Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
Rising interest rates are already putting more pressure on households and now banks are reducing their ability to lend at high multiples with an effective reduction of “Borrowing Power” of up to 20%. Combined, this will put more stress on property owners and renovators.
APRA has written to the banks stressing the importance of sound mortgage lending. Better late than never!
WA may well see some of the biggest changes.
Go to the Walk The World Universe at https://walktheworld.com.au/
So, as we approach the halfway mark through the year, it’s important to note that U.S stocks are on track to mark their worst first half of the year in more than 50 years. The S&P 500 is down around 18% year-to-date, on track for its worst first half of any year since 1970, and the NASDAQ closer to 30% as the Fed tightens monetary policy in its fight against the highest inflation in decades. So relative to holding cash since the start of the year, stocks have been trashier.
Bonds, which investors typically count on to counterbalance stock declines in their portfolios, have fared little better: The U.S. bond market, as measured by the Vanguard Total Bond Market Index fund, is down 10.8% for the year to date, putting it on pace for its worst performance in modern history.
That said of course the value of cash is being deflated in real terms by high inflation, so its not perfect, but lessons from history suggest that sometimes it’s a reasonable holding place, until markets bottom. And with investor expectations fluctuating between continued high inflation and an economic downturn caused by a hawkish Fed, few believe the market’s volatility will dissipate anytime soon. Remember that on Thursday, Fed Chair Jerome Powell said the central bank’s focus on curbing inflation was “unconditional”, adding to fears about more interest rate hikes.
[CONTENTS]
0:00 Start
0:15 Introduction
1:15 Worst First Half
2:30 Inflation Control Unconditional
4:10 Leading Indicators
9:30 More FED comments
13:14 US Market
14:15 Oil
16:54 US Bank Stress Tests
19:30 European Markets
20:58 Asian Markets
23:10 Australian Markets
27:40 Crypto and Harmony
29:50 Conclusion and Close
The latest edition of our finance and property news digest with a distinctively Australian flavour.
Go to the Walk The World Universe at https://walktheworld.com.au/
A quick look at the very gloomy New Zealand Household Confidence Index.
The News From New Zealand is getting worse and worse (such that next years election result will now be really interesting). The latest is from the Westpac Mcdermott Miller Consumer Confidence survey results released this week.
Confidence among New Zealand households has plummeted, dropping to its lowest levels since we began surveying consumers back in 1988. The Westpac McDermott Miller Consumer Confidence Index fell 13 points in the June quarter to a level of 78.7. Confidence has only come close to these sorts of lows twice before – first during the recession in the early-1990s, and then again during the Global Financial Crisis in 2008/09.
Go to the Walk The World Universe at https://walktheworld.com.au/
My latest Friday afternoon chat with journalist Tarric Brooker – @avidcommentator on Twitter. The slides are available at: https://avidcom.substack.com/p/charts-that-matter-24th-june-2022
The latest edition of our finance and property news digest with a distinctively Australian flavour.
Go to the Walk The World Universe at https://walktheworld.com.au/
World equities are now in a bear market. The most excessive speculation has already been washed out of the system. Those warning of bubbles in bitcoin and other cryptocurrencies, meme stocks, or the growth tech companies have been proved right.
If there is one asset that should come under scrutiny, it is real estate, whose life blood is credit. For a double whammy of higher rates and the lasting effects of the pandemic, look to office property. Remarkably, Bloomberg’s index of US office property real estate investment trusts, or REITs, is slightly lower now than it was 20 years ago, and almost back to the lows it hit during the worst of the pandemic in 2020.
That brings us to housing. Rates in the mortgage-backed bond market are surging, as would be expected given the move in Treasuries, while the rates actually offered to US borrowers are even higher. Typical 30-year mortgage rates are now a whisker below 6%, and approaching the pre-crisis high of 2006
A world economy already contending with raging inflation, stock-market turmoil and a grueling war is facing yet another threat: the unraveling of a massive housing boom.
As central banks around the globe rapidly increase interest rates, soaring borrowing costs mean people who were already stretching to buy property are finally reaching their limits. The effects are being seen in countries such as Canada, the US and New Zealand, where once-hot residential real estate markets have suddenly turned cold.
Go to the Walk The World Universe at https://walktheworld.com.au/
More detailed examination of home price movements, using data from Cookie Boy and DFA modelling. There is mounting evidence of significant price reductions, and some common threads relating to mortgage stress and scenarios.
Let us know if there are specific areas you would like us to research in future shows..
Go to the Walk The World Universe at https://walktheworld.com.au/
With the RBA now tightening interest rates, what is critical to understand when the RBA will officially surrender to inflation is to look at forward leading indicators.
When it comes to the property market, Adams and North think there are three indicators which need to be paid close attention to, which are:
Today, Adams and North are going to focus on residential property listings for Sydney and the surrounding regional suburbs using data from SQM Research. Property listing data is a better forward leading indicator than credit, because vendors list their properties on the market before buyers and borrowers purchase property.
We should note in a previous show, Adams indicated that the three areas of the property which are likely to crack first are:
Go to the Walk The World Universe at https://walktheworld.com.au/
Today we look at some of the recent research from a flurry of surveys across the property market. Combined, they paint a concerning picture. And we also look at the stamp duty question, later in the show, so stay around for that!
Some 26% of Australians see mortgage repayments as a significant cost-of-living concern – that means 5.05 million people may be worried about keeping up with mortgage repayments in the coming months.
NSW Property Services Commissioner John Minns told a panel discussion on Tuesday he would like to see the land tax change expanded to include the whole property market and not just first home buyers.
But just remember such a move would primary benefit property investors who could offset the annual tax cost against the income from the property, whereas owner occupiers cannot, so in fact this could have a two fold distorting effect. First lifting the price of property by the stamp duty saving, and second orientating the benefits towards investors. In short this “reform” is not what it seems to be.
Go to the Walk The World Universe at https://walktheworld.com.au/
Join us for a live discussion about the current state of the economy, with a specific focus on Australian property with Leith van Onselen, the Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
The RBA reported on their yield curve control today, and Phil Lowe spoke about rising mortgage rates – how high will they go – and what are the consequences?
You can ask a question live via the YouTube chat.
Go to the Walk The World Universe at https://walktheworld.com.au/
My latest property chat with our insider Edwin Almeida. We look at under bidding, the shortage of property for sales signs, the latest numbers and strategies to try to support the property bubble, as well as our normal WeChat insights.