2 per cent, with London price growth easing back to the pack after a stellar run. 


There have been mixed messages around in the Old Dart for a while now, with the unemployment rate having dived to its lowest level since 1975 but Brexit looming overhead as a potentially disrupting factor. 

Then there are the calls to restrict immigration. 

But for now, mortgage rates remain low, first time buyers are very active, and prices continue to hit new highs. 

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Bonus time

Bonus time

This week's wage price figures showed that including bonuses wages increased by +0.7 per cent in the quarter - the strongest result for the June quarter since 2010 - to be +2.1 per cent higher over the year.

The ABS also released its average weekly earnings figures yesterday, which revealed quite a similar result. 

Over the year May 2017, full-time adult average weekly ordinary time earnings increased by a subdued +1.8 per cent to $1,544.

But the full-time adult average weekly total earnings in May 2017 was $1,608, with a notably stronger rise of +2.1 per cent from the same time last year.

There were as always variations in the underlying figures. 

For example, average earnings for females rose by +2.3 per cent, and for full time females earnings were some +2.6 per cent higher. 

Of course, these numbers are coming from a lower base.

These are average figures, so it's important to note that there are potentially significant differences in the relative number of hours worked, for example.


On the other hand, earnings growth for males has been subdued, with average earnings only up by +1.6 per cent. 


Some males are doing better than others, of course.

For example, the original data shows that full time males in Victoria and the southern states have, on average, seen strong growth in their total earnings over the year to May 2017 - so too, in the ACT - but in Western Australia the equivalent figure fell. 

Queensland bonuses have also pulled back quite sharply since LNG construction dropped off a few years ago.


Total earnings for men have been very high on average in the resources states, reflecting the nature of the work undertaken. 

Indeed, despite the recent malaise, the mining sector still had by a huge margin the highest average weekly earnings of all industries at $2,551. 

Real Estate Talk

Catch me on the Real Estate Talk show (click image to view).


Thursday, 17 August 2017

You better, you bet

10 months of gains

A year ago I made the casual observation that the Australian economy had reached an impasse of sorts: either population growth would have to fall, or employment growth would have to rise.

Leading indicators tentatively pointed towards the latter, and in the end, that's what we got.

In fact, over the past ten months employment has torn +277,880 higher to a record high of more than 12.2 million. 

Over the most recent five months the gains have totalled more than +189,000.

You have to go back more than a dozen years to find a hot streak like it. 


Naturally we got all the usually debates about whether the figures were 'right' or not, but drilling the trend line through the figures shows that annual employment growth has accelerated to a reasonably impressive +2.2 per cent, or +259,220. 


Queensland (+27,000) accounted for almost all of the gains in the noisy monthly figures.

Over the past quarter the the +87,500 net increase in employment has largely been centred upon New South Wales (+35,000) and Queensland (+33,600). 


Unemployment rate improving

The trend unemployment rate has steadily improved over 33 months from 6.25 per cent in October 2014 to 5.62 per cent in July 2017. 

The participation rate edged inched up in July, while the trend employment to population ratio is now back up to the strongest level since May 2013. 

So things have evidently been on the mend, though it's a sobering thought that the UK now has an unemployment rate of just 4.4 per cent, the lowest reported reading since 1975. 

At this rate it will be a few years before Australia gets anywhere close to full employment, if international trends are anything to go by.


New South Wales has by far the best trend unemployment rate of the most populous states at 4.8 per cent.

But the surprise package here is Western Australia, where trend full time jobs have been improving for 10 months and the unemployment rate has declined to 5.4 per cent, now materially lower than the national average.


And finally, for the many doubting Thomases, the annual trend in monthly hours worked improved to +2.5 per cent, the best result in 19 months. 


Sound as a pound.

Wut

The Queensland winter wears on...

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Wednesday, 16 August 2017

Melbourne land sales hit fastest pace on record

New car sales supercharged

The trend result for new motor vehicle sales rose to 101,083 in July, the highest on record.


The recent surge has largely been accounted for by Victoria, where new units sold are +4.4 per cent higher year-on-year in seasonally adjusted terms at 28,349.

Victoria is the home of arguably the most vibrant economy in the country right now: Greater Melbourne.

South Australia has also been improving steadily, with seasonally adjusted new vehicle sales +8.1 per cent higher over the year at 6,269.

In annualised terms, New South Wales has racked up 397,652 unit sales, which is the highest figure ever recorded for any state. 


Sports utilities continue to dominate the sector, and are all set to overtake passenger vehicles as the most popular choice over the months ahead, which has been an extraordinary progression. 


Meanwhile production continues to plummet as the domestic auto industry winds up, and the overwhelming bulk of new vehicles going forward will be imported. 


The wrap

Overall, these were more strong numbers indeed for new vehicle sales, with the Victorian economy once again shining.

This is leading in turn to a starburst of population growth and demand in Melbourne.

Oliver Hume reported that the average time on market for vacant land sales in Melbourne continued a precipitous drop from 200 days in Q4 2012 to a fresh all-time low of just 30 days in Q2 2017. 

Blocks have never been snapped up at anything like this speed before across the history of the data series. 

Demand has been strong locally, with anecdotally even some Sydneysiders now relocating to Melbourne for cheaper housing. 

The median price of land in Metropolitan Melbourne increased by +2.3 per cent in the quarter to $268,000 according to Oliver Hume, with the average lot size declining.

Land prices per square metre increased by $14 to $654. 

Wages bump along along the bottom

Wages bumping along

There's been plenty of talk of wages growth in Australia picking up the pace again as the labour market improves. 

But with plenty of underemployment and spare capacity around, there's barely a flicker of that yet.

Wages growth came in at +0.5 per cent for the June 2017 quarter, and +1.9 per cent for the year.


For all the hand-wringing about record low wages growth and so on, it's worth noting that wages have comfortably outpaced inflation over the past decade.

Wages growth is still ahead of underlying inflation even now, if only just.

Not so widely reported was that public and private sector wages growth including bonuses increased by +0.7 per cent in the quarter - the strongest result for the June quarter since 2010 - to be +2.1 per cent higher over the year.

Furthermore, the numbers of hours worked in the economy has been rising solidly over the past 12 months, even if growth in the hourly rates of pay has been subdued. 

Public sector wages growth has been surprisingly robust in rising by +2.39 per cent over the financial year.

But private sector wages growth really has been in the doldrums, increasing by only +1.78 per cent.

You can see here how private sector wages growth has tailed off since the peak of the resources boom.


The unemployment rate in New South Wales has fallen to just 4.8 per cent - across Greater Sydney it is now below 4.4 per cent - yet to date there are still few signs yet of wages growth really picking up.

Indeed, annual wages growth around the traps was remarkably similar across the states and territories, tracking in a range of +1.9 to +2.1 per cent, with Western Australia the sole laggard at +1.4 per cent. 


Although lower nominal wages growth is seen as a 'bad thing', it is also a mechanism which helps the labour market to adjust through weaker periods. 

Contrary to what you might think, across the past two decades the strongest percentage growth in wage prices has been seen in Western Australia, then South Australia, and then the Northern Territory (although there are of course wide variations within the states). 


Industry trends - services sectors lead

There was a strong +0.8 per cent quarterly pick up in mining wages in the second quarter, with many workers apparently being awarded their first significant pay rise in a couple of years or so, but in annual terms mining wages have still been limping along at +1.1 per cent.

Wages growth in rentals, hiring, and real estate has also been very subdued, reflective of the notable evidence of new entrants to the industry. 

Over the financial year the top performing sector was healthcare and social assistance, an industry that has seen gargantuan employment growth over the past two decades. 


Education and training has been another area of focus for wages growth, perhaps reflective of the surge in international students hailing from Asia. 

Wages growth in financial and insurance services remains quite moderate at +2.1 per cent. 

The wrap

With wages growth stuck at these low levels there are few inflationary pressures around, and there's pretty much zero chance of interest rates being hiked any time soon. 

An optimist might say that in unrounded figures annual wages growth is marginally higher than it was in the final quarter of 2016, though that might be clutching at straws a bit.

Including bonuses, wages growth was better, suggesting that the bottom may well now be in.

Indeed, with minimum wages increases taking effect from 1 July, annual wages growth will very likely be stronger next time around. 

With hiring in the labour market improving strongly in 2017 - and with other forward-looking indicators appearing quite robust - the Reserve Bank anticipates a return to full employment, but also that it may well take a few years for that to play out. 

In the meantime, it seems that many employees will have a tough gig negotiating pay rises.

Jobs figures due out tomorrow!

Brisbane & population growth

Queensland rebounds

Population growth in Queensland is steadily picking up the pace.

Click to view video!


Population growth in Queensland (not Brisbane, my bad) is presently tracking at just over 70,000 per annum, well below the levels seen at the peak of the mining boom.

But it's picking up again now, so over a dozen years an extra 1 million inhabitants across the state seems quite feasible.

Tuesday, 15 August 2017

Hobart rents are exploding

Hobart insanely tight

Hobart's vacancy rate fell from 0.7 per cent to just 0.5 per cent in July 2017, according to SQM Research data.

That's probably close to about as low as you will ever see in a capital city, based on the prevailing measurement criteria. 

Sydney's vacancy rate was a notch lower at 2 per cent, while Melbourne's vacancy rate of 1.7 per cent was materially tighter than the 2.1 per cent result for the same month last year. 

Overall, the national vacancy rate ticked down from 2.4 per cent to 2.3 per cent in the month.

At the other end of the spectrum vacancy rates are elevated in Darwin, Perth, and for apartments in Brisbane. 


Melbourne's outperforming economy has been attracting interstate migrants from Western Australia, Adelaide, the Northern Territory, and lately even from Sydney.

And that's on top of the strong immigration from overseas.

As a result vacancy rates are tracking at around their lowest level in years. 

Smoothing the original numbers on a 6mMA basis is a tad misleading since there is typically a spike over Christmas, but it's more than evident that Melbourne vacancy rates have clearly been trending down for several years now.


And with Greater Melbourne recording the highest population growth on recent record for an Australian capital city, there is no respite on the horizon.

The nail in the coffin for the predictions of an imminent Melbourne plunge is that not only are prices rising, but now asking rents are too, with median apartment rents heading up and away (+5 per cent year-on-year). 

This has nothing on Hobart, though, where both rents and prices are now blazing higher at a double digit pace. 

And then there's the surge in Chinese interest in Tasmania. 

Normally you'd expect to see a dramatic supply response ramp up in such circumstances. 

To date developers have possibly held back a little given the logistical challenges and costs posed to those based on the mainland, although a range of major hotel and commercial projects have certainly been touted.

It'll be interesting to see if locals now get building.

But for the foreseeable future it will be a feeding frenzy as buyers race to escape the woeful conditions for renters. 

Emphatic demographic figures

Immigration rose in FY2017

There was a strong +11 per cent increase in net permanent and long term immigration into Australia in FY2017 to a total of +291,300.

This represents a marked increase, mirroring the recent improvement in the economy and jobs growth.

Most are heading to Sydney and then Melbourne, with daylight a surprisingly popular third choice. 


Asia accounted for 56 per cent of permanent settlers, with underlying strength in the numbers hailing from China (17,780), and especially India (23,010). 

The increased humanitarian intake also saw the settlement of 9,370 Iraqis across the financial year. 

On the other hand are now comparatively few permanent settlers from the United Kingdom (6,180) and New Zealand (8,100). 

You can insert your favourite Barnaby Joyce quip here, should the mood take you. 


Tourists, tourists, everywhere...

Following the depreciation of the Aussie dollar there has also been a tremendous surge in annual short term visitors, mushrooming by +45 per cent from 5.9 million in FY2012 to a record 8.6 million in FY2017.

Sydney still attracts the most tourists, so these prodigious numbers potentially put a different slant on the assumed apartment oversupply, as well as representing a boon for businesses in the Airbnb space.


In absolute terms, the growth in short term arrivals was again largely driven by the thunderous 1.7 million visitors from China, Taiwan, and Hong Kong (+167,300). 

But there were also very strong percentage gains from the United States (+16 per cent), Canada (+14 per cent), Japan (+12 per cent), India (+15 per cent), Other Asia (+13 per cent), and Other America (+17 per cent).

Some of this trend is currency driven, and some due to awareness of Australia as a destination.


Finally, FY2017 was also a record year for education arrivals, including a monster intake of international students in the month of February, in advance of the first Semester in March.


The education boom is largely a Sydney and Melbourne phenomenon, as indeed has been the case for most of the thriving sectors since the 2012 financial year.

Overall, these were strong demographic numbers for FY2017, with Australia attracting more long term arrivals, and visitors in record numbers.

And just think of all those future politicians arriving on Aussie shores!