This is the edited show broadcast live on 19th May 2020. We discussed our latest finance and property scenarios, the latest news and also walked through our mortgage stress data for selected requested post codes.
There is a path to higher home prices due to lower rates in line with the RBA market model, however it ignores availability of credit. The “Tulip” model weirdly takes little account of the credit drivers.
Most likely though unemployment will remain higher, while incomes are squeezed and so we have a stronger weighting on FALLS in property values over the next couple of years. How far they fall, and where, will be determined by how much stimulus is thrown at the economy, the migration settings and bank’s willingness to lend in a weaker employment and income environment.
You can watch the edited show here:
Note in the show we were comparing the ratios to the total household population in each post code.
The unedited original stream, with live chat is also available here:
I catch up with Harry Dent ahead of our virtual seminar next week. We discussed property and gold among other things. What is his prognosis? How might we prepare? This is not specific financial advice, just a general conversation.
Harry Dent, Robert Kiyosaki and I will all be participating in an online forum on 24th May 2020. Details here: http://harrydentlive.com/
DFA has no commercial relationship with either Robert or Harry. But at this time, this is an important conversation.
Author and Businessman Robert Kiyosaki and I discuss the upcoming financial crisis and how we might prepare.
In addition, I’m joining forces with Robert Kiyosaki and world renowned economist Harry Dent and you are invited. The 3 of us are holding an emergency livestream, titled:
The Once-in-a-Lifetime Opportunity to Make Generational Wealth From the Crash and Secure Your Future Within the Next 18 Months
Harry Dent, Robert Kiyosaki and myself will share the latest news on:
How to Safely Capture Big Gains from Sudden Shifts on Wall Street, Avoid Hidden Dangers & Capitalize On New Shifts in Our Economy
What is likely to happen as a result of the Coronavirus Pandemic and what it means for you and your financial future
How you could save your retirement and add hundreds of thousands of dollars to your nest egg
How this could be your ONE chance to catch up rapidly – and make ten times the average annual stock market gain in a single year.
What’s coming next… where the immediate opportunities are… and where to park your money for the longer term.
And much, much more…
What’s more, at this 1-day livestream – you’ll get the chance to ask Harry Dent Robert Kiyosaki and myself any questions you want!
Note that DFA has NO COMMERCIAL RELATIONSHIP with either Harry or Robert. But we all believe the decisions people take in the next few months will be life changing!
Our latest household financial confidence index improved a little in April, up from 73.2 in March to 75.8 in April. That said, it is still well below the 100 which is a neutral setting, meaning that households are extremely cautious about their finances.
Across our wealth segments, those free affluent households recovered the most mainly thanks to the recovery in stock markets over the past month. Those renting are benefiting from falling rents (though many have income shocks to deal with) while those with a mortgage showed little evidence of a recovery in confidence, thanks to rising debt concerns.
Across the age bands, those aged 50-60 showed the strongest bounce, while those aged 20-30 reported a further fall – not least because younger households tend to be more exposed to zero hour contracts, and part time employment not supported by JobKeeper.
The recovery in confidence was evident across all the states, with NSW and VIC on average more positive relatively speaking than SA and WA.
Across our property segmentation, owner occupied households improved, as did those not holding property, but property investors fell again, thanks to less support from banks in terms of mortgage repayment holidays and falling rents and occupancy. Around 8% of property investors are seriously looking to sell their property if they can. More on that in a future post.
The true state of play is best shown when we look at the moving parts of the index. 67% of households now feel less secure regarding their job prospects than a year ago, a rise of 28% from last month.
There was a 14% rise in those feeling less comfortable with their savings, to 56% of households. There was a clear intent to try to save more in the months ahead, given current economic uncertainties.
65% of households are less comfortable with their ability to service debt, a rise of more than 20% of households, this despite falling interest rates and bank support schemes. Around $160 billion of loans received some leniency from the banks, but that is a small share of the $1.7 trillion mortgage sector and the $280 billion SME sector.
Income pressures are mounting, with 14% saying their incomes had fallen – to 66% of households, while under 1% saw any rise in income – including some who will benefit from higher incomes under JobKeeper than they would normally receive.
Costs of living continue to drive higher – despite the fall in oil prices – with many households incurring greater costs because they are spending more time at home. 94% said their costs were higher than a year ago.
Finally, household net worth was lower for 65% of households, reflecting stock market and property price adjustments, and rising debt levels. There was a drop of 11% in households claiming net worth had risen over the past year to 18%.
So we think the longer terms impacts on households are yet to be fully understood. Certainly, our data suggests households will be cautious, as income pressures, costs of living and rising debts bite. If home prices slide further as we expect they will, then household net worth will put a further brake on the wealth effect and will also adversely impact many households. This does not suggest a V shaped recovery to me.
I have received more than 600 separate questions from our audience over the past month and today I provide some answers to them, having consolidated them into a logical sequence.
Caveat Emptor! Note: this is NOT financial or property advice!!
We ran a live Q&A session last night, and discussed the late breaking news, update scenarios and further insights from our surveys, including mortgage stress and forced property sales.
We also, for the first time revealed our analysis of where forced sales are emanating. Here is a Melbourne example. There is a significant correlation with high stressed post codes. Around 8% of investment properties are in this category, but only 2% of owner occupied property, based on data to 7th April 2020.
You can watch the edited high quality version of the show here:
This is the original streamed version, including the pre-show, and live chat replay.
We are running an extra live stream event tonight at 20:00 Sydney, covering the latest finance and property news, and our latest analysis via our surveys. Here is the YouTube link:
You can ask a question in real time via the YT chat, or sent a question to me beforehand by the DFA Blog message facility. Note, I will not be monitoring the Blog channel once the show begins.
I already have questions on MMT, property price movements, investment property, mortgage stress and forced sales and others….
I look forward to seeing you on the Chat later tonight.
Growth through 2020 is now estimated at 1.5% with minus 1% in the first half ( minus 0.7% and minus 0.3% respectively in the March and June quarters) and 2.5% in the second half. This is recession territory.
Just last week they had set the forecast peak in the unemployment rate at around 5.8%- 6%, up from the current level of 5.3%.
But now the unemployment rate is now forecast to reach 7% by October 2020 (up from the previous estimate of 5.8%-6.0%) due to the larger negative shocks to the labour intensive sectors such as recreation; tourism; education; renovations and additions; and dwelling construction. This lift in the unemployment rate is despite reducing the participation rate from 66.1% to 65.4% as a discouraged worker effect – that is, as workers respond to a deteriorating labour market the participation rate is likely to decline.
They add: please note that these forecasts are not based on Australia following a European style full lock down. Not surprisingly, the forecasts are subject to downward revision in the event of such an occurrence.
This is consistent with our modelling – mortgage stress will rise in the months ahead as unemployment rises.
Now the question becomes, to what extent with the banks forego mortgage repayments, and not foreclose, and to what extent will the Government supports households directly? The mortgage debt mountain could bite deep and early.
Its also worth noting that we are already seeing a rise in financial stress among those renting – here the protections currently are very limited, and will need to be increased.
Our own modelling is based on the assumption the crisis will run for at least 6 months. Overnight a UK report suggested 18 months is more likely, given the lead time to a vaccine.
