Life Lessons From Mascot Towers Leaky Lifeboats!

Property owners from Sydney’s infamous, evacuated and faulty Mascot Towers development have until March 20th to react to the NSW government’s multi-tier approach to compensation.

The 132 residential and nine commercial owners of the inner-south apartment block have a chance to walk away from the legal and financial nightmare since the towers were evacuated in June 2019 due to structural cracking.

But owners will lose hundreds of thousands of thousands of dollars if they choose to sell their defect-riddled apartments.

There will also be two support packages available to both owner-occupiers and investors, as long as they meet the means-tested criteria.

But owner occupiers and property investors are in different lanes. And the approach tabled could also have ramifications for owners of apartments in other faulty buildings. This is significant, given that up to half of all new units built could have “serious” defects.

But it also shows how the NSW Government are separating property investors from owners, arguing that investors are taking a commercial risk, and potentially can offset losses from other investments.

Clearly there are no winners here, other than perhaps the original developers, but more broadly this is another warning to anyone considering buying into a high-rise development, either off the plan, or in a subsequent sale purchase. With limited Government capacity to solve the problem, many risk losing hard cash, remember Caveat Emptor, Let the Buyer Beware!

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Today’s post is brought to you by Ribbon Property Consultants.

Duck Shooting Season For BNPL?

Buy Now Pay Later loans are finally being finally recognised and regulated as a form of credit, despite the industry saying they do not provide credit. But as I have said before, if it quacks like a duck and swims like a duck – it’s a duck.
Given that up to one third of households have used some form of Buy Now Pay Later in the past year, these reforms are long overdue, not least because we see a high correlation between financial stress and the use of these facilities, and a proliferation of BNPL being used for everyday expenses, energy bills and other essentials, as well as for bigger items like solar panels.

And more than 20% of users end up paying late payment and other fees, and many also can hold multiple BNPL debts at the same time, meantime their finances are not under control. The regulations have come about after concerns that the unregulated nature of BNPL was resulting in lenders charging excessive late payment fees and engaging in unaffordable lending practices that led some customers to experience financial hardship and stress.

So now the government has announced its plans to regulate the buy now pay later (BNPL) sector and consumers could see some big differences to the fees they pay, how they apply for credit and the impact on their credit rating and is now consulting on its plans until mid-April before finalising the legislation, which will probably be introduced into parliament in the second half of this year. The new laws will take effect six months later.

I think the arrangements for small loans of 2000 and below are still too weak, because we see households holding multiple loans at the same time, so the regulations should be higher here. On the other hand given the current tight financial conditions it is important not to cut desperate people off from some financial options other than going to unregulated loan sharks, which do still operate in some more deprived areas.

The underlying issues are the fact that use of credit has now become normalised by society and the financial services industry, when for some households this just creates problems, which ultimately put them in a worse financial position, and of course high inflation costs and low wages growth are a catalyst for financial distress. This is not nanny state intervention, but rather a further small but critical steps to help people make better financial decisions.
However, a bigger emphasis on financial education in schools and a more cautionary approach to debt would ultimately improve the lot of so many Australians. But at least this particular duck is now being recognised for what it is.

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Are You Feeling Wealthy?

The ABS says the total value of residential dwellings in Australia rose by $196.8 billion to $10,397.1 billion in the past quarter.

But these gross values are misleading because they are not equally distributed across all households. To illustrate this, I extracted current value data from my household surveys and created a distribution chart across all households, including both investment and owner-occupied holdings, based on a mark to market at end February 2024.

So we can see, standing back, that while some households will be feeling wealthy and celebrating the massive rise in home prices in recent years, many others are excluded, will be paying more for a rental, and will have very little or no financial assets at all.

So, it seems that Australia’s egalitarian roots have been sacrificed on the property population Ponzi. No wonder, those is charge do not want to rock the boat – the truth is there is a majority of potential voters benefiting from the property game. Its all a bit of a mess.

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Today’s post is brought to you by Ribbon Property Consultants.

Look No Home Loan! Another Market Distortion!

PEXA just released their second edition of their Cash Purchases Report which highlights residential property transactions that were funded entirely with cash. That is, residential properties purchased without a home loan. The share of mortgage-free transactions rose by 2.9 percentage points to 28.5 per cent of all home sales.

And this is important, because it helps to explain the apparent contradiction between the rise in property prices at a time when mortgage interest rates have also risen, a weird combination to say the least.

Some migrants, from the near 1 million arriving, come with sufficient cash to buy, as well as many downsizing Australians who have enjoyed the capital growth in recent years. So there is an ever larger portion of buyers that will be relatively unaffected by rising interest rates. This is another example of unequal access to housing, at the expense of mortgaged borrowers, especially in a higher interest rate environment.

Mortgage borrowers are being punished for the exuberance in demand for cash buyers. And more broadly, interest rates will remain higher for longer, because the interest rate lever is less powerful which gives the RBA and every Australian an inflation headache.

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Today’s post is brought to you by Ribbon Property Consultants.

DFA Live Q&A HD Replay: Household Financial Stress Analysis: Deep Dive

This is an edited version of my live discussion about the latest from our surveys, as we look at mortgage, rental, investor and financial stress across the country, down to a post code level.

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Its Edwin’s Monday Evening Property Rant!

Another chat with our property insider Edwin Almeida, as we look at the latest from the market. More supply questions, as construction costs rise, while some plan to offer zero deposit loans to attract voters.

Meantime the rental crisis deepens and opinion is divided in the WeeChat sphere.

The craziness continues…

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Today’s post is brought to you by Ribbon Property Consultants.

Is A Market Pull-Back Coming?

This is our weekly market update.

A week of records, and dips this week as shares opened higher in New York on Friday after the February jobs data failed to slow the market’s upward momentum. The S&P 500 initially reset its record high as did Nvidia, AMD, Meta Platforms and Super Micro Computer In early trading as Nvidia rose 5 per cent and Apple recovered above $US170 a share.

But the rally stalled as Wall Street took profits, while U.S. Treasury yields dipped after the Labor Department said U.S. job growth accelerated in February, even as the unemployment rate jumped from 3.7% to 3.9%, and wage gains moderated. The mixed report kept on the table an anticipated interest rate cut in June by the Fed. “The payroll data suggests that the Fed should be on hold, but the wage, hours worked, and household data all suggest that a cut will be appropriate at some point soon,” Jefferies said in a note.

But from here, it’s possible we will see a decent market pull back, five or 10%, over the course of next month or two.

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Operation Housing Mincemeat!

The desperate quest for housing is playing out across Australia, with renters fighting to find an affordable place, and being confronted with significant rent hikes, while others are trying to buy their way into the property market, despite tight lending conditions, and are fighting directly with some property investors who are still hoovering up more property as well as new migrants who are still arriving in their thousands. It’s a mess, and many are getting crusted in the process.

So, the latest data underscores the issue as the ABS released their lending indicators on Thursday, and they reported that for total housing new loan volumes fell 3.9% to $25.1b, after a fall of 4.1% in December. But it was still 8.5% higher compared to a year ago. Incomes of course are not growing at anything like that!

Within that, the total for owner-occupier housing fell 4.6% to $15.9b but was 3.4% higher compared to a year ago, while for investor housing new loans fell 2.6% to $9.2b but was 18.5% higher compared to a year ago.

The mortgage cliff, where cheap sub-2% loans were reset to much higher rates is coming towards the end of the road, although CBA also warned on Wednesday that debts servicing costs will continue to rise as the remaining cheap pandemic fixed rate mortgages reset to variable. And some of the cheapest fixes are yet to expire, according to my surveys. In addition, some cheap deals seem to have been extended on their original terms for some borrowers so the funding pressures will remain.

All up, the ABS said In January 2024 in seasonally adjusted terms, the value of external refinancing for total housing fell 5.0% to $16.1b and was 19.5% lower compared to a year ago, while for owner-occupier housing new loans fell 7.4% to $10.3b and was 24.3% lower compared to a year ago and for investor housing they fell fell 0.5% to $5.8b and was 9.1% lower compared to a year ago. One reason apart from the cliff problem is that lenders have reduced competitive cashback offers.

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Today’s post is brought to you by Ribbon Property Consultants.

Recession Saved By The Voice?

Well, now we know, according to official data Australian households are faring worse than the broader economy and are mired in recession. The Australia’s economy slowed in the final three months of last year, growing 0.2%, easing from an upwardly revised 0.3% in the prior quarter, and below expectations. From a year earlier, the economy grew 1.5% and this annual result was the weakest, outside the pandemic, since the final quarter of 2000 and below the decade average of 2.4%.

Wednesday’s data showed government spending and private business investment were the main drivers of growth, outpacing household consumption. Government spending was driven by “benefits for households, with more spending on medical products and services and higher employee expenses across commonwealth departments,” the ABS, said. A referendum for an Indigenous advisory body to Parliament “held during the quarter also contributed to the rise in employee expenses.”

The more important per capita measure, (activity divided by population) showed that the per capita recession deepened as higher rates and rising living costs dragged on household spending, despite record migration for a fourth consecutive quarter. In per person terms, GDP fell 0.3% from the third quarter and was 1% lower than a year earlier, the deepest downturn, also outside of the Covid-era, since 1991. Real per capita household final consumption plunged by 2.5% in 2023,

Inflation continued to impact most goods and services. The consumer price index rose 0.6 per cent in the December quarter and was up 4.1 per cent in the past 12 months. This was the smallest quarterly rise since March quarter 2021. Insurance got more expensive, as higher insurance premiums sent prices up 3.8 per cent. Increased tobacco taxes saw the price of cigarettes up 7.0 per cent.

Wage reviews pushed wage growth higher. The wage price index rose 0.9 per cent during the quarter and 4.2 per cent over the year. This was the highest recorded annual growth since the March quarter 2009. Public sector wages grew 1.3 per cent on the back of new workplace agreements, including those for teachers and nurses.

The labour market started to slow. Job vacancies fell slightly by 0.7 per cent during the quarter but remained high. The unemployment rate inched up reaching 3.9 per cent in the month of December, as participation rates stayed close to record highs.

Labour productivity rose again. We worked similar hours to last quarter, with the amount of time we spent at work remaining historically high. Overall labour productivity rose 0.5 per cent during the quarter, which was the second successive quarterly rise following a period of falling labour productivity. While the increase pushed labour productivity back to late 2019 levels, the RBA has warned that growth must be sustained at an annual rate of about 1 per cent to prevent current rates of wage growth from fuelling high inflation. NAB group chief economist Alan Oster said the strength of the underlying pace of productivity growth remained uncertain.

One of the biggest pressures on household budgets is personal income tax, which ate up a record 16.5 per cent of earnings over the past year as wage inflation pushed workers into higher tax brackets. Because tax brackets are not indexed to inflation, increases in nominal wages lead to increases in average taxes, since a greater proportion of a worker’s pay is pushed into the highest bracket applicable to them.

Pop Goes My Budget!

Our latest surveys to the end of February reveals the current state of Household Finances in Australian as measured by cash flow. A record 73.3% of those living in the rental sector are under pressure, while just over half of those with a mortgage are also in net negative cash flow. All up around 48% of households or 4.7 million families are struggling. The causes are clear to see, with costs of living still outstripping real incomes, high mortgage interest rates thanks to RBA monetary policy and rental cost driven sky high. Massive net migration, and bad government housing policies have created this disaster, which will likely be with us for decades. Housing affordability is shot.

So, in today’s show I will walk through the latest findings, ahead of a live show during which we will examine the data at a post code level. That show will be on Tuesday 12th March 2024.

But here we examine how we measure cash flow stress, examine the latest results across mortgage, rental, investor and overall financial stress, and also look at our price scenarios for the months ahead, alongside our estimates of mortgage defaults in the next 12 months.

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