WA has resources to avoid home price fall

If you believe the latest National Australia Bank residential property survey, the average Australian home price is poised to fall by close to 10 per cent next year; but it is possible Western Australia might dodge that bullet.

The NAB assessment is heavily skewed towards the impact of higher interest rates on monthly mortgage repayments.

What does not appear to be incorporated is the potential for the latest version of a global resources boom to spark a WA population surge once the state’s COVID-19 barriers come down and local businesses are free to recruit staff with what are likely to be very generous wage offers.

In what’s becoming an interesting debate, there is a divide over whether there will be net migration from WA or a net migration to the state once the borders come down.

NAB’s view of the residential property sector is that higher interest rates will spark a turn in the market in the second half of this year, with the average home nationally managing to rise by 2.7 per cent in calendar 2022, down from last year’s 21 per cent increase.

NAB says WA should post a 1.2 per cent rise in dwelling prices this year, well down from last year’s rise of 13.1 per cent.

In 2023, the national fall in prices, albeit an orderly decline according to NAB, is expected to be 9.3 per cent, with WA down 8.1 per cent.

It’s not easy arguing with a bank and all the professional research its economists have at their fingertips, and an increase in mortgage interest rates always dampens debt serviceability, which flows into what a buyer can afford to pay for a home.

Potentially offsetting interest rate increases on house values in WA could be a wave of new arrivals chasing jobs.

Many of these positions will be in the mining sector, which already pays high wages, but which might have to go even higher to satisfy demand.

Local lithium miner Pilbara Minerals missed production guidance targets in the December quarter partly because of a labour shortage.

Rather than produce an expected 85,000 to 95,000 tonnes of the metal for its battery-making clients in Asia, Pilbara could only turn out 83,476t, which was less than the 85,759t in the September quarter.

Pilbara Minerals chief executive Ken Brinsden said the labour shortage was being felt by all WA mining companies and was affecting the company’s ability to go as hard and fast as it would like.

Other miners have suffered substantially more than Pilbara, which has the cash to the pay high wages demanded by workers.

Bardoc Gold last year tossed in the towel when faced with a 30 per cent increase in the cost of building its namesake mine near Kalgoorlie, with labour costs a significant factor in the rise.

Instead, it accepted a takeover offer from St Barbara, which will transport Bardoc ore to its Leonora processing facility by rail.

But the best example of what WA might face can be found at engineering firm Monadelphous, which is expecting the labour shortage in WA to persist through this year.

Goldman Sachs noted the Monadelphous view of the WA labour market in a research note earlier this month, which said WA’s border restrictions had made it hard to source skilled workers.

A shortage of workers is likely to persist even after the border opens, which, according to the bank, has led to Monadelphous planning “initiatives to enhance the attraction and retention of skilled labour”, which can be interpreted as offering more money.

Also working against the NAB forecast of an 8.1 per cent fall in Perth property prices next year is the enticement for interstate workers of relatively low existing house prices, even after last year’s price spike, relative to other capital city markets.

Investment bank Morgan Stanley demonstrated how cheap Perth property is compared with Brisbane, Sydney or Melbourne, with Perth’s median dwelling price close to $500,000 compared with $650,000 for Brisbane, $820,000 for Melbourne and $1.1 million for Sydney.

Those price comparisons are supported by the CoreLogic home value index, which shows Perth to be the cheapest of the capital cities.

So, if Perth has the cheapest housing of any capital city and WA industry has an acute labour shortage after two years of closed borders, the question becomes what might happen when the border opens.

The person throwing the brightest light on that subject is the world’s top commodity analyst, Jeff Currie, head of commodity research at Goldman Sachs, who said earlier this month he has never seen a market like today with shortages of everything driving prices higher.

“I’ve been doing this for 30 years and I’ve never seen a market like this,” Mr Currie told the Bloomberg news service.

“This is a molecule crisis. We’re out of everything. I don’t care if its oil, gas, coal, copper or aluminium; you name it we’re out of it.”

COVID-19 production constraints, transport blockages, sluggish government approvals for new mining projects and a rising tide of resources nationalism – such as Serbia banning Rio Tinto’s proposed Jadar lithium mine – are some of the factors limiting supply even as demand continues to rise.

That picture of strong commodities demand, high-paid jobs and cheap housing might offset NAB’s cautious view on property prices; and while they might not rise next year, it’s also possible that they might not fall.

Green goes red, then fades PERHAPS Kermit the frog was right when he sang ‘it’s not that easy being green’, a sentiment that applies now to red hot investment sectors such as plant-based meat and sustainable wind energy stocks, which are starting to lose their appeal.

Sales of plant-based meat have crashed in the US.

After two years of double-digit growth, sales started to slow in the June quarter of last year and declined in the third and fourth quarters.

The drift away from plant-based meat can be measured in the share price of the US-based company Beyond Meat, which has fallen by 65 per cent during the past 12 months because sales have not matched projections.

It’s a similar story in the wind turbine industry, where the share price of market leader, Denmark-based Vestas Wind Systems, has fallen by 38 per cent during the past year.

London-based hedge funds are reported to have started short-selling green stocks last year as it become more obvious that ambitious profit predictions could be not achieved, and that a share price implying earnings per share 60 times the profit per share was not sustainable.

As Barry Norris from London-based Argonaut Capital Partners told the Financial Times newspaper: “In a bear market, a company doesn’t trade at 60 times earnings just because it does something morally good”.

If you believe the latest National Australia Bank residential property survey, the average Australian home price is poised to fall by close to 10 per cent next year; but it is possible Western Australia might dodge that bullet.

The NAB assessment is heavily skewed towards the impact of higher interest rates on monthly mortgage repayments.

What does not appear to be incorporated is the potential for the latest version of a global resources boom to spark a WA population surge once the state’s COVID-19 barriers come down and local businesses are free to recruit staff with what are likely to be very generous wage offers.

In what’s becoming an interesting debate, there is a divide over whether there will be net migration from WA or a net migration to the state once the borders come down.

NAB’s view of the residential property sector is that higher interest rates will spark a turn in the market in the second half of this year, with the average home nationally managing to rise by 2.7 per cent in calendar 2022, down from last year’s 21 per cent increase.

NAB says WA should post a 1.2 per cent rise in dwelling prices this year, well down from last year’s rise of 13.1 per cent.

In 2023, the national fall in prices, albeit an orderly decline according to NAB, is expected to be 9.3 per cent, with WA down 8.1 per cent.

It’s not easy arguing with a bank and all the professional research its economists have at their fingertips, and an increase in mortgage interest rates always dampens debt serviceability, which flows into what a buyer can afford to pay for a home.

Potentially offsetting interest rate increases on house values in WA could be a wave of new arrivals chasing jobs.

Many of these positions will be in the mining sector, which already pays high wages, but which might have to go even higher to satisfy demand.

Local lithium miner Pilbara Minerals missed production guidance targets in the December quarter partly because of a labour shortage.

Rather than produce an expected 85,000 to 95,000 tonnes of the metal for its battery-making clients in Asia, Pilbara could only turn out 83,476t, which was less than the 85,759t in the September quarter.

Pilbara Minerals chief executive Ken Brinsden said the labour shortage was being felt by all WA mining companies and was affecting the company’s ability to go as hard and fast as it would like.

Other miners have suffered substantially more than Pilbara, which has the cash to the pay high wages demanded by workers.

Bardoc Gold last year tossed in the towel when faced with a 30 per cent increase in the cost of building its namesake mine near Kalgoorlie, with labour costs a significant factor in the rise.

Instead, it accepted a takeover offer from St Barbara, which will transport Bardoc ore to its Leonora processing facility by rail.

But the best example of what WA might face can be found at engineering firm Monadelphous, which is expecting the labour shortage in WA to persist through this year.

Goldman Sachs noted the Monadelphous view of the WA labour market in a research note earlier this month, which said WA’s border restrictions had made it hard to source skilled workers.

A shortage of workers is likely to persist even after the border opens, which, according to the bank, has led to Monadelphous planning “initiatives to enhance the attraction and retention of skilled labour”, which can be interpreted as offering more money.

Also working against the NAB forecast of an 8.1 per cent fall in Perth property prices next year is the enticement for interstate workers of relatively low existing house prices, even after last year’s price spike, relative to other capital city markets.

Investment bank Morgan Stanley demonstrated how cheap Perth property is compared with Brisbane, Sydney or Melbourne, with Perth’s median dwelling price close to $500,000 compared with $650,000 for Brisbane, $820,000 for Melbourne and $1.1 million for Sydney.

Those price comparisons are supported by the CoreLogic home value index, which shows Perth to be the cheapest of the capital cities.

So, if Perth has the cheapest housing of any capital city and WA industry has an acute labour shortage after two years of closed borders, the question becomes what might happen when the border opens.

The person throwing the brightest light on that subject is the world’s top commodity analyst, Jeff Currie, head of commodity research at Goldman Sachs, who said earlier this month he has never seen a market like today with shortages of everything driving prices higher.

“I’ve been doing this for 30 years and I’ve never seen a market like this,” Mr Currie told the Bloomberg news service.

“This is a molecule crisis. We’re out of everything. I don’t care if its oil, gas, coal, copper or aluminium; you name it we’re out of it.”

COVID-19 production constraints, transport blockages, sluggish government approvals for new mining projects and a rising tide of resources nationalism – such as Serbia banning Rio Tinto’s proposed Jadar lithium mine – are some of the factors limiting supply even as demand continues to rise.

That picture of strong commodities demand, high-paid jobs and cheap housing might offset NAB’s cautious view on property prices; and while they might not rise next year, it’s also possible that they might not fall.

Green goes red, then fades PERHAPS Kermit the frog was right when he sang ‘it’s not that easy being green’, a sentiment that applies now to red hot investment sectors such as plant-based meat and sustainable wind energy stocks, which are starting to lose their appeal.

Sales of plant-based meat have crashed in the US.

After two years of double-digit growth, sales started to slow in the June quarter of last year and declined in the third and fourth quarters.

The drift away from plant-based meat can be measured in the share price of the US-based company Beyond Meat, which has fallen by 65 per cent during the past 12 months because sales have not matched projections.

It’s a similar story in the wind turbine industry, where the share price of market leader, Denmark-based Vestas Wind Systems, has fallen by 38 per cent during the past year.

London-based hedge funds are reported to have started short-selling green stocks last year as it become more obvious that ambitious profit predictions could be not achieved, and that a share price implying earnings per share 60 times the profit per share was not sustainable.

As Barry Norris from London-based Argonaut Capital Partners told the Financial Times newspaper: “In a bear market, a company doesn’t trade at 60 times earnings just because it does something morally good”.