Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
Another important discussion with Edwin Almeida, our property insider. Not only has the price of coco tripled ahead of Easter, but listings are down, despite more property investors listing, while the gap between property demand and supply widens, as more migrants seek to buy.
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Today’s post is brought to you by Ribbon Property Consultants.
Last week has turned out to be an important one in terms of household finances and mortgage rates. The RBA this week said households are generally weathering the record run of interest rate rises but one in twenty owner occupied mortgage holders are in a dire financial position because of the higher interest rates and cost-of-living increases.
On average, debt servicing costs have risen about 30-60% since the RBA started hiking its cash rate in May 2022. That said, less than 1% of all housing loans were 90 or more days in arrears, through loans with payments overdue for less than 90 days have “continued to tick up gradually” and are expected to continue to increase in part because of weak household consumption.
Despite the trajectory of interest rates, on-going strength in the labour market enables most people to keep up with rising debt repayment levels, the Reserve Bank said in its quarterly financial stability report. These challenges would intensify if economic conditions were to deteriorate by more than expected or if inflation is more persistent than forecast in the out of date RBA’s February Statement.
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In this week’s market update as normal, we will start in the US, cross to Europe, Asia and end in Australia, and cover the key points in Oil, Gold and Crypto. My aim is to try to integrate the main themes of the week, and point forward to what may happen next.
There were a few main themes, first some key markets are touching all-time highs even if on Friday many markets took a breather, driven by profit-taking after a week of record-setting advances which were fuelled by a series of dovish central bank signals. The US dollar struggled to extend a gain as U.S. yields ticked lower.
But Central banks are still watching for greater certainty on inflation trends, and there is building speculation that the neural interest rate is higher than expected. In addition, the fuzziness in the data flows continues – a problem for central bankers who want to be data dependent, perhaps too data dependent.
The U.S. central bank sharply upgraded its outlook for growth in 2024, and Thursday’s data suggested the U.S. economy remained on solid footing after the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, while sales of previously owned homes increased by the most in a year in February. This suggests the Fed doesn’t need to be in any hurry to cut rates going forward.
Investors in the coming week will be watching Friday’s personal consumption expenditures price index that will offer the latest read on inflation. The end of the first quarter also could prompt volatility as fund managers adjust their portfolios.
Investors in the coming week will be watching Friday’s personal consumption expenditures price index that will offer the latest read on inflation. The end of the first quarter also could prompt volatility as fund managers adjust their portfolios.
Its worth noting that overall, the ASX 200, excluding resources, currently trades at 18.5 times forward earnings, which is 40 per cent above its long-run average of 13.5 times, but 12 per cent above the previous peak in May 2007, just before the global financial crisis. And no, this is not just about Commonwealth Bank being at record highs. The median stock on the ASX is also trading at a P/E multiple well above its long-term average.
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Journalist Tarric Brooker and I deep dive on the Australian Housing Crisis, as conclude that there is no easy fix, thanks to generations of bad policy and active intervention. So who are the winners and losers?
Tarric slides are here if you want to follow along: https://avidcom.substack.com/p/dfa-chart-pack-22nd-march-2024
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Australian employment soared in February and the jobless rate declined, highlighting the ongoing resilience of the nation’s labor market to restrictive monetary policy according to the latest Numberwang from the ABS. As a result, the currency rose as much as 0.6% after the data while yields on the policy-sensitive three-year government bond climbed to 3.7%. Traders now see a 60% chance of a rate cut in August, down from 80% before the data.
The strong jobs data contrasts with indicators ranging from business and consumer surveys to job vacancies and retail sales that suggest the economy is slowing.
The RBA on Tuesday left all options on the table with regards to rate moves, awaiting more data to show what’s going on. I am not sure this will help much!
The seasonally adjusted unemployment rate fell by 0.4 percentage points to 3.7 per cent in February, according to data released today by the Australian Bureau of Statistics (ABS).
And its worth noting that the current ABS labour market data is not matching the weak growth picture in the National Accounts or other second tier labour market data like jobs ads and applicants per job from Seek.
We continue to need to create around 35,000 jobs every month to stop unemployment rising, and of course the latest migration data which also came out today showed a record high net inward flow, of over 600,000.
Perhaps we will see a reversal in the data in March, because frankly the ABS Numberwanging whilst quite majestic, is simply deceptive. We need a much better jobs data compass.
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In the most recent incident of card fraud: the gross amount withdrawn or used for all incidents was $2.2 billion while the net loss after any reimbursements paid for all incidents was $476 million. The median amount withdrawn or used per incident was $200, A further 514,300 (2.5 per cent) experienced some kind of scam, and just under 200,000 (1.0 per cent) were victims of identity theft.
The proliferation of the digital world has opened the door for more scans, so we need to be careful with the information we share, the links we click, and monitor statements to look for fraudulent transactions. This is another area where financial education needs to be enhanced, in school and beyond, as many people are too easily caught. Its important to be digitally smart. Maybe cash is safer and easier to manage. Worth thinking about in the context of the current drive to removed cash all together.
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This is an edited version of my latest live discussion with Tony Locantro, Investment Manager at Alto Capital as we look at the current state of the markets, and the consequences of the rapid rate hikes and rising debt. Tony has a unique way of seeing things, and his insights are always welcome!
You can ask a question live.
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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.
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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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.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.