Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory, 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.

"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.

Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email

Monday, 27 March 2017

More on Melbourne vacancies

SQM Research provides some great housing market statistics.

Here is something few would have dared to predict - vacancy rates in Melbourne, getting progressively tighter and tighter every year since 2011. 

Still heaps under construction, of course, but still the oversupply risk appears to have dissipated, at least for the time being. 

Source: SQM Research

The extent to which offshore investors have left apartments vacant is up for debate.

No doubting the main driver, though - unprecedented and sustained population growth

Sydney year-high clearance rate

Investor rush

CoreLogic reported the highest preliminary clearance rate of the year for Sydney at well above 80 per cent from more than 1,000 planned auctions.

Domain reported a preliminary clearance rate of just above 80 per cent with a median auction price of $1,300,500.

Melbourne posted a similar clearance rate.

The median Sydney auction price was 11 per cent higher than a year ago, when the reported auction clearance rate was only 61.4 per cent.

The freakishly high median auction price result of 25 February has dropped off the 4pMA chart below. 

Next week a much lower price on 4 March will drop off, meaning that another record high is a shoo-in.

This mirrors what most dwelling price indexes are now showing, which is median dwelling prices rising to new highs in 2017.

There has been plenty to suggest that investors are piling in to the market to 'get in' ahead of any potential changes to tax legislation. 

Despite higher auction numbers, total listings are below where they were last year in each of the most populous capitals, indicating markets that have tightened.

Sunday, 26 March 2017

Achtung shorts!

Resources pain

I recently wrote a short piece here at Property Update about the mixed fortunes of regional Queensland's housing markets. 

Mortgage delinquencies relating to regional Queensland have long been higher than the average in Australia since widespread flooding in the state in 2011.

But now delinquencies across parts of the state with exposure to resources are rising sharply further still. 

And remember that reported delinquency rates can lag falling prices, particularly when there are high vacancy rates and high rates of unemployment.

As resources construction continues to decline over the next year, some of these housing markets will be veritable disaster zones if they aren't already.

I've spoken to investors that were market participants in the mining town markets in 2012, and the news they deliver has been universally calamitous. 

For obvious reasons I don't discuss specific securities on this blog. 

But stocks with exposure to various housing markets of regional Queensland are likely to cop some serious fallout. 

Don't pay the rack rate; nobody pays the rack rate!

Rack rate

It was a bit of a quiet afternoon on Saturday, so thought I'd lob up to stay up on the Sunshine Coast for a couple of nights.

When I looked up the hotel cost on the hotel's website it was nearly $400 per night!

I didn't pay that rate, of course.

After all, who pays the advertised rack rate these days?

Better call Saul: Rental losses are falling

There was an interesting media story this week where Saul Eslake noted that the recent hike in investor mortgage rates could result in a "hit" to the budget totalling hundreds of millions of dollars. 

It was a good yarn, albeit one which stopped somewhat short of telling the full story. 

In fact between the 2008 and 2014 tax years the average net rental loss has cratered by 64 per cent.

Given that mortgage rates have declined substantially since 2014, the budget impact today of negative gearing appears to be heading towards trifling. 

In any case - omitted in Eslake's calculations - higher mortgage rates will simply lead to higher bank profits, and in turn a higher corporation tax take. 

The banks like to argue that they have faced rising funding costs, but in reality funding costs fell in 2015 and fell even further in 2016.

Yeah, I know, the banks are doing it tough out there now. 

Evidence? Check out Commonwealth Bank's outrageous record profit of more than $4.9 billion for the first half, up yet again by another 6 per cent from the prior corresponding period. 

Meanwhile, rents have been rising, so over recent tax years net rental income has been steadily moving towards zero as more property investors record net rental profits on their tax return (remember these numbers need to be tax effected at the relevant marginal rate). 

Indeed, the number of landlords declaring a net rental loss is all but unchanged since the 2008 tax year despite Australia's rising population.

Back to those rack rates...

According to the Reserve Bank of Australia's Statistical Tables the standard variable rate on investor loans was already up to 5.55 per cent by January.

But here's the thing: who is really paying such a high rate of interest today, when investor loan products have been available from around 4 per cent?

Probably not that many people, I reckon.

For evidence? Take a look at the national accounts.

With the population having increased by about 16 per cent from 21 million in 2008 to 24.4 million today, you'd expect to see interest charges rising over time.

Yet the amount of interest payable on dwellings today is lower than it was in 2008.

The total interest payable by households on outstanding mortgage debt implies a considerably lower average mortgage rate than the quoted 'rack rates' (record mortgage buffers and the use of offset accounts have likely played a role here too). 

The wrap

With mortgage rates having declined since the last available full suite of tax data for financial year 2014, the impact of negative gearing on the Federal Budget would now be getting fairly close to zero.

Meanwhile, state government figures show that revenue offices are cleaning up from investor activity, with New South Wales alone swallowing up an outlandish $9.4 billion in stamp and transfer duties over the year to January 2017.

Negative gearing doesn't really represent a 'loss' to the budget as such - rather it is a timing difference, with the 'loss' typically recouped as investment properties become cash flow positive over time, or in capital gains tax at the point of sale.

With relatively few new dwellings being bought or constructed by owner-occupiers, the government also saves further by constructing comparatively little social housing.

The reality is that after accounting for the undoubted disruption to residential construction, the economy, and to housing markets, Federal Budget savings from changing negative gearing rules today would be approximately diddly squat.

Treasurer ScoMo won't be going there. 

Saturday, 25 March 2017

Mad for it

Manc recovery gathers pace

The UK 20 Cities house price index rose by 6.4 per cent over the year to February 2017, having increased by 7.8 per cent over the year to February 2016. 

The 5 year average growth for this index has been 6.5 per cent per annum, as the UK market continues its post-financial crisis rebound. 

Nationally there has been some loss of momentum, but price growth is rippling out to some of the regional cities. 


Manc moves to the top of the tree for UK house price growth at 8.8 per cent over the year to February 2017, with Pompey, Bristol, and Glasgow also scoring highly. 

London prices were 5.6 per cent higher over the same period, although HomeTrack has noted a slower turnover in stock in the most expensive markets, including Bristol and Oxford.

On the other hand stock turnover has increased in some regional cities away from London, which likely bodes well for disruptive players in the real estate markets such as Purplebricks. 

Source: HomeTrack

Aberdeen was the worst performer of the 20 cities in the index following the painful correction in oil prices.

Manchester is buzzing, and has been on our radar for some time now. 

Weekend reads: Must see articles of the week

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Friday, 24 March 2017

Build baby build

Detailed labour force quarterly

Total employment increased by 80,000 over the three months to February 2017, according to the Detailed Labour Force Figures reported yesterday by the ABS. 

Over the year to February, employment was up by 190,400, the strongest pace of growth in a year and well above the long run average.

Very good on paper!

Rather too good, in fact, in the event.

To cut a long story short, upon checking with the ABS, it seems that the figures were just not right.

A slight glitch in the matrix, one might say.

Construction crazy

The quarterly gains were driven by a large 45,500 increase in construction employment.

Mining employment is also now seen to be rising again. 

On the other hand, the rebound in manufacturing employment seems to have popped, and employment in the retail trade sector has apparently been crushed over the past year, down by a thumping 62,700. 

A bit of a mixed bag, and one which suggests to me that the economy has become too heavily reliant upon the residential building boom.

Construction employment has now soared to 1,114,800 from a total workforce of about 12 million, which seems incredibly high - well above historic norms - and probably peaky. 

Remarkably the rebound in total mining employment to 241,700 means that employment in the industry is now only 36,700 below the 2012 peak. 

Where are the jobs?

Perhaps I'll look at the regional jobs growth another time.

Just to note here for now that Sydney has consistently seen the lowest unemployment rate of the major capital cities, and Adelaide the highest. 

Hobart takes out the most improved award. 

Brisbane is now seeing population growth picking up as expected, which over time will help to tackle the inner city apartment glut, though this is also putting pressure on detached house prices in sought after school zones. 

But to date Greater Brisbane doesn't appear to be creating the jobs to keep its unemployment rate down.

And it needs to.

Gold in them thar hills!

Gold rush!

In 1851 the population of Victoria was below a lowly 80,000, although Aboriginal inhabitants weren't included in the Census counts. 

By 1854, the state population had tripled according to some estimates, and by the time of the 1861 Census the population had doubled again, by which point the population of the state had hit a seething mass of 540,000, more than 320,000 of whom were men. 

There was a similar trend unfolding in New South Wales, though the numbers weren't as dramatic, as hundreds of thousands of men and their wives came from Britain, other parts of Europe, and America.  

The reason, of course, was gold

The 1861 Census of Victoria makes for eye-popping reading, with employment for gold mining and mechanics dwarfing everything else, including agricultural work, and reported unemployment extraordinarily low. 

Boom & legacy

Gold production reached a peak in 1853, yet immigration continued to boom for long after this point as men came to seek their fortune.

This reflects one of the paradoxes of a population boom: when the music stops - that is, when the initial or underlying drivers of a demographic boom subside - then the downturn can get nasty.

During the 1850s the population of Victoria exploded - the value of property rose rapidly and for a while this was the richest "country" in the world, with Melbourne becoming a genuine boomtown and one of the British Empire's greatest cities. 

The gold rush in many ways made Australia what it is today, with the national population rising from under half a million to 3.8 million by the turn of the century. 

The boom wasn't without its challenges, with the famous Eureka Stockade arising from the poor conditions experienced by workers, racism and killings experienced on the goldfields, and ultimately changes in legislation surrounding gold exports and a slump in global demand. 

Last of all, there was the Great War, which bled Australia of its mining labour. 

Melbourne reigns again

Since the tail end of the gold rush boom in 1888, for many decades population growth in Victoria failed to attain the top spot of the states. 

Over the last two years, however, Victoria has returned to number one.

There are three components to population growth: the natural increase (births minus deaths), net migration from interstate, and net migration from overseas.

Victoria has historically lost residents interstate, but now this trend has reversed with gusto, and population growth is once again soaring to record levels. 

Net interstate migration (17,185) is at levels we've not recently seen and rising, natural increase is pumping along (41,700), and net overseas migration (68,613) is reverting northwards too, particularly into Melbourne.

The result is explosive annual population growth of 127,498, with the total state population blazing past 6.1 million.

There have been many predictions of apartment oversupply, but in the short term at least, these have been negated by the accelerated population growth. 

In fact, dwelling completions have not been keeping up with demand, and Melbourne's vacancy rates have declined close to a 10-year low

Cautionary note

There was no gold rush, this time around, rather we've seen a Melbourne jobs rush, with the construction boom and its associated multiplier one of the underlying drivers (arguably there's the dubious "most liveable city" thing as well). 

Yesterday's employment figures showed that nationally the greatest net jobs creation was seen in construction (+45,500) over the three months to February 2017, far outweighing employment growth in all other sectors of the economy.

Total employment in the construction sector has now risen to more than 1.1 million from a total workforce of under 12.1 million.

Of course, I don't know for certain where the limit is for construction employment, but I'm personally willing to take a bet that we're somewhere close to the top here. 

There's an inherent associated risk for Melbourne's property market.

As I've noted before on various podcasts, explosive population growth is great for property markets until it isn't, and you never want to hit a bump in the road when you're travelling at twice the speed limit.

Should employment from the record residential construction boom subside quickly, or should Melbourne fail to create the necessary jobs to sustain its population boom at gold rush like levels, there could eventually be some fallout given that dwelling units under construction are still at near-record levels.

In the meantime apartment landlords can probably breathe a bit of a sigh of relief. 

Thursday, 23 March 2017

Melbourne crowned king of jobs & growth

All eyes turn to Melbourne

Interstate migration to Queensland is picking up again as expected as folks head north from crowded and pricey Sydney, but it was the record interstate migration to Victoria which really shot the lights out over the year to September. 

The driver of this is clear, since Victoria alone has been creating almost all of Australia's jobs lately.

Net overseas migration also accelerated into Sydney, Melbourne, and south east Queensland.

As a result the most populous states are mopping up a huge share of population growth, with New South Wales and Victoria alone accounting for 68 per cent of the population increase, and Queensland a further 19 per cent. 

Absolute population growth increased to 67,700 in Queensland and a massive 109,600 in New South Wales - mainly into Greater Sydney - but Victoria is breaking demographic records not seen since the gold rush, with the total population exploding 127,500 higher over the year to September. 

Here are those same numbers looked at over the past three years, with South Australia and Western Australia losing momentum, and the largest capital cities gaining population growth at their expense. 

The massive headcount growth into Melbourne in particular explains why residential housing vacancy rates have been falling, close to a decade low at the last count.

Despite many new tower blocks adorning the skyline, a record supply of small apartments has only partially absorbed a vast surge in migration to the Victorian capital.

Immigration accelerates to 4-year high

Population growth is back

Population growth in Australia is accelerating again.

It looks as though the registrars have caught up on the missing births in New South Wales and Victoria, after a bit of a backlog.

The natural increase in the population is ticking along at around 155,500 per annum, but it was a sizeable uptick in migration from overseas that was the driver of stronger population growth.

Over the year net overseas immigration accounted for an extra 193,200 heads. 

In fact the Q3 figure for net overseas migration was the strongest third quarter of the calendar year since 2012. 

The total Australian population increased by 91,316 in the September quarter, also a solid rebound.

And as a result, total population growth accelerated to 348,700, or 1.5 per cent.

The Australian population today is 24.4 million, but at the end of September 2016 it was 24,127,000.

Overall, it looks as though you can chalk one up for a correct prediction that I've made here, which is always a nice bonus, though demographic trends are always prone to benchmarking changes.

Next up I'll look at the much more interesting patterns from around the country.

Listings tight

Listings low

Despite media talk of a sell-off, Sydney listings are well down over the past decade.

Source: SQM Research

Melbourne's market is tightening even faster, with total property listings well down from nearly 50,000 at the peak. 

Source: SQM Research

If vendors don't believe in a sell-off, regulators apparently don't believe in it either.

Quite the opposite, in fact, and there is talk of curbing demand for housing credit, which has been deemed to be too strong.

Wednesday, 22 March 2017

UK property prices ignore Brexit

Article 50 trigger

Not sure about anyone else, but think I've had my fill of house price indexes for a while!

Anyway, just one more for luck...

UK prices hit an all-time high in January 2017 according to the ONS, with annual gains accelerating to 6.2 per cent. 

The average UK house price rose to a record high £218,000, which is £13,000 higher than a year earlier. 

Gains are still being driven by England, where prices rose by 6.5 per cent. 

The recovery in Northern Ireland seems to have lost some grunt, although prices are 5.7 per cent higher than a year ago. 

The ONS has stopped pointing out how far prices in Ireland are below their peak, but suffice to say it's a lot. 

London prices rose by 7.3 per cent over the year to a record-blitzing £491,000.

And there were even stronger annual percentage gains in the East (9.4 per cent) and South East (8.4 per cent) of England.

Let's move on to something far more exciting tomorrow: population growth and demographic trends for Australia. 

I have an inkling that the population growth figures for Melbourne might throw a spanner or two in the works of the oversupply argument in the Victorian capital. 

Return of the Kiwi

New Zealanders trickle back

Another trend which has been overblown on recent times has been the exodus of 'Australians' to New New Zealand. 

In fact, the numbers departing Australia permanently or for the long term are now down year-on-year. 

New Zealand has been experiencing record levels of net annual immigration - including 71,300 over the year to February 2017 - but the drivers of this growth are now former residents of China, South Africa, and the United Kingdom respectively. 

In truth tens of thousands of New Zealanders migrated to Australia through the mining boom, and relatively few have dribbled back.

The NZ government statistics have reported that the Aussie migrants in question are very often New Zealand born residents returning home. 

But even this trend has now reversed, with a small net flow of permanent and long term migrants back in the other direction across the Tasman towards Australia. 

Moreover, this analysis ignores the impact of temporary visas.

There are now more than 677,000 New Zealand subclass 444 visas on issue in Australia, with strong growth in this sector recorded in 2016. 

One metric which may yet favour New Zealand going forward is the Bledisloe unemployment cup, with Australia's respective unemployment rate inching higher than that in NZ in rising to 5.9 per cent in February. 

Overall, Australia's immigration levels look set to be relatively steady over the next year or two, with population growth tracking at around 1.4 per cent, largely centred upon Melbourne and then Sydney. 

Tuesday, 21 March 2017

Melbourne vacancies close to a 10-year low

Melbourne rental markets tightens 

A short but possibly very important article!

SQM Research reported today that Melbourne's vacancy rate had declined to just 1.7 per cent.

That's nearing a 10-year low.

Given the very high rate of construction seen in Victoria, this is remarkable, and potentially leaves many commentators - including me, actually - with egg all over their faces. 

The state of Victoria has added more than 229,000 dwellings to its stock or more than 10 per cent over the past 5 years.

Yet with Melbourne population growth rising to a record high, even this mightily impressive rate of dwelling construction still not been enough to stop vacancy rates falling from around 2.5 per cent to well below 2 per cent.

Asking rents are rising solidly for houses and apartments in Melbourne and Sydney, and have hit new highs in both cities. 

Despite this, rental CPI is tracking at around two decade lows, with rents having declined in Perth, Darwin, and now for Brisbane apartments. 

Heck, even the reported vacancy rate in Melbourne's Docklands tumbled to just 2.4 per cent according to SQM Research, after a sizeable seasonal spike through the Christmas break. 

The monthly vacancy rate figures can move around a bit, and vacancies can be higher over the Christmas period, but just to get a feel for where things are heading I also run a 4mMA chart. 

Some cities did record seasonal spikes over Christmas, but the tightness in Hobart and Canberra is clearly apparent. 

Perth's rental market seems to have improved just a notch lately. 

The wrap

The March result showed vacancy rates below 2 per cent in Sydney and Melbourne, while Canberra and especially Hobart have very tight rental markets. 

This is potentially hugely significant, for it suggests that apartment oversupply will not be the trigger for the next downturn in Sydney and Melbourne, which is a conclusion I've previously drawn in my own market research reports (Brisbane's inner city apartment market is a different story). 

One thing we can say, however, is that the true extent of any oversupply doesn't become apparent until sentiment and prices are in decline. 

Nevertheless, all eyes turn to APRA, and to the cash rate yield curve.