Home Prices – Page 24 – Digital Finance Analytics (DFA) Blog

Households Hit Hard By The Property Crash!

It started as an act of protest by fed-up apartment buyers in a single project in a city in central China.

Now tens of thousands of people around the country are withholding payments on their mortgages for homes that developers, including China Evergrande Group, have yet to finish.The movement has since spread to at least 301 projects in about 91 cities according to figures from a crowdsourced document titled “WeNeedHome.”

Tracking the extent of the protest has grown increasingly difficult after China began censoring in mid-July crowdsourced online documents tallying the number of boycotts. Such shared files have been a key source of data for global investors and researchers.

Real estate accounts for about 78% of household wealth in China—double the US rate—and families typically save for years and borrow from friends and family to purchase a home. As the Evergrande debacle unfolded last year, many market watchers said that the financial contagion would be limited by the fact that homebuyers in China often pay in cash.

But some did use mortgages, and the boycott underscores how much of the pain of the crisis has fallen on households. China’s outstanding mortgages stood at 38.3 trillion yuan at the end of 2021, according to the People’s Bank of China. GF Securities Co. expects that up to 2 trillion yuan ($296 billion) of mortgages could be impacted by the collective refusals. That’s the total balance of the loans; the amount that could be withheld will be smaller.

Should every buyer default, that would lead to a 388 billion-yuan increase in nonperforming loans, Jefferies’s said. Banks say the impact is much lower still. Lenders have detailed about 2.11 billion yuan of loans at risk from the protests, according toa tally of banks that have disclosed their exposure.

The wildcat boycott on loans worth as much as 2 trillion yuan ($296 billion) threatens to deepen China’s real estate slump by shifting focus from the country’s embattled property companies to its massive banks. Lenders have relied on mortgages as their safest source of revenue as Covid lockdowns stifle growth.

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Downgrading Housing Forecasts – Fast!

It is becoming a new sport, it seems – trying to assess the potential fall in property values across many markets here and around the world.

Indeed, Christopher Joye in the AFR writes: the great Aussie housing crash is accelerating, and it is being driven by the fastest and largest interest rate shock households have faced in modern history. Sydney house prices have now plunged almost 5 per cent since their peak only months ago according to CoreLogic. Home values in Melbourne are not far behind.

But let’s look at another market, because property price falls are being predicted around the western world, as Central Banks, appear at least, to be coordinating rate rise increases.

We might want to pause to consider the group-think, which has been exhibited for the past two decades – cutting rates after the 2007 and 2008 crisis, cutting them again radically ahead of COVID, to say nothing of the quantitative easing which has flooded markets with cheap money, and rate control, plus handing ultra-cheap funds to banks. I will leave you to judge how independent each central bank was and the degree of collusion, versus common reactions to the same economic out-turns, but the current mode of operation is driving highly inflated home prices which were driven by their bad policy – sharply down as they tighten. Some would suggest the High Priests of Finance, are not as powerful as they may like to appear.

So, let’s look at Canada’s housing market which has sharply shifted since the Bank of Canada began raising its benchmark interest rate from record lows in March. The central bank, seeking to rein in inflation that is running at its hottest in four decades, unveiled its largest one-time interest rate hike since 1998 last week. It raised the benchmark rate a full percentage point to 2.5% and promised more increases to come.

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Shhh! You Can Hear House Prices Falling: With Tarric Brooker

My latest Friday afternoon chat with journalist Tarric Brooker, in which we explore home price dynamics, politics, and much more besides.

https://avidcom.substack.com/p/charts-that-matter-22nd-july-2022 for copies of the slides.

https://avidcom.substack.com/p/rising-rates-and-australias-over

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Operation Anti-spruik Part 3: Queensland

Another set of asking price cut case studies, from QLD, courtesy of CB, inter-cut with relevant data from the DFA models. Still think prices are booming in QLD?

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The Property Crash Is Just Getting Started…

Following the Reserve Bank’s double rate hike, big banks have lifted all their variable mortgage rates by 0.5 percentage points.

As a result, the average variable borrower will have seen their rate rise by 1.25 percentage points since the start of May.

That means someone with a $500,000 mortgage, with 25 years remaining, will see their repayments increase by an estimated $333 in total across the three hikes, RateCity.com.au said.

While variable rate borrowers with loans with CBA, NAB, and ANZ will be charged a higher interest rate starting today, it will take weeks for their monthly repayments to rise. In fact, the increase in monthly repayments many of these customers are currently seeing resulted from the May hike.
This is because banks typically give 20 to 32 days’ notice before lifting their monthly repayments, despite charging their customers the higher rate from the effective date.

Even then, the increase to their monthly repayment might not take effect for another few weeks, depending on when they are due.

UBS has predicted interest rates will peak at around 3.5 per cent in March next year, but said this will still hit the housing market hard.

“We still think market pricing of about 3.5 per cent – if delivered – would likely crash housing, and see the economy nearing a recession,” George Tharenou, chief economist at UBS, told The Australian.

If interest rates were to rise to 3.5 per cent it would likely see the average variable mortgage rate hit a whopping 6 per cent and could plunge the economy into recession, according to the investment bank.

“Interest payments across the economy next year for the household sector will close to double from now,” Mr Tharenou said.

“We have never seen such a sharp increase in repayments. That really crushes household cashflow next year when you have cost-of-living issues.”

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The Big Lie About First Homeowner Grants…

In recent years we have seen a swathe of “initiatives” from state and federal governments with the aim to encouraging and helping more first-time buyers into the housing market. The previous Government claimed they had helped “hundreds of thousands” into the property market.

The latest ABS statistics shows that the number of First Time Buyers is falling again – and the part peaks map directly onto Government “stimulus” measures.

The latest is the Albanese Government release of 40,000 new places under the Federal Government’s Home Guarantee Scheme, which will enable eligible first home buyers to purchase a property with a deposit of as little as 2% or 5%.

This as a time when the Reserve Bank of Australia is aggressively increasing rates and house prices are expected to plunge by between 10% and 20%, depending on the forecast. What could possibly go wrong?

In fact, the evidence suggest that these schemes are ineffective. Indeed, the long-term trends in terms of home ownership shows that across Australia, a smaller proportion of people own their own home, and those that do have bigger mortgages for longer. The latest Census data, which is still in the process of being released continues to confirm this trend.

Home ownership rates in Australia have declined over several decades, and the likelihood of attaining home ownership by age 30 has fallen substantially. Go back two decades and the average age of a first time buyer was 27 year, today its 34 years and rising based on my surveys. In addition, especially in Sydney, Melbourne and Perth, first home buyers (FHBs) are now buying fewer houses and more units, and evidence shows that more are receiving parental assistance.

Also while mortgage repayment affordability stress has been cushioned by falling interest rates until 2022, mortgage deposit requirements have risen with prices and become an increasingly serious constraint—far more so in Sydney and Melbourne than elsewhere.

I have long argued that this First Home Owner grants are bribes which distort the market, lift prices and are more designed to assist the construction sector. In other words, First Time Buyer Grants are a con.

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