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.

Sunday, 28 May 2017

Another bumper weekend

Sydney and Melbourne motor on

It was another big weekend for Sydney auctions, with a preliminary clearance rate of 76 per cent reported by both Domain and CoreLogic.

Domain had reported 548 auction results, but quite a large number remained unreported. 

The median price of property sold at auction was $1,290,000.  

The median auction price for houses ($1,551,000) was 6 per cent or $86,000 higher than for the corresponding week last year ($1,465,000). 

Meanwhile, the median auction price for units ($885,000) was 3 per cent or $27,500 higher than the same week in the prior year. 

The preliminary clearance rate in Melbourne was a notch stronger at 77 per cent.

The final clearance rates will likely be closer to 70 per cent as the results dribble in.


The Vivid Festival is back in town in Sydney this week.

There's huge fortnight of news ahead, culminating in the Australian National Accounts for the March quarter on June 7. 

Australia is all set to break Holland's record for the longest uninterrupted spell without a technical recession at 26 years or 103 consecutive quarters.

That said, the first quarter saw construction and export levels drop sharply - partly due to Cyclone Debbie - so there's a fair chance that the economy contracted over the first three months of the year. 

Saturday, 27 May 2017

Manchester leads UK price growth

Manc leads

Manchester continues to lead UK house price growth, according to Hometrack's latest index. 

London has become a real two-speed market - splitting out the London market by price decile shows how price growth has shifted into properties in the lowest deciles, while premium properties are struggling.  

Source: Hometrack

Weekend reads - must read articles from the last week

Weekend reads

Summarised for you here at Property Update.

Gold Coast live

This week is your last chance to book tickets to come and see me speak live at Gold Coast.

The organisers have really let me loose this year, and I'll be delivering 3 separate presentations.

See here for details...and look forward to seeing you there!

Friday, 26 May 2017

The big move north is finally underway

All points north

It's taken a long old while to get going, but the great cyclical migration north is picking up the pace as the Sydney housing market prices out some homebuyers, and people gradually work out how dreary the winters are down south.

It's been pretty evident in Brisbane for a while - every second person you meet has seemingly just moved up from somewhere else, that somewhere else usually being Sydney. 

And the figures now have confirmed that Brisbane now has the highest net internal migration gain of all the capital cities, hitting a pacy 10,100 in 2015-16.

Net internal migration to the Gold Coast (6,428) and Sunshine Coast (6,200) also increased to the highest levels in about a decade. 

As the creator of most new jobs, Melbourne is attracting a historically high number of migrants internally, with a net gain of 8,300 people, while Hobart moved into positive territory with a net gain of 400. 

On the other side of the coin Adelaide (-6,100) is suffering a remarkable brain drain, partly to the bright lights of Melbourne. 

Meanwhile the resources capitals Perth (-3,300) and Darwin (-1,200) have continued to grapple with the winding down of mining construction, while Canberra (-180) also lost a handful residents on a net basis. 

Of the regional areas outside Queensland, Geelong (4,216) is seeing fairly strong internal migration, and we might expect this to continue

Foreign born Sydney

The figures released by the ABS for 2015-16 provided a remarkable insight into the changing face of Sydney. 

Sydney lost 23,200 people net during the financial year, with the biggest internal migration loss to regional New South Wales as retirees take their equity to cheaper and coastal locations (and who can blame them?). 

Sydney's rapid ongoing population growth has instead been driven by a combination of high rates of immigration from overseas and natural growth (more births than deaths), meaning that a large chunk of the resident population today is overseas born.

Sydney unemployment rate falls to 4.4pc

Employment moves up a gear

Total employment has suddenly surged in recent months, to be 195,300 higher over the year at 12,136,400 in original terms, for annual growth of  a solid 1.6 per cent. 

The bulk of employment growth has continued to be part time in nature, however, reflective of significant slack in the labour force. 

I've written previously of how full employment can be both a cause and effect of real estate booms - a positive feedback loop as employment, population growth, and construction output increase - which can eventually result in spectacular blow-offs in property prices.

I cited the examples of Darwin and Perth in the early phases of the mining boom. 

Constructive criticism of my piece argued that easy credit is a bigger factor in creating property bubbles, but this alone can't explain why Perth residential prices increased by 104 per cent between September 2003 and December 2006, while Sydney's median prices simultaneously fell 3 per cent. 

Similar lending practices were in operation in both cities at that time, after all.

The below chart presents a clue - Western Australia was in the midst of a resources employment boom with the unemployment rate falling to below 3.5 per cent. 

Darwin followed a little later, with its unemployment rate falling to below 3.5 per cent in 2006-7, and both cities saw huge increases in dwelling prices. 

Sydney firing

In this context it was interesting to note in yesterday's Detailed Labour Force figures that Greater Sydney's unemployment rate fell to just 4.4 per cent. 

Construction has been a key driver of the economic boom in Sydney, with the number of new home completions breaking the record set in 1971 this year. 

35,871 new homes were completed in the Greater Sydney area over the year to February, eclipsing the previous 12-month record of 35,687, set more than 40 years ago.

Approvals have also hit historic highs across the state of New South Wales, with 74,217 approvals over the year to March 2017, more than doubling the levels seen in 2011.

Despite this, I don't believe Sydney is at full employment levels yet. 

If anything the labour market seems to have tailed off a bit lately following a spectacular performance in 2016, and part of the low unemployment rate story may be accounted for by disenchanted homebuyers moving interstate (and some retirees opting to relocate to less costly pastures). 

The best performing labour market over the year to April was Greater Melbourne, by a wide margin.

The search for gainful employment

One of the possible reasons that more people aren't migrating interstate as much as they once did is the middling state of conditions in the economy. 

The median duration of job search has deteriorated from 13 weeks to 15 weeks over the four years since April 2013. 

The city in which it takes longest to find work is Adelaide at more than 20 weeks on average, which has resulted in pedestrian population growth in South Australia, while Perth has been heading in a similar direction. 

Comeback trail for regions

There is some brighter news around the traps. I often look at the Townsville region as a useful bellwether for regional Australia, and Queensland in particular. 

Having fallen away sharply since the peak of the resources boom, total employment is now trending moderately higher again after some high-profile industry closures. 

Indeed, there has been a spate of brighter news and planned projects reported for the region, and the unemployment rate has begun to trend down, having soared from around 4 per cent in 2012 to double digit levels. 

Whether or not the controversial $22 billion Adani coalmine ultimately attracts a tick of approval could potentially be earth-shaking news for the region, with the project expected to be headquartered in Townsville. 

Total mining employment declined by 22 per cent between May 2012 and August 2016 in Australia, but has recovered a little over recent quarters.  

Thursday, 25 May 2017

Clear evidence of financial stress rising

Stress on the rise

The latest regional quarterly figures from the Australian Financial Security Authority (ASFA) provided the most compelling evidence yet of rising financial stress levels. 

Although the number of Part IV and Part XI bankruptcies was higher in the March quarter than in the preceding three months to December, year on year there was a modest decline. 

Western Australia has seen a clear uptrend since the June quarter of 2014 as the resources downturn continues to bite.

Looking at new personal insolvency activity, however, there was a clear rise in the number of debtors both on a quarterly and on an annual basis. 

Here too the figures for Western Australia reveal clear signs of financial stress, but in fact there was a strong increase in the number of debtors right across the board in the first quarter of the calendar year.

Below the figures for personal insolvencies are smoothed on a rolling annual basis to strip out seasonality. 

Sydney stress emerges

The number of debtors entering personal insolvency in Greater Sydney increased by a non-trivial 11 per cent in the March quarter.

Drilling into the statistical areas it is clear that many of Sydney's lower socio-demographic suburbs and LGAs are driving the increase, with elevated levels of activity in Penrith, Campbelltown, Bankstown, and Blacktown, and a secondary tier of stress emerging in Fairfield and Liverpool. 

There is also a growing heat spot of financial stress focused on the Central Coast, with rising debtor activity reported in Gosford and Wyong. 

As explicitly predicted in our Long & Short Reports, the region with the highest proportion of new debtors in the adult population was St Marys, for the apparent reasons explained in the report. 

Across regional New South Wales, there was also a small flash of debtor activity in Newcastle during the March 2017 quarter, which will warrant careful monitoring. 

Stress on the urban fringe

Similarly in Queensland the greatest contributor to the rising number of personal insolvencies was the outer urban region of Ipswich, including Springfield, while there was also a higher number of new debtors reported in the Logan region, where unemployment rates are elevated.

Scanning out across regional Queensland the regions with the highest number of new debtors in the March quarter included Townsville and Rockhampton. 

Meanwhile in Greater Melbourne the greatest number of insolvencies was also seen in outer suburban hubs such as Wyndham, Whittlesea-Wallan, and Frankston. 

With both full time employment growth and wages growth so weak, the rise in the number of insolvencies looks set to continue. 

For ongoing timely analysis of mortgage arrears and personal insolvency activity, please see our detailed monthly subscription reports

Rising population

It should be noted that with Australia's population swelling by well over 1 million people every three years or so, it is more or less assured that the absolute number of personal insolvencies will rise over time. 

Adjusting the number of personal insolvencies for the size of the incumbent population and we can expect to see Queensland and Western Australia rising to the top of the pile, being the states most comprehensively impacted by the winding down of resources construction (and in Queensland's case, severe flooding). 

Note that there is a series break in activity in the Australian Capital Territory (ACT), since before 2005 personal insolvencies were reported by state of lodgement rather than state of residence. 

The wrap

Overall, the ASFA figures provide compelling evidence of a rising trend in the number of people in financial difficulty. 

The regions showing the greatest levels of financial stress fit closely with what has been previously highlighted in our detailed market reports

In the absence of further monetary policy easing, a further rise in insolvencies appears inevitable. 

Wednesday, 24 May 2017

Mining cliff over; what next for resi?

Construction slowing

Total construction work done declined by 0.7 per cent in seasonally adjusted terms to $46.4 billion over the first quarter of the calendar year to be 7.2 per cent lower over the year to March 2017. 

After weaker trade and retail figures, all of the signs appear to be pointing to a weak result for GDP growth in the first quarter. 

First, here's the good news: having peaked all the way back in 2012, engineering construction activity is now rising again. 

There were still moderate ongoing declines in Western Australia and the Northern Territory as resources construction activity continues to wind down, but the rates of these declines is now tapering off.

And indeed, at the national level engineering construction activity is rising again, partly driven by infrastructure projects in the three most populous states. 

Dodgy weather...or peak resi?

Residential building work done dropped by 4.7 per cent in the quarter, which was the worst quarterly result for the sector since the introduction of the Goods and Sales Tax (GST) more than a decade and a half ago. 

Building activity slowed across new house building, apartments, and major renovations, suggesting that at least part of the reason for the decline was Cyclone Debbie towards the end of the quarter, while Sydney also had some shocking weather during the period. 

And looking at the building work done figures by state confirms as much, with a very sharp 10 per cent quarterly drop in Queensland, and a somewhat lesser 4 per cent decline in New South Wales. 

In Victoria building activity powered to a new record high in chain volume measures terms, with the industry going like the clappers in Melbourne and operating at close to full capacity. 

New detached house construction has been broadly flat since the end of 2014, with the growth in residential construction since that time driven by record activity levels in the apartments sector.

Here too there was a sharp weather-related 22 per cent fall in Queensland, plus a relatively small decline in New South Wales.

But there was also a slowdown in evidence in Western Australia, South Australia, the Northern Territory, and Canberra. 

On this evidence, then, it's possible that the peak for apartment construction activity might have passed, although there is of course still a huge pipeline of work to be completed.  

The wrap

Firstly, growth in the economy in the first quarter is going to be weak, and perhaps very weak. 

On the positive side there is light at the end of the tunnel for the resources states, as engineering construction activity finally looks to be bottoming out, after years of contraction. 

Strip out the impact of Cyclone Debbie and heavy rain in Sydney and the apparently sharp drop in residential construction in the first quarter of the year may prove to be less than dramatic. 

However, it's hard to escape the conclusion that building activity in the residential sector is about to fade away as the record pipeline of apartments is delivered to the market. 

It might reasonably be expected that dwelling starts fall by about a quarter over the next couple of years. 

Given the huge level of employment in the construction industry, this could prove to be a very significant drag on the economy going forward. 

Rezoning for Dreamworld?

Dreamworld located on "prime real estate"

I recently took a look here at the February trading update and HY17 results from Ardent Leisure (ASX: AAD) in the wake of events at Dreamworld. 

In a Strategic Initiatives ASX release this morning Ardent noted that it has appointed a town planner to assess feasibility for rezoning parts of the precinct.

Source: ASX

"Alternate uses" - sounds ominous.

Asking prices soaring in Melbourne

Melbourne rips

On the back of some very strong auction results, Melbourne asking prices are on an absolute tear.

Over the past three years median asking prices for houses in the Victorian capital have now increased by 43 per cent, exceeding the gains even in Sydney (42 per cent). 

Source: SQM Research

Huge Budget boost for NSW

Stamp duty records

Stamp duty and transfers paid in New South Wales hit $9.63 billion over the year to April 2017.

This will be another huge boost to the New South Wales Budget, which ended the 2016 financial year in surplus, partly thanks to a one-off bonus from the Ausgrid transaction. 


Later this morning the Australian Bureau of Statistics (ABS) will releases its March quarter figures for Construction Work Done.

This may be a key data series in determining whether interest rates yet have further to fall.

Total construction activity has declined over the past three years as the resources boom has wound down, yet the industry still employees more than 1.1 million people, about three quarters of whom are accounted for by the residential property sector. 

Construction work done fell by 7.8 per cent last year to $46.3 billion in the December quarter - although the rate of decline slowed significantly towards the end of the year - and this was despite another solid 5.7 per cent lift in residential construction in 2016. 

There was a bit of dodgy weather around towards the end of the March quarter, so a further decline wouldn't be a surprise, although public works should now at least be contributing a little bit of growth.

Output gap

Credit Suisse put out a note last week suggesting that Australia's output gap may be consistent with several further interest rate cuts, citing upwardly-biased labour market figures which understate the likely level of slack in the labour market. 

Certainly the anaemic level of wages growth in the economy supports this view.

And, as I noted here, the inflation figures are also known to be upwardly biased, a factor which could come into play towards the end of the year.  

All of which leaves growth in the economy highly susceptible to any downturn in residential construction, so stay tuned...

Tuesday, 23 May 2017

All around the world

Global house prices

The Bank for International Settlements (BIS) provides a neat data series measuring residential property prices across various advanced countries. 

Comparing house prices in different jurisdictions is arguably of limited use, but it's nevertheless an interesting exercise to see how markets in different countries have performed over time.

Indexing to a base of 100 in the year 2010 and looking at a selection of countries shows how prices in Hong doubled before a recent correction.

New Zealand has also seen a thunderous 60 per cent increase in nominal prices, while Canada is not too far behind at 42 per cent. 

The increase over the corresponding seven years in Australia was lower at 31 per cent, reflecting that while some markets have seen very strong growth - mainly Sydney - others have essentially been treading water. 

Residential prices in Ireland have now recovered to where they were in 2010, but remain well below their pre-financial crisis peaks.

The BIS also provides indexed prices in real terms, adjusted for inflation.

Here, New Zealand looks like an outlier recording huge 47 per cent growth in real terms, comfortably outpacing Canada at 29 per cent, and Australia at less than 15 per cent.

Of the countries selected above, only Ireland has not seen prices increase in real terms since 2010, reflective of monetary policy stances globally. 

Monday, 22 May 2017

Swan dive over?

Respite for WA?

Western Australia, which basically comprises the western third of the country, has been through a rough trot since the peak of the resources construction boom. 

And then in April the seasonally adjusted unemployment rate suddenly fell from 6.5 per cent to 5.9 per cent. 

Does this signal that the tentative beginning of a recovery? Well, perhaps. 

Certainly the decline in engineering construction is now considerably closer to the end than the beginning, while the recent bounce in commodity prices might help to spur along some new drilling as iron ore reserve are depleted.

The trend unemployment rate has recovered more gradually from 6.5 per cent in October 2016 to 6.1 per cent in April. 

This may in part have been helped along by net interstate migration to the eastern states. 

In fact, the labour force figures for WA have improved on a number of metrics since the third quarter of last year. 

For example, the employment to population ratio has tentatively begun to trend up again. 

Victoria has overwhelmingly created most of the new jobs over the past year on a net basis, but WA has moved back into positive territory having really plumbed the depths last year. 

Full-time employment had crashed as low as 890,800 in September 2016 - down from the record 2014 peak of 966,900 - but has since bounced back somewhat, up by 44,200 to 935,000. 

Monthly hours worked have also increased year-on-year, up by 1.7 per cent in trend terms.

The wrap

After such a punishing run, you wouldn't want to jinx it by calling the bottom, but there are at least a few signs of green shoots here for WA. 

On an obliquely related note, from March next year residents of Perth will be able to fly non-stop to London on the Qantas Dreamliner service. 

Sunday, 21 May 2017

Sydney auctions bounce

Auctions rebound

Domain reported a preliminary auction clearance rate of 76.9 per cent for Sydney on Saturday, recording 512 sales. 

The median auction price was back up to its highest level in six weeks at $1,300,000, and was quite considerably higher than the corresponding weekend last year. 

The median auction price reported for houses increased from $1,407,500 last year to $1,511,000, while the median price of units sold under the hammer increased modestly to $875,000 from $850,000 last year. 

CoreLogic reported a clearance rate for the week of 80.7 per cent in Sydney from well over 1,000 auctions, which was its highest reported result for Sydney since April 9.

The top sale of the weekend was seen in Northbridge, where a grand 5-bedroom waterfront home on 1,891 square metres with panoramic Sydney harbour views and water access fetched $9.3 million. 

A strong result, no doubt, but not a patch on the street record set in September last year. 

Respective auction clearance rates were also very strong in Melbourne.

More lenders are set to report higher mortgage rates this week for interest-only loans.

Despite the unambiguously strong auction results, slowly but surely regulatory and Budget measures respectively are set to strangle city-wide growth in these two markets, as I looked at in a little more detail here and here

Friday, 19 May 2017

APRA may deploy its 'special powers'

'Special powers' APRA to the rescue

It was announced in the 2017 Budget speech that the regulator APRA will explicitly be allowed to differentiate loan controls by location. 

This is another move signalling that politicians and regulators don't trust banks to lend responsibly, while simultaneously inferring that they know better than the market what 'should' be happening in terms of property markets and lending activity (which may be a positive thing or a very worrying development depending on your outlook!).

Practically speaking this means that APRA might look to restrict the flow of credit into 'hot' housing markets - essentially Sydney - while presumably steering clear of intervention in markets where prices and rents are in a multi-year freefall (such as Darwin, Gladstone, or indeed any number of of Australia's resources regions). 

This all sounds jolly good on paper, until you think about all of the potential ramifications of regulatory intervention. There isn't the space here to go into detail on this point, but it's a concern!

Lending finance rebounds

The March 2017 Lending Finance figures, which strangely never seem to get any media coverage, saw total lending jump tidily from $67.6 billion to $72.9 billion in seasonally adjusted terms.

Lending to homebuyers was relatively steady in the lead-up to APRA's latest round of macroprudential curbs, while nationally there was a moderate increase in lending to property investors (classified below under commercial finance). 

It's generally reported that lending for real estate is unproductive and risky, while lending to business is productive and a good thing. This may be true to an extent, though there are many sub-trends to take into account. 

Overall commercial lending saw a neat increase in the month of March to be solidly higher year-on-year, even if the recent trend series looks a little flat lately.

Renovations rose to a 6.5 year high in March 2017, as Aussies apparently shunned stamp duties and trading up for staying put and renovating instead, though looking at the numbers in their historical context the 'renovation boom' story seems a bit less enticing. 

Splitting out commercial finance fixed loans by industry shows how lending into the mining sector has all but evaporated, declining by a further 46 per cent over the year to March. Commercial lending to the mining industry has fallen to about a quarter of the level seen at the peak as the resources construction cliff now approaches its nadir. 

Despite this massive contraction, annual lending for construction continues to expand at a sprightly double digit pace, a trend which belies Australia's over-reliance on the residential building sector for employment and growth. 

Investor loans diverge

Carving up loans to property investors by state, it's clear that Sydney investors don't believe in the apartment oversupply and have been doubling down on harbour city real estate with a vengeance. 

Lending for investment in New South Wales surged to a thumping $6.2 billion in March - 39 per cent higher than for the same month last year - signalling a huge rebound since APRA's first round of macroprudential restrictions

There was also something of an increase in investor lending in Victoria which will warrant careful observation. 

The massive divergence in fortunes across the states in the prevailing low interest rate environment is ultimately what led to APRA's new powers to target lending practices in specific neighbourhoods.

While Sydney property has been burning up, property investor loan volumes in the Northern Territory have collapsed to their lowest level in 11 years as prices and rents in Darwin continue to fall. 

The wrap

Overall, it was a stronger month for lending finance in aggregate, with a sizeable lift in commercial finance. 

The housing market figures pre-date APRA's announcement at the end of the month of March that new restraints would be applied to interest-only lending

What the figures do show is the massive divergence in investor sentiment between the resources states and Sydney (and to a lesser extent, Melbourne).

If this continues APRA may be called upon to use its new powers sooner rather than later. 

Sirtex crashes again

The Wong termination

Sirtex Medical (ASX: SRX) is one of the stocks I've been following with a great deal of interest following another glaring executive selldown, and the ensuing insider trading probe

Then there was also the debacle surrounding the double digit growth guidance, and the anonymous "tip-off".

The market has gotten there in the end after yesterday's study reports announcement led to another 28.3 per cent crash in the share price all the way down to $10.75 at the close.

Source: ASX

You wouldn't like to call the bottom on a chart like this, but the market finally seems to be discounting news with a bit more healthy scepticism.