This is an edited version of a live discussion with Head of Investments at Nucleus Wealth and Walk The World Funds, Damien Klassen. As the US election closes out, and the RBA releases the latest decision, how are markets shaping up, which segments are risk exposed, and what strategies need to be considered given the international cross currents and economic uncertainties.
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https://digitalfinanceanalytics.com/blog/dfa-one-to-one/ for our One to One Service.
A popular poem penned by Sydney-born Dorothea Mackellar in the early years of last century speaks lyrically of a vast brown continent shaped by ragged mountain ranges, sweeping plains, jewel seas, golden noonday sun, droughts and flooding rains.
But today any description of Australia must refer to the vast record-breaking expanse of debt held by households, mostly for mortgages. Total loans outstanding are according to the RBA $1.58 trillion for owner occupied mortgages and a further $749.1 billion for investor mortgages.
Australia has the third-highest level of household debt for countries in the Organisation for Economic Co-operation and Development (OECD), worth 211% of net disposable income per household.
And the IMF reported that Australia has the highest level of mortgage stress in the developed world, according to figures from the International Monetary Fund, with 15% of income devoted to paying off loans. But that is an average across all households and small business. In fact, of course many are now putting 40% or more of their disposable income on mortgage repayments, crowding out other spending.
Borrowers have been floored by a series of rate rises by the Reserve Bank of Australia to the current 4.35%. The increased cost of borrowing has left Australia at the top of the league for debt with Canada second followed by Norway and the Netherlands.
I was asked to extract data from my household surveys for news.com.au and they published various articles including “Sydney Stressing Over $1m Home Loan Debt.
This comes as a recent survey from Finder.com.au revealed many homeowners were just months away from having to give up their properties due to financial duress. Close to one in seven mortgage holders told the poll they would be forced to sell or seek hardship from their bank unless rates were cut by February.
As I said in the article, the amount of debt we have compared to incomes makes us massive outliers compared to the rest of the developed world.
Of course the pain is not equally shared, but more detailed analysis shows that in some areas of the country the average owner occupied mortgage is in the millions. So today, I am going to share my more detailed analysis, using our mapping tools.
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Today’s post is brought to you by Ribbon Property Consultants.
I have been saying for some time that some property markets are on the turn. More evidence of this has now been published. And while aggregate data is averaged, CoreLogic’s October report does highlights a modest rise in national home values, but easing annual growth, and shifting market dynamics across different regions and property segments with wider falls.
They say that nationally, their Home Value Index recorded a 0.3% rise in October, but it was driven by mid-sized capitals like Perth, which saw a 1.4% increase, whereas Sydney saw a -0.1% decline in home values, alongside declines in Darwin (-1.0%), Canberra (-0.3%), Melbourne (-0.2%), as well as regional Victoria (-0.2%) in the month.
We also see that upper quartile house values are falling more than lower quartile values, which recorded a rise. The trend of stronger performance in the affordable market segment is consistent across capital cities.
A combination of less borrowing capacity and broader affordability challenges, as well as a higher-than-average share of investors and first home buyers in the market is the most likely explanation for stronger conditions across the lower value cohorts of the market.
Slower growth in home values has been accompanied by a rise in advertised stock levels. Based on a rolling four week count of listings to October 27th, advertised inventory has increased 12.7% since the end of winter across the combined capitals, with the largest increase occurring in Perth where listings are 20.6% higher, albeit from an exceptionally low base.
Alongside the rise in advertised supply, the number of home sales looks to be fading. Estimates for capital city sales activity over the three months ending October were down -7.5% from three months earlier and -1.6% lower than at the same time last year.
My analysis shows that more investors are under water from a cash flow perspective, and we are seeing more investors jumping ship, while others are buying.
All up given the higher for longer trajectory of both inflation and interest rates, I suspect we will see continued weakness in several markets into 2025.
But as always we need to go granular to see the detail across locations and property types. I will be sharing some of my mapping on this in the next few days.
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Today’s post is brought to you by Ribbon Property Consultants.
In our surveys we include a question on whether households trust the federal and state governments to do the right thing for them. And the answer is a resounding, no. The question of whether we do trust those elected officials who theoretically at least should be looking after our interests, seems to highlight that in many countries, from Australia, UK, Canada, New Zealand and America, Government is on the nose.
Perhaps this is one reason why there are attempts in train to close down free speech, as illustrated by the misinformation and disinformation bill currently on the books in the Australian parliament. See my earlier post about this MAD bill and why it must be resisted.
In our surveys we find many households struggling with rising costs and flat real incomes, an ability to get ahead, or find a place to live, and ever more pressure on family relationships as a result. In other words, many blame bad government policy for their own predicaments. They are right.
The recently released report on Government action during the COVID period cuts to the heart of the question of trust as the three-person inquiry panel slammed the approaches towards such issues as lockdowns, vaccine mandates, and school and border closures, saying they lacked transparency and compassion, and were often not evidence-based. Now let me say straight away the scope of this inquiry was deliberately hobbled to avoid key questions around vaccines, and other issues, which is in itself shameful, but even so, the COVID-19 inquiry found that heavy-handed, inconsistent and insensitive pandemic restrictions meant people were unlikely to accept such measures again.
Economic modelling presented to the inquiry found that inflation could have peaked at about 6 per cent, instead of 8 per cent in December 2022, if the federal government’s more than $300 billion of pandemic spending and Reserve Bank of Australia’s near-zero interest rate policies were less stimulatory.
So all up, we can draw three conclusions.
Too much tax payer money was thrown at the problem in a poorly targeted inflation stoking manner. This is why inflation loomed to the fore in the past few years.
Too much was through directly and indirectly at the housing market, stoking home prices and rents, and exacerbated the distortions which were already in the market. No wonder prices have accelerated relative to incomes. No wonder too the construction sector is all but wrecked, with many firms subsequently failing while construction costs rise.
And there is still a resistance to admit errors both from Government and the RBA. Those in positions of responsibility may have done their best, but it was simply not good enough.
We expect, and rightly demand more from our elected leaders. They collectively failed us and the fallout continues to this day.
The right critical observation is that trust will be hard to recover. Given recent behaviour, it may never be healed, which spells risks to democracy itself. Queue the MAD bill.
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Well now we know. While the annual Australian headline inflation rate slipped to 2.8%, which is just within the RBA’s target 2-3% band, from 3.8% in the June quarter and is the lowest since March 2021, underlying inflation remains well above the RBA’s 2 per cent to 3 per cent target band at 3.5 per cent in line with forecasts. Annual Goods inflation was 1.4 per cent, down from 3.2 per cent in the June quarter.
The trimmed mean measure of consumer prices, which smooths out volatile items, rose 0.8% in the three months through September, matching estimates, but services inflation rose to 4.6% from 4.5% last time around. This is the prices of all those things you can’t drop on your foot. The biggest culprits were rent, insurance, education, and medical, dental and hospital services costs. Education prices were up 6.4 per cent. The cost of taking pets to the vet rose by 5.8 per cent in the year to September, while the price of a haircut went up by 6.3 per cent and the cost of a visit to the mechanic jumped by 4.3 per cent. The common theme. Wages growth.
While a first rate cut in February remains possible, with the consumer starting to feel more upbeat, wealth booming, strong population growth keeping housing costs sticky and governments still spending up a storm, the RBA doesn’t appear to have a lot of room to move.
Next year’s RBA board meetings are not until mid-February, the end of March and late May – a mile away for anyone struggling with debt.
Higher for longer remains my call as financial pressures on many households continue to build. Something will break. No Christmas rate cut present coming from Santa this year.
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This is an edited version of a live discussion with property insider Edwin Almeida, as we explore the question of whether we really need a Real Estate Agent at all. What are the alternatives offered by tech and self-management? Do they work?
Original stream here: https://youtube.com/live/tbg3YhuYV-A
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https://digitalfinanceanalytics.com/blog/dfa-one-to-one/ for our One to One Service.
Back to our normal Monday schedule now, with Edwin in full flight on Albo watch, as we kick over the latest property data and trends.
We look at recent announcements from NSW on rental protections, which are following those in VIC, (where the tribunal is very busy) and also examine the VIC policy of easier subdivision.
Markets though are easing in some areas as listings rise.
And join us tomorrow as we discuss whether you need a Real Estate agent at all these days in our live 8pm Sydney show.
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Today’s post is brought to you by Ribbon Property Consultants.
If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.
Buying property, is both challenging and adversarial. The vendor has a professional on their side.
Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.
Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest.
Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.
This is a show about housing affordability and specifically lobbying from certain banks to reduce mortgage lending buffers in which we look at evidence provided to the Senate Economics Reference Committee inquiry into the Financial Regulatory Framework And Home Ownership which was chaired by NSW Senator Andrew Bragg, with Jess Walsh the ALP Senator for Victoria and Greens Senator for South Australia.Barbara Pocock.
We look at key evidence from Chris Taylor of the Australian Banking Association, Martin Green and Paul Deall from Westpac, Andy Kerr and Ben Nicholls from National Australia Bank and from the Commonwealth Bank Angus Sullivan and Kylie Rickson.
We also look at compelling evidence from Consumer Advocates including Nadia Harrison from Mortgage Stress Victoria, Erin Turner from The Consumer Policy Research Centre, Dr Domenique Meyrick from Financial Counselling Australia and Julia Davis from the Financial Rights Legal Centre.
David Locke, June Smith and Natilee Cameron from AFCA, the Ombudsman, and APRA (Therese McCarthy Hocky, Dr Sean Carmody, Chris Gower and Marian Kohler) made the case that credit is flowing and available.
The inquiry also heard from Kylie Davis Proptech Association of Australia and Lynda Coker, Frank Austin and Liz Rochaix Co-operty.
Alexander Hordern Insurance Council Australia and Pauline Blight -Johnston Helia discussed LMI
And finally, Professor John Quiglan, Saul Eslake and Ben Spics-Butcher each in their individual private capacity argued that decades of evidence in supply constrained environments shows people spend more on housing driving prices higher rather than expanding ownership rates (which is why using super for housing is a bad idea.
The Greens focused in on investor demand, while Ben argued the Government was really concerned about property price falls, as shown through the GFC. Tenure security, and a rise in public housing are most important, shared equity and housing future fund does not help.
All up, it revealed how complex the can of works is, and that simply increasing leaning of offering other incentives is counter productive!
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This is our weekly market update, where we start in the UK, cross to Europe and Asia, and end in Australia, covering commodities and crypto along the way. And yes folks, this is a dense data-rich show, so be warned!
On Friday, global stocks slipped, finishing the week lower amid U.S. election jitters, while oil prices rose due to concerns about fighting in the Middle East. Israel hit back with further if somewhat restrained strikes on military targets in Iran overnight, so that may change sentiment next week, we will see.
Republican former President Donald Trump and Democratic Vice President Kamala Harris are polling neck-and-neck in crucial swing states ahead of the Nov. 5 election. Investors are anxious about a contested result roiling world markets and unleashing fresh geopolitical uncertainty.
But a rally in stocks faded as banks dragged down the broader market despite gains in tech shares. And bitcoin slumped after a news report that federal investigators are probing cryptocurrency firm Tether.
As the earnings season rolled in, traders also braced for the US presidential election and key economic data — including next week’s jobs report — for clues on the scope for Federal Reserve rate cuts. We are coming up to a couple of pivotal weeks which could well shape the markets for months ahead.
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