Home Prices – Page 57 – Digital Finance Analytics (DFA) Blog

Is QE Back On? – The Property Imperative Weekly – 26 Jan 2019

Welcome to the Property Imperative weekly to the twenty sixth of January 2019, – Australia day – our digest of the latest finance and property news with a distinctively Australian flavour.

Watch the video or read the transcript.

This week, amid weaker global economic news, there were signs that more stimulus of the financial system is coming, in response to weak growth, stalling inflation, and still low interest rates. Looks like QE2 is just around the corner – meaning more debt, and higher asset prices will devalue the true value of money further. The debt can will indeed, as expected, be kicked down the road, to support the financial system, incumbent governments and the 1%, as real people get taken to the cleaners – again.

And by the way if you value the content we produce please do consider supporting our efforts. You can make a one off donation via PayPal, or consider joining our Patreon programme. We really appreciate those who are contributing to help us continue to make great content.

We start with the global scene, with Fitch ratings reporting that Global government debt reached 66 trillion US dollars at end-2018, nearly double its 2007 level and equivalent to 80% of global GDP. Developed market government debt has been fairly stable in US dollar terms, at close to 50 trillion US dollars since 2012. In contrast, Emerging market debt has jumped to 15 trillion US dollars from 10 trillion over the same period, with the biggest increases in percentage terms being in the Middle East and North Africa (104%) and Sub-Saharan Africa (75%), though these regions still have comparatively low debt stocks, at less than 1 trillion US dollars each.

And Fitch also pointed out that recent corporate defaults – including Snton, Reward and KDX in China, have highlighted the risk of broader disclosure and governance problems among Chinese corporates, as well as the variable quality of local auditing, despite these companies having reported under agreed accounting standards. You can see our recent discussion with Robbie Barwick on the problems created by the big four Auditing firms, and why the CEC is calling for an audit of our big four banks – see “Auditing The Banks – The Bankers’ Deadly Embrace”.

And among the Davos circus, The IMF’s latest World Economic Outlook Update, January 2019, says that global growth in 2018 is estimated to be 3.7 percent, as it was last fall, but signs of a slowdown in the second half of 2018 have led to downward revisions for several economies. Specifically, growth in advanced economies is projected to slow from an estimated 2.3 percent in 2018 to 2.0 percent in 2019 and 1.7 percent in 2020. Weakness in the second half of 2018 will carry over to coming quarters, with global growth projected to decline to 3.5 percent in 2019 before picking up slightly to 3.6 percent in 2020 (0.2 percentage point and 0.1 percentage point lower, respectively, than in the previous WEO). This growth pattern reflects a persistent decline in the growth rate of advanced economies from above-trend levels—occurring more rapidly than previously anticipated—together with a temporary decline in the growth rate for emerging market and developing economies in 2019, reflecting contractions in Argentina and Turkey, as well as the impact of trade actions on China and other Asian economies.

Specifically, growth in advanced economies is projected to slow from an estimated 2.3 percent in 2018 to 2.0 percent in 2019 and 1.7 percent in 2020. This estimated growth rate for 2018 and the projection for 2019 are 0.1 percentage point lower than in the October 2018 WEO, mostly due to downward revisions for the euro area. We discussed this in our show “It Is Time To Prepare For The Next Downturn”. Problem is the quest for growth is getting harder as we reach peak debt.

Some high-ranking World Economic Forum participants at Davos spoke out sharply negatively against Bitcoin, predicting that its price would literally drop to zero. A little over a year ago, such statements caused a flurry of market emotions. Now these messages are honoured only by a slight smirk. The summary is simple: over the year the market has matured. The main awareness of investors is that no one knows for sure the future of cryptocurrency, and long-term growth forecasts up to “hundreds of thousands of dollars for a coin” or “zeroing rates” are worthless and have no effect on anything.

Elsewhere ECB President Mario Draghi said this week that the risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.

This triggered a Euro sell-off to its lowest level since early December 2018, and the German economy looks especially exposed now. The ZEW Economic Sentiment for Germany was released this week, and the ZEW president said “It is remarkable that the ZEW Economic Sentiment for Germany has not deteriorated further given the large number of global economic risks”. The German economy has been grinding along at 1.5% per annum, the lowest in five years, and recent forecasts suggest a lower 1.1% ahead, thanks to basket of risks including Brexit. But as Bloomberg said, one main factor behind the slump in the German manufacturing sector was the failure of inflation, particularly producer price inflation to drop in line with the tumbling price of oil in recent months. That’s in part, because of what’s happening to the Rhine, which has seen its water levels drop after a drought during the summer. The Rhine is crucial for German industry because it provides not only an avenue for the distribution of raw materials to German manufacturers but also a means of transporting finished goods to Europe’s largest port, Rotterdam, which sits at the river’s mouth. Low water levels in the Rhine, translates into a “supply shock in German manufacturing,” by lowering the availability of key goods needed for the sector, which come to factories situated on the river by barge. These barges need a depth of water to traverse the river above current levels.

And the latest from the US, is suggesting that the FED may have finished with interest rate hikes in the near term, and even their quantitative tightening agenda may be in question, in the light of the market reactions at the end of last year and pressure from political quarters in the US.

And to emphasize the “loosening” bias, in the UK, still in the Brexit muddle, the UK Financial Conduct Authority said they plan to improve so-called mortgage prisoners’ access to refinancing by relaxing current mortgage affordability regulations that preclude them refinancing into cheaper mortgage deals because they fail to meet affordability standards that were tightened in 2016. The FCA has suggested that authorised UK lenders would be willing to refinance such mortgage prisoners if the borrower qualified for refinancing under the new rules, which would require the new mortgage installments to be lower than previous installments and for the borrower to be up to date with their payments. The new rules would replace current affordability tests for these borrowers, which make sure a borrower has enough money left to pay their mortgage installments in a stressed interest rate environment after covering all other basic needs (e.g. bills, food, childcare).

This despite the continued unaffordable housing across many countries, including the UK, as reported in the newly released 15^th edition of the Demographia survey. Once again it shows that Australia and New Zealand property is unaffordable. Globally there were 26 severely unaffordable major housing markets in 2018. As normal they argue for planning reforms to release land, but do not consider credit availability, the strongest lever to affordability! You can watch our show on this “Housing Affordability – Still In The Doldrums”. The severely unaffordable major markets include all in Australia (5), New Zealand (1) and China (1). Two of Canada’s six markets are severely unaffordable. Seven of the 21 major markets in the United Kingdom, and 13 of the 55 major markets in the United States are severely unaffordable.

This is simply the fruits of unrelenting quantitative easing, money printing and easy credit. Yet we seem destined for more of the same.

Locally there was one bright spot this week, unemployment fell to a record 5% low, according to the ABS data to December 2018. The participation rate remaining steady at 65.6%; and the employment to population ratio remaining steady at 62.3%. In fact, they revised down last month’s data to get to the 5%, where it remained in December. This will temper any RBA response to the falling housing market in our view. But of course the hurdle to be “employed” is ultra-low, and many of the jobs are in sectors paying low wages, plus we expect to see a rise in unemployed construction workers ahead, so this may be a hollow victory.

But beyond that, you had to look hard to find any other good news on the economy here this week. For example, following the heavy 15% decline in new car sales in 2018, plus the 9% decline in motorcycle sales, Moody’s said delinquencies for Australian auto loan asset-backed securities (ABS) has surpassed Global Financial Crisis levels. These auto loans are non-revolving with a fixed interest rate so they are an excellent benchmark to true credit stress and this again shows the impact of high debt despite low interest rates. As our mortgage stress analysis highlights, many households are up to their eyeballs in debt.

And there was more evidence of the weakness in the Australian economy. The Economist took a bearish view, saying our housing market is now one of the most overvalued… Household debt has reached 200% of disposable income. The saving rate is skimpy… House prices have been falling for a year. Australia’s banks may not have been quite as conservative as previously advertised. The share of interest-only loans, favoured by speculators, was as high as 40%. The number of permits issued for apartment buildings has fallen. The momentum that drove the market up, as higher prices fuelled expectations of further gains, works in reverse too. The lucky country has avoided so many potential slip-ups that even long-standing bears are wary of predicting a fall. The more banana skins you dodge, the bigger the manhole waiting for you.

And we made a series of posts this week, which underscores the pressures, mainly centred on housing and finance. For example, AFG, the mortgage aggregator showed a significant slowing in loan applications in their latest quarterly index. NAB lifted their mortgage rates for existing variable rate borrowers, by up to 16 basis points, as NABs chief customer officer Mike Baird said that the bank could no longer afford to absorb higher funding costs. And AMP’s Shane Oliver upped his expectation of home price falls in Sydney and Melbourne to 25%, see our post The “Good News” on Property Prices, where we discussed his reasoning, and also highlighted that another half a percent of mortgage rate rises are on the cards thanks to higher funding costs.

Following Domains property price trend falls, released this week, see our post “More Evidence of Home Price Falls”, CoreLogic’s home price index slide again. As a result, the quarterly decline has steepened to 3.31%, across the five capital cities, with Sydney, Melbourne and Perth worst hit. In the last year home values have fallen by 7.1%, thanks mainly to falls in Sydney, Melbourne and Perth. And from past peaks, dwelling values have fallen by 8.1%, led by Sydney (-12.1%), Melbourne (-8.5%) and Perth (-16.3%). And remember these are averages, some areas have done much worse.

CoreLogic says Weekly rents across the nation fell by -0.1% in December 2018 to be -0.3% lower over the fourth quarter of 2018 however, rents increased by 0.5% over the 12 months to December 2018. Capital city rents were -0.4% lower over the quarter and unchanged year-on-year while regional market rents were 0.3% higher over the quarter to be 1.8% higher over the past 12 months. The annual change in both combined capital city and national rents is the lowest on record based on data which is available back to 2005. Over the past 12 months, rents have increased in all capital cities except for Sydney and Darwin. Brisbane and Perth are the only two capital cities in which the annual change throughout 2018 has accelerated relative to the change in 2017.

NAB’s latest property survey to December 2018, showed that confidence, prices and transaction expectations are all falling, no surprise there. Average survey expectations for national house prices for the next 12 months were cut back further in Q4, and are now tipped to fall -2.4% (-1.0% in Q3). This largely reflected a big downward revision by property professionals in VIC, who now expect prices to fall by a much bigger -4.0% (-2.4% forecast in Q3). In NSW, expectations were also scaled back heavily to -3.9% (-2.4% forecast in Q3). As a result, VIC has also replaced NSW as the weakest state for house price growth in the next 12 months. Falling house prices are expected to extend beyond VIC and NSW. In SA/NT, average prices are also expected to fall 0.4% (-0.3% in Q3). In QLD, property professionals now believe prices will fall -0.5% in the next 12 months, after forecasting growth of 0.8% in the previous survey. WA is the only state in which property professionals don’t expect prices to fall in the next 12 months (0.0%), albeit expectations have been scaled back from 0.5% forecast in Q3. Consequently, WA has replaced QLD for having the best prospects for house prices in the country in the next 12 months.

In early-December, NAB Economics revised down their house price forecasts, seeing a larger peak to trough fall of around 10-15% in capital city dwelling prices. House prices continued to fall Q4 alongside the cooling in the housing market more generally. Capital city house prices declined by 6.1% in 2018, and are now 6.7% lower than their peak in mid-2017… Overall, they expect some further price declines in 2019, before levelling out in 2020. We expect the weakness to be driven by ongoing declines in Sydney and Melbourne…

But the killer was the data on foreign buyer transactions, which shows a significant fall in both new and established home purchases. And linked to that, and the fall in new building approvals, the Australian reported that more building firms are under pressure. “Dozens of development sites in Sydney, Brisbane and Melbourne, some large enough for 600-unit apartment towers, are hitting the market as Chinese developers plagued by poor buyer appetite and lack of finance are forced to sell. “The apartment market is in serious trouble and development sites are falling in price. A lot of Chinese paid pretty big prices in 2016 and a lot of development sites doubled or trebled in value between 2014 and 2018 and they will halve or worse,” Property Developer David Kingston told The Australian. “I am certain the Chinese will be selling development sites for multiple reasons including the fact that development margins have disappeared and values have plummeted. The ability to obtain development finance has been substantially reduced, and the ability to pre-sell apartments has collapsed.”

We appeared in a number of television shows this week, I took part in a discussion on Peter Switzer’s Money Talks, along with Michael Blythe from CBA and Nicki Hutley from Deloitte, making my case for more sustained falls in home prices, compared with the mainstream – we will see who is right in a year or two!

I discussed the latest trends in home prices on ABC News 24, and also discussed the latest on the high-rise building fiasco, after the Opal Tower. Talking, of which the Australian has reported that The NSW government could be liable for any major defects in at least four major apartment projects in Sydney Olympic Park as well as a flagship tower in the city’s $8 billion Green Square project under its own laws that define the “developer” as the legal owner of the land… Under NSW statutory warranties, the owners corporation of an apartment block can sue the developer and builder within two years for minor defects and six years for major defects. Sydney Olympic Park Authority, a NSW government entity, was the legal landowner in the case of Opal Tower and Ecove, the developer, never owned the land. Sydney Olympic Park Authority has confirmed it had a similar Project Delivery Agreement with four other of its projects: Australia Towers, Jewel, The Pavilions and Bennelong… The NSW government’s property developer, Landcom, likewise said it retained ownership of the land at Green Square… Remember that under the six-year warranty period introduced via the recent Home Building Act, those people living in high-rise constructed prior to 2012 don’t even have the option of taking a builder to court – they must fund any remediation works themselves.

And finally, I spent more than 3 hours with Nine’s Sixty Minutes team, making a contribution to their next programme on home prices, in which we touched on our home price scenarios (now more mainstream that during the previous show back last August), household finances and negative equity. It is likely to go to air within the next month, so keep an eye out for it.

So to the markets. The Australian markets, did pretty well, with the ASX up 0.61% on Friday to 4,869, which is down just 2.6% compared with a year ago. The low employment number helped to lift prices higher. The volatility index in Australia was 4.21% lower on Friday to end at 11.98, but is still 11.2% higher than a year ago. The ASX financials index ended the week at 5,747 on Friday, and up 0.37% on the day, but still 11.71% lower than a year ago, which really underscores the pressures on the sector – the Royal Commission final report is due next week, but it may be delayed for political reasons. We will see.

Among the individual banks, ANZ was up 1.04% on Friday to 26.19 but is still 10% lower than a year ago, while CBA was up just 0.04% on Friday to 72.54, and is 7.91% lower than a year ago. NAB rose 0.65% to 24.74 after the mortgage repricing announcement, but remains 15.58% lower than a year ago, while Westpac was up 0.62% to 25.88, and is 16.69% lower than a year ago. So the Hain effect is fully visible.

Among the regionals, Bank of Queensland was up 1.28% to end at 10.28, but is 17% lower than a year ago, Suncorp was up 0.69% to 13.05, but down 5% over the past year, Bendigo and Adelaide Bank was up 0.63% to 11.22, just 2% lower than a year back, while AMP fell 7.87% on more bad news, as they published a further profit warning, to end a 2.34, an amazing 54% lower than a year ago. AMP expects to report an underlying profit of “around $680m” and profit attributable to shareholders of “approximately $30m. Macquarie Group was down slightly to 117.81 but up 12.53% compared with a year ago. In contrast Lenders Mortgage Insurer Genworth was up 0.89% on Friday to 2.26, but down 23% over the year, and Mortgage Aggregator Mortgage Choice was up 0.5% to 1.00, but down 59% from this time last year.

The Aussie was up 0.10% to 71.90, down 12% compared with last week, and more analysts have marketed to lower ahead, towards 60 cents. The Gold Aussie cross was up 0.47% to 1,815, and up 7% on the year. The Aussie Bitcoin Cross was up 4.65% to 4,702 on Friday but down 67.58% compared with a year ago.

Wall Street gained ground on Friday in a broad-based rally as investors were heartened by news that Washington would move to temporarily end the longest U.S. government shutdown in history. All three major U.S. stock indexes advanced, with the Dow up 0.75% to end at 24,737, though still down 6% across the year, and the Nasdaq eking out their fifth straight weekly gains, up 1.29% to 7,165 and down 3% from a year ago. But the S&P 500 posted its first weekly loss of the year, despite being up 0.85% on Friday to 2,665 snapping a four-week run and down 6% from a year ago, and the S&P 100 ended up 0.74% to 1,176 and down 7% from a year back.

The indexes backed off their highs after President Donald Trump confirmed he and lawmakers agreed to advance a three-week stop-gap spending plan to reopen the government. In fact, Investor sentiment had faltered in recent days in the face of revived jitters related to the shutdown and the prolonged U.S.-China tariff spat.

Among these uncertainties, the ongoing trade dispute between the United States and China continues to worry investors. With the World Economic Forum in Davos, Switzerland, nearing its conclusion, business leaders have expressed worries over the tariff battles, saying they are “fed up” with Trump’s policies. An escalation of the U.S.-China trade war would sharpen the global economic slowdown already under way, according to a Reuters poll of hundreds of economists worldwide.

In an interview with CNBC, Commerce Secretary Wilbur Ross shook investor sentiment on trade on Thursday, saying that the U.S. was still “miles and miles” from a trade deal with China. That came a day after Top White House economic adviser Larry Kudlow denied that the U.S. had cancelled a trade meeting with Chinese officials that was slated for this week. China’s Vice Premier Liu He will return to the U.S. next week to resume the next round of trade talks.

The rally on Wall Street was also propped up by expectations for a more dovish tone from the Federal Reserve, when it meets next week, following a report from The Wall Street Journal that the Fed is closer than expected to ending its balance sheet unwind.

The VIX, or fear index was lower, down 7.78% on Friday to 17.42, but still 65% higher than this time last year, suggesting elevated risk. The S&P Financials index was up 1.73% on Friday to 431.73, but 13% lower than a year ago, suggesting pressure on the sector. Goldman Sachs was higher, up 1.49% to 200.74, but 26% lower than a year ago.

In the tech sector, Apple was up 3.31% to 135.76, 12% lower than a year ago, Alphabet Google was up 1.62% to 1,102, but 7% down from a year back, while Amazon was 21% higher than a year ago, up 0.95% on the day, and ended at 1,670.57. Facebook was up 2.18% to 149.01, but is 22% down on this time last year, while Intel fell 5.47% to end at 47.04, still up 9% from last year. The 10-year Treasury bond was up 1.71% to 2.76, while the 3-month bond was up 0.61% to 2.38, suggesting fund costs will remain elevated.

The US dollar index fell 0.82% to end at 95.81, and is up 8.5% over the year. The British pound grew steadily during this week, adding 2% against the dollar and ended at 1.32. An unexpectedly strong wages report was supported in the following days with positive buzz around Brexit. First, we received reports of a possible postponement of the Brexit date in order to avoid “exit without deal”. On Friday, there was news of support for Theresa May’s plan by the Northern Irish political party.

The Footsie – or FTSE 100 fell 0.14% on Friday to end at 6,809 and 11% lower than a year ago. The Financial Services Index fell slightly to end at 644.27, down 7% across the last year.

The British currency growth is particularly noticeable against the euro, as the eurozone economy, on the contrary, saw weak economic data this week: at the beginning of the week the IMF sharply reduced its growth forecasts for the eurozone countries in 2019, and on Thursday EUR was under pressure due to disappointing PMI estimates. On Friday, Ifo data also highlighted slowing. Their Business Climate indicator fell to almost 3 years’ lows.

The ECB added fuel to the fire, stressing that external risks from China to Brexit could undermine the region’s economic growth even more. ECB officials say in their speeches that in 2019 the rate hike may not happen, and that the recent decline of oil will put pressure on inflation in the coming months.

The Euro US Dollar rose a little to end at 1.1415, down 9% from a year ago. The German DAX added 2.6% from Wednesday lows. Deutsche Bank rose 4.24% to 8.036, but is still down 51% from a year ago as the business restricting continues. At least it went back above the 8 level, seen by many as a critical break point.

Next week’s news from the US will be in the spotlight of the markets. On Wednesday, the Fed will announce its decision on the rate and hold a press conference; labour market indicators will be published on Friday. Many releases on the US economy are postponed because of the shutdown, so the remaining publications can cause a stronger than usual market response.

The Chinese Yuan US Dollar rose 0.61% on Friday to 0.1482, and is down 6% from a year ago. Oil was higher, up 0.75% to 53.53, still 19% down from this time last year, Gold was up 1.77% to 1.302, but 6% lower than last year, Silver was up 2.97% to 15,76, down 12% over the year, while copper was up 3.35% to 2.73, down 17% over the year.

Finally, bitcoin was down 0.21% to 3,633, following a flash crash earlier in the week. It remains 68% lower than this time last year and trading volumes are way down, as speculators take to the side lines. Analysts at JPMorgan Chase & Co said that the hype surrounding cryptocurrencies and blockchain — the distributed ledger technology that underpins all cryptocurrencies — is a little overblown, with inroads to mainstream finance patchy at best. They said that while advocates tout that most assets can be shifted to a blockchain-type ledger and the technology will improve everything from transparency to supply chain efficiency, results are yet to match the industry buzz.

One sector ripe for a blockchain shake-up, according to crypto evangelists, is the banking system. Cross-border payments with faster transaction times and lower costs will propel digital currencies and blockchain technology into the established banking industry, but the analysts said a meaningful difference is years away.

Furthermore, a number of prominent companies that began accepting bitcoin have since thrown in the towel, which includes Dell, Expedia, OKCupid and Steam, JPMorgan noted. Whilst there may be niche uses in for example trade finance, they conclude that “most other use cases, such as payments, are already largely digitalized, so we expect the adoption of blockchain may be viewed as providing incremental benefits.”

So, it seems to me that the market volatility at the end of last year have spooked central bankers, and it is likely we will see more QE ahead. Locally, there is talk of APRA dropping the current 7% serviceability cap to ease mortgage lending restrictions, the RBA may cut rates, and even sacrifice the Aussie to stimulate the local economy. However, the downforces on housing, reinforced by poor affordability and high debt suggests to me that QE may not be so effective, as we face into lower growth. With rates in many counties already low, we are entering the “Zero Bounds” twilight zone. Whilst this may support the overinflated banking system, the impact of real households could well be disastrous. As I continue to say, prepare yourselves.

AMP’s Shane Oliver Tips 25% Home Price Falls

AMP Capital chief economist Shane Oliver believes house price falls could be greater than he anticipated following weak auction clearance figures, via InvestorDaily.

CoreLogic data shows that capital city dwelling prices are down 7 per cent from their September 2017 high.

Sydney prices are down 11 per cent from their July 2017 high, while Melbourne is down 7 per cent from its November peak.

For Sydney and Melbourne, AMP’s base case has been that prices would have a top to bottom fall of around 20 per cent out to 2020. However, looking at the data, AMP Capital’s top forecaster has reconsidered his outlook.

“The further plunge in auction clearance rates and acceleration in price falls late last year suggest a deeper fall – possibly of around 25 per cent (although it’s impossible to be precise),” Mr Oliver said.

This suggests around another 15 per cent fall in Sydney and more in Melbourne, he said, adding that a 25 per cent top to bottom drop would take prices back to where they were in late 2014/early 2015.

While a 25 per cent drop in property prices may seem like a ‘crash’ to some, it comes after a significant period of growth; over the five years to 2017, Sydney prices rise soared 72 per cent and Melbourne prices increased 56 per cent.

“A 25 per cent plunge in Sydney and Melbourne may seem like a crash but given the extent of the prior gains, it’s arguably not. But a 25 per cent national average fall would probably be interpreted as a crash,” he said.

“Our assessment is that this is unlikely unless we see much higher interest rates or unemployment (neither of which are expected) driving a sharp rise in defaults and forced property sales or a collapse in immigration (which would collapse demand).

“Strong population growth is still driving strong underlying demand for housing. While mortgage stress is a risk, it tends to be overstated, and is unlikely to be a generalised issue unless interest rates or unemployment shoot higher. And, while Sydney and Melbourne are at risk, other cities have not seen the same boom and so are unlikely to crash.”

The latest Domain Q4 House Price Report, released on Wednesday (23 January), revealed that Sydney house prices fell 3.2 per cent over the quarter and 9.9 per cent over the year to $1,062,619. Unit prices fell 3.3 per cent over the quarter and 5.8 per cent over the year to $702,012.

“The depth of Sydney’s current house price downturn is the sharpest in more than two decades, although the duration is yet to surpass the 2004-06 slump,” Domain Senior Research Analyst Dr Nicola Powell said.

“House prices have fallen 11.4 per cent from the mid-2017 peak, pushing them back to mid-2016 levels. For the second time since Domain records began in 1993 house prices have fallen for four consecutive quarters, the only other period this occurred was in 2008.

“Despite the consistent quarterly moderations, the depth of the falls have not gained significant momentum. The pullback in price was anticipated given the stellar run of growth that lasted almost six years. Home owners reaped an unprecedented gain of 89 per cent over this period.”

New research released this week from NAB revealed how consumers are weighing up the new opportunities or threats that the current housing downturn presents. It found that half of Aussies think it is not a good time to sell their home or investment property.

This view was broadly consistent across states, although a much higher number in Western Australia said it wasn’t a good time to sell their home.

“We suspect this is influenced by the fact that some home owners in WA may also be sitting on capital losses,” NAB chief economist Alan Oster said.

Over the next 12 months Australians are still most positive about renovating their home and buying a property to live in. But it’s also clear consumers are far more uncertain about the future – around 4 in 10 said they simply didn’t know if it would be a good time to buy, sell, renovate or take out a mortgage.

On average, consumers expect price falls of -2.1 per cent over the next 12 months (against -2.4 per cent forecast by property professionals in NAB’s latest Residential Property Survey).

NSW (-3.1 per cent) and Victoria (-2.9 per cent) are expected to lead the way down, but consumers again are a little less pessimistic than property professionals.

Debating Home Prices On Money Talks

I took part in a discussion on Peter Switzer’s Money Talks, along with Michael Blythe from CBA and Nicki Hutley from Deloitte. Making my case for more sustained falls in home prices, compared with the mainstream – we will see who is right in a year or two!

Money Talks | January 21, 2019

Australian Property Still Severely Unaffordable – Demographia

The 15th edition of the annual Demographia Internal Housing Affordability Survey has been released. Once again it shows that Australia and New Zealand property is unaffordable. Globally there were 26 severely unaffordable major housing markets in 2018. As normal they argue for planning reforms to release land, but do not consider credit availability, the strongest lever to affordability!

The Demographia International Housing Affordability Survey rates housing affordability using the “Median Multiple”, average house price divided by average household income or Price- Income Ratio (PIR). In the 2019 Affordability Survey covering 90 cities of more than one million people, PIR values range from 2.6 in Pittsburgh, PA and Rochester, NY to 20.9 in Hong Kong!

Available data shows that house costs have generally risen at a rate similar to that of household incomes until comparatively recently. This is consistent with cost trends among other basic necessities, such as personal transport, food and clothing. In some metropolitan markets house prices have doubled, tripled or even quadrupled relative to household incomes.
Historically, the Median Multiple has been remarkably similar among six surveyed nations, with median house prices from 2.0 to 3.0 times median household incomes (Australia, Canada, Ireland, New Zealand, the United
Kingdom and the United States). Housing affordability remained generally within this range until the late 1980s or late 1990s in each of these nations.

In recent decades, house prices have escalated far above household incomes in many parts of the world. [This coincides with the deregulation of the financial markets, and more recently QE and ultra low interest rates]

The report says that many prosperous cities consider ever increasing housing prices as an unavoidable side-effect of their economic success. But the Survey conducted by Wendell Cox and Hugh Pavletich demonstrates that some cities can be economically successful and avoid over-charging households for their housing consumption. Australia is not among them, so
why do some cities manage to conciliate economic growth and housing affordability while others see their PIR number increases years after years?

The severely unaffordable major markets include all in Australia (5), New Zealand (1) and China (1). Two of Canada’s six markets are severely unaffordable. Seven of the 21 major markets in the United Kingdom, and 13
of the 55 major markets in the United States are severely unaffordable.

There are 26 severely unaffordable major housing markets in 2018. Again, Hong Kong is the least affordable, with a Median Multiple of 20.9 up from 19.4 last year. Vancouver has replaced Sydney as the second least affordable, with a Median Multiple of 12.6. With slightly declining house prices, Sydney’s Median Multiple dropped to 11.7. Melbourne (9.7), San Jose (9.4), Los Angeles (9.2) and Auckland (9.0) were also among the least affordable. San Francisco (8.8), Honolulu (8.6), as well as London (Greater London Authority) and Toronto (both 8.3) were also among the 10 least affordable major markets.

An already high or increasing Price-Income Ratio (PIR) should immediately signal to urban managers that they should take urgent correcting action after conducting a detailed diagnosis that would explain the high PIR figure. The Affordability Survey should be similar to the periodic health check-up taken by an individual: an abnormally high blood pressure indicates that urgent correcting steps should be taken.

Virtually all of the severely unaffordable major markets have urban containment.

Among the 79 severely unaffordable markets, 28 are in the United States, 17 in Canada, 16 in Australia, 11, six in New Zealand and one in China. Among the 10 least affordable housing markets, seven are major housing markets. s
least affordable 10 also includes California’s Santa Cruz, at 9.6 and Tauranga-Western Bay of Plenty in New Zealand, at 9.1. All of the other least affordable metropolitan areas were major markets.

In Australia, housing affordability remains severely unaffordable in all of the major markets, and by a substantial margin in Sydney and Melbourne. Despite what has been called the largest Sydney price reduction in 35 years, house prices relative to incomes are more than double the rate of the early
1980s. In Sydney and Melbourne, median income households need at least three years’ more income to pay for the median priced house than in 2004, when the first Survey was published.

Major Markets: Sydney is again Australia’s least affordable market, with a Median Multiple of 11.7, and ranks third worst overall, trailing Hong Kong.
Melbourne has a Median Multiple of 9.7 and is the fourth least affordable major housing market internationally. Only Hong Kong, Vancouver, and Sydney are less affordable than Melbourne. Adelaide has a severely unaffordable 6.9 Median Multiple and is the 16th least affordable of the 91
major markets. Brisbane has a Median Multiple is 6.3 and is ranked 18th least affordable, while Perth, with a Median Multiple of 5.7 is the 24th least affordable major housing market in this year’s Survey.

Other Housing Markets: Overall, Australia’s housing markets have a severely unaffordable Median Multiple of 5.9. The most affordable markets are moderately affordable, Gladstone, Queensland at 3.2 and Rockhampton, Queensland at 3.9. There are no affordable or moderately affordable markets in Australia. Overall 16 markets in Australia are rated severely unaffordable. The least affordable are the Sunshine Coast, Queensland (8.7) and the Gold Coast, Queensland (8.4).

Historical Context: Australia’s generally unfavorable housing affordability is in significant contrast to the broad affordability that existed before implementation of urban containment (called “urban consolidation” in Australia). The price-to-income ratio in Australia was below 3.0 in the late 1980s. All of Australia’s major markets have urban containment policy and all have severely unaffordable housing.

New Zealand’s housing affordability has a severely unaffordable Median Multiple of 6.5. Recent Median Multiple trends have been influenced by government restatement of median income data.

Major Housing Market: Auckland, New Zealand’s only major housing market has a severely unaffordable 9.0 Median Multiple. Housing affordability has deteriorated from a Median Multiple of 5.9 in the first Survey (2004), thus adding the equivalent of three years in pre-tax median household income to the house prices. Over the past year, Auckland’s house prices have been stable, with the Median Multiple increase resulting from the household income restatement described above. Auckland is the seventh least affordable among the 91 major housing markets, and has been severely unaffordable in all 15 Demographia International Housing Affordability Surveys.

Other Housing Markets: There is severely unaffordable housing in the two largest markets outside Auckland. Christchurch has a Median Multiple of 5.4, while Wellington is at 6.3.

Housing Affordability and Public Policy: Outside Singapore, New Zealand is the only nation in the Survey that emphasizing public policy priority to restore and maintain middle-income housing affordability. In New Zealand, as in Australia, housing had been affordable until approximately a quarter century ago. However, urban containment policies were adopted across the country, and consistent with the international experience, housing became severely unaffordable in all three of New Zealand’s largest
housing markets, Auckland, Christchurch and Wellington.

Meanwhile, public opinion placed the issue of housing affordability to the top of the policy agenda in the last three national elections. That concern continues to be dominant according to the latest IPSOS New Zealand Issues Monitor (October 2018), with 45 percent saying that “Housing/Price of
Housing” is the issue of greatest concern. Poll respondents were asked to identify the three most important issues, and the cost of living rated third, which is to be expected given the enormous influence of housing costs on the financial health of households. The new Labour Party led coalition government unveiled a focused housing affordability program, intending to increase the housing supply throughout Auckland, including both urban fringe and infill development. The Labour Party’s Urban Growth agenda calls for intensified residential development, both greenfield and infill. The Auckland urban containment boundary is to be abolished. Recently, the
government and the city of Auckland agreed to establish a non-government debt financing mechanism to facilitate development of a 9,000 home greenfield development. The government intends to establish an Urban Development Authority, which would provide means for communities and developers to finance infrastructure for new housing development.

In his Introduction: Avoiding Dubious Urban Policies to this Survey, former World Bank principal urban planner Alain Bertaud says that “After the
government has successfully passed these reforms, the international community will watch with great interest the impact it will have on Auckland’s PIR (Median multiple) in the next few years. It is hoped that the example of Auckland will create a blueprint that could be used in other high PIR cities.”

These developments build on other recent developments, especially a Productivity Commission of New Zealand report, which found that land use authorities have a responsibility to provide “capacity to house a growing
population while delivering a choice of quality, affordable dwellings of the type demanded ….” Consistent with that finding, the Productivity Commission proposed a measure that would automatically expand the supply of greenfield land when housing affordability targets are not met. The Commission said, “Where large discontinuities emerge between the price of land that can be developed for housing and land that cannot be
developed, this is indicative of the inadequacy of development capacity being supplied within the city.” The Productivity Commission expansion of greenfield land for development where the difference between land prices on either side of an urban containment boundary become too great.

Here are the top housing markets listed by their unaffordability.

The report highlights three myths which tend to limit policy responses, namely:

Myth #1: planners know how to allocate land equitably through the design of increasingly complex zoning regulations while ignoring price signals.

Myth #2: Regulators can mandate the creations of new affordable housing units by obliging private developers to provide a share (usually 20%) of the housing units they build at prices fixed by the government below market; regulators call these “affordable housing units.”

Myth #3: The compact city fallacy. A city can accommodate increasing income and population through densification of the existing built-up area; expansion into greenfield would result in “sprawl.”

The report says that by severely restricting or even prohibiting expansion to
accommodate larger population, urban containment has virtually destroyed the competitive market for land in many urban areas, driving house prices up relative to incomes.

We agree that land supply is one important issue but the report is silent on the most powerful lever of home prices, credit availability. Our own research suggests that more credit leads to higher prices, and the reverse is also true. There are correlations with the household debt to GDP ratios.

In addition there is an “undersupply myth”. According to the latest census in Australia, from 2016, 11.2% of residential properties are unoccupied, which equates to 1,039,874 residences. We also saw in Joe Wilkes’ recent reports from Auckland, that supply is not an issue at this time in New Zealand.

Finally, some will criticise the index method they use in their surveys, but we think the consistently applied approach shows real trends and real issues.

In fact, the truth is housing affordability is a result of the complex interplay between supply and demand, planning and credit, and to that end the Demographia survey is a helpful tool to diagnose the issues we face. But planning changes alone will not solve the issue. The greatest of these is credit.

What’s Happening In New Zealand? – A Joe Wilkes Update

Property expert Joe Wilkes and I discuss the latest from the New Zealand market, and discuss his next trip, to the big smoke.

We also touch on the building financial system risks, and why central banks are encouraging more lending despite the debt bomb.

Joe Wilkes On LinkedIn

AMP betting on 20% fall in property prices

Top forecaster Shayne Oliver believes there is still plenty of room for property prices to head south as homes weaken to GFC levels; via InvestorDaily.

Australian capital city dwelling prices fell another 0.9 per cent in November marking 14 months of consecutive price declines since prices peaked in September last year. This has left prices down 5.3 per cent from a year ago, their weakest since the GFC.

The decline is continuing to be led by Sydney and Melbourne.

Sydney dwelling prices fell another 1.4 per cent and have now fallen 9.5 per cent from their July 2017 peak. Meanwhile, Melbourne prices fell another 1.0 per cent and are down 5.8 per cent from their November 2017 high.

Perth also saw prices fall by 0.7 of a percentage point, but Hobart and Darwin saw prices rise by 0.7 of a percentage point. Prices in Canberra rose 0.6 of a percentage point and Brisbane and Adelaide prices rose 0.1 of a percentage point.

“The decline in property prices is being driven by a perfect storm of tighter credit conditions, poor affordability, rising unit supply, reduced foreign demand, the switch from interest only to principle and interest mortgages for a significant number of borrowers, fears that negative gearing and capital gains tax concessions will be made less favourable if there is a change of government, falling price growth expectations and FOMO (fear of missing out) risking turning into FONGO (fear of not getting out) for investors,” AMP Capital chief economist Shayne Oliver said.

“These drags are most evident in Sydney and Melbourne because they saw the strongest gains into last year and had become more speculative with a greater involvement by investors.

“Ongoing weakness in these two cities is evident in very weak auction clearance rates and auction sales volumes. Recent auction clearance rates averaging just below 40 per cent in Sydney and Melbourne are consistent with ongoing price declines of around 7 to 10 per cent per annum.”

The economist believes the decline in Sydney and Melbourne property prices has much further to go as Comprehensive Credit Reporting kicks in, making it even harder to get multiple mortgages.

Many homebuyers will be watching out for changes to negative gearing and capital gains tax, which could become the new reality after a change of government at the coming federal election.

“In these cities we expect to see a top to bottom fall in prices of around 20 per cent spread out to 2020,” Mr Oliver said.

“However, the plunge in clearance rates and the uncertainty around credit tightening and tax concessions indicate that the risks are on the downside. So there is more to go yet.”

Don’t Buy Now! – The Property Imperative Weekly 24 November 2018

Welcome to the Property Imperative weekly to 24th November 2018, our digest of the latest finance and property news with a distinctively Australian flavour.

More volatility on the markets this week, more home prices falls, and more revelations from the Royal Commission which put the spotlight on poor culture in the banks and regulators. It’s time to be very cautious in my view.

So let’s get started. Watch the video, listen to the podcast or read the transcript. Caveat Emptor! Note: this is NOT financial or property advice!!

Property listings are skyrocketing according to CoreLogic, with an 11.6% rise in total listings over the last year nationally, but with a 17.4% rise in Sydney and a massive 19.3% rise in Melbourne. New listings are down, so property is sitting on the market for longer and longer, and vendor discounts are rising. Darwin units are seeing discounts of 14.64% and Perth units 10.5%. All signs of a stalling property market.

Sydney has been one of the strongest markets for value growth over recent years however, a big spike in listings and tighter credit conditions has made selling much more difficult. At one point in mid-2015 more than three quarters of properties sold for more than the original list price. Fast forward to the current market and 83.3% of properties are selling for less than the original list price compared to 13.3% selling above the list price. Sydney vendors are now discounting their asking prices by 7.3% on average in order to make a sale, compared with only 5.4% a year ago.

Melbourne is currently seeing 76.3% of properties selling below the original list price which is the highest share in at least 12 years. As recently as April last year, when values were rising at a double-digit annual rate, 34.4% of properties were selling for less than the original list price. By comparison today, only 18.7% of properties have sold over the past three months for more than the original list price and vendors are, on average, discounting their prices by 6.1% to make a sale.

And CoreLogic’s latest home price update revealed their 5-city daily dwelling price index, which covers the five major capital city markets, declined another 0.27% last week, which is the biggest weekly decline of the past year. Prices fell across all the major markets, with Melbourne leading the way down, as expected, with a drop of 0.38%, Sydney down 0.31%, Perth down 0.29%, Adelaide down 0.04% and Brisbane down 0.01%. The falls in Sydney Melbourne and Perth this month are mounting, with Sydney down 0.91%, Melbourne 0.59% and Perth 0.63%.

Remember that Perth has been in the doldrums for years, and while many “property expects” claimed there were signs of a recovery in the West, this is just not true. Through Sydney and Melbourne prices are up compared with a couple of years back, the falls are likely to continue. The declines from the last peak are down 9% in Sydney, 5.4% in Melbourne and 14.7% in Perth.

ANZ said this week “The fall in Sydney housing prices is already the largest in many years. Prices are now 9% below the June 2017 peak, a larger correction than in 2010-11, 2008, 2004-05, 1994-95 and, by the end of this month, the fall will be larger than the 9% fall in 1988–91”. They now think housing prices in Sydney and Melbourne will fall around 15–20% from peak to trough. They link the falls to tighter credit availability, plus additional risks from changes to negative gearing and higher mortgage rates.

And the combined capital city final auction clearance rate saw further weakening last week, with 42 per cent of homes successful at auction; the lowest weighted average result seen since June 2012. The lower clearance rate was across a higher volume of auctions week-on-week with 2,745 capital city homes taken to market, increasing on the 2,386 held the week prior. Both volumes and clearance rates continue to trend lower each week this year relative to the same week’s last year.

Melbourne’s final clearance rate was recorded at 41.3 per cent last week, making it the weakest result the city has seen since June 2012. There were 1,401 homes taken to auction across Melbourne last week, increasing on the week prior when 1,127 auctions were held. One year ago, a much higher 1,732 auctions were held with 66.9 per cent selling.

Sydney’s final auction clearance rate was recorded at 42.8 per cent across 875 auctions last week, increasing slightly from 42.1 per cent across a lower 844 auctions over the previous week. Over the same week last year, 1,061 Sydney homes went to auction and a clearance rate of 54.8 per cent was recorded.

Across the smaller auction markets, Adelaide returned the highest clearance rate of 59 per cent, while Perth saw only 28 per cent of homes successful at auction

The combined capital cities are expected to see a slightly lower volume of auctions this week with CoreLogic currently tracking 2,571 auctions, down from the 2,745 auctions held last week.

Melbourne is the busiest city for auctions again this week, with 1,069 auctions being tracked so far. This week’s volumes are down from the 1,401 auctions held last week and significantly lower than the 1,736 Melbourne homes taken to auction this week one year ago.

Sydney has over 1,000 homes scheduled for auction this week. This is not only an increase on last week’s 875 auctions, but the highest number of auctions the city has seen since March this year. Last year there were a higher 1,215 auctions held across the city over the same week.

Adelaide and Canberra are both expecting a higher volume of auctions week-on-week, while the remaining auction markets have fewer scheduled auctions this week.

S&P Ratings said falling property prices triggered by tightened lending conditions are dominating Australian media headlines. The Australian residential mortgage-backed securities (RMBS) sector so far has been relatively resilient to pressure, with mortgage arrears remaining low and ratings performance stable. The RMBS sector is now facing more elevated risk than it was 12 months ago. Alongside high household debt and low wage growth are emerging risks such as lower seasoning levels in new transactions and increasing competition.

Meantime, looking in the rear-view mirror, Fitch Ratings said that their RMBS index 30+ days’ arrears fell by 4bp quarter on quarter to 1.04% during 3Q18. Fitch Ratings has observed a drop in third-quarter arrears for the previous decade. They say national dwelling prices continued to decline in 3Q18, led by falls in Melbourne, which dropped by 2.33% from the previous quarter, and Sydney, down by 2.11%. The price falls followed tighter lending standards, which restricted new loans and made refinancing more difficult, reducing demand in Australia’s property market. The peak-to-trough decline in Sydney is now 8.2%, which is the second-largest fall in the past 35 years. The largest fall was seen during the last recession in the early 1990s when prices fell by 9.2%.

RMBS transactions rated by Fitch continued to experience extremely low levels of realised losses and a rising lenders’ mortgage insurance (LMI) payment ratio since 4Q12. Excess spread was sufficient to cover principal shortfalls on all transactions during 3Q18.

This is starting to hit the broader economy now, as expected. Home price falls often lead broader economic falls by 12-18 months.

ANZ said momentum slowed further in the September quarter across most of Australia. All states and territories except Tasmania and the Northern Territory decelerated and recorded growth at below their trend rates. The loss of momentum demonstrated by the Stateometer is consistent with their forecast that the Australian economy will grow at a year-ended pace of 2.9% by the June quarter 2019, down from 3.4% in June this year. The slowing, brings into doubt the 3.25% year-ended growth rate forecast by the Reserve Bank for June 2019. Every state, except Tasmania, experienced a drag to momentum from the housing component of the index in the September quarter. The labour market also became less positive for all states and territories except Victoria and the Northern Territory. Trade was a highlight with the mining states of Western Australia and Queensland recording stronger positive contributions as resource prices, export volumes and the AUD/USD exchange rate moved in their favour. In New South Wales and Victoria, which are less commodity intensive but have large service sectors, trade momentum also picked up, suggesting a further boost to tourism and education exports. They concluded that tightening of credit market conditions remains a negative factor that together with a poorer outlook for house prices is pulling back demand in this important sector, especially in New South Wales and Victoria.

And the six-month annualised growth rate in the Westpac–Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, fell from 0.41% in September to +0.08% in October. With this latest slowdown, the Index growth rate continues to point to slowing momentum into the new year. Over the seven months from October last year to April this year the growth rate averaged 0.89%. In the six months since April the growth rate has averaged only 0.19% – a clear step down.

So to the Royal Commission. In Sydney this week, with most time spent on CBA (CEO and Chairperson) and ASIC (Chairperson). A few key areas came into focus including Broker remuneration, where CBA advocated a fix fee model, Front line staff and senior executive remuneration; how the boards looked at risk related issues (often seemingly myopically); the question of vertical integration – especially relating to the question of advice versus sales in wealth management, and oversight and enforcement by regulators.

The core issue was the question of misaligned incentives, which has led to the misconduct thrown into sharp relief in the inquiry. As a result, we would expect to see reform in the areas of broker commissions, front line remuneration, and vertical integration. All significant, and likely to crimp bank performance further.

On brokers, CBA estimated that the average remuneration for a broker writing an average loan would fall from $6,627 to just $2,310. And that CBA would save $197m on a cumulative basis over 5 years. So some would say they are talking their own book! At very least we expect trail commissions to go, and a best interest obligation introduced.

ASIC rightly copped flack, and as a result, we would expect them to be more proactive, demanding larger penalties, perhaps naming and shaming, and more litigation through the courts. Frankly ASIC was too close to the big banks, and has not met its regulatory obligations, and insufficient funding is not a valid excuse. The inquiry also questioned why ASIC needs to discuss the terms of “infringement notices” with banks before they are finalised. “The parking inspector doesn’t seek an indication from the person he’s giving a parking fine to as to whether they will accept and pay it. He just does it. Why don’t you just do that?” Ms Orr asked. “My understanding from the team is that if there is an unwillingness to accept an infringement notice we would just go straight to court,” Mr Shipton said rather weakly.

We will see more next week, when the Melbourne Banks and APRA are up.

As the AFR put it “Kenneth Hayne looks like reshaping the governance of Australia’s leading public companies judging from the line of questioning directed at Commonwealth Bank of Australia chairman Catherine Livingstone and chief executive Matt Comyn. Based on the lines of inquiry pursued by counsel assisting, Rowena Orr, QC, the Hayne governance era looks something like this: verbatim records of conversations held by board and sub-committee members, longer board meetings, more extensive board room information packs, intensive director induction programs, more robust challenging of management, and increased employment of lawyers and accountants as non-executive directors. This would go hand-in-hand with the increased rules and regulations such as those already pushed through parliament covering bank remuneration. The new laws have given greater intervention powers to the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority, both of which will need significantly expanded budgets.

There was nothing here that suggested the lending tightening we have seen will be reversed, which then puts the acid back on the RBA, APRA and Treasury. As we discussed this week, Governor Lowe went public at CEDA with his concern that banks were becoming too risk adverse. See our post “The People’s Gold Will Not Be Kept Among the People”, which also covered the Governors comments on Australia’s gold. All the more reason for effective banking separation in my book!

But the more immediate point is the fact that home prices are tightly locked to accelerating rates of credit growth, – we call this the credit impulse. Even a slowing of the rate of credit growth is more than sufficient to lower home prices, precisely as we see now – so a fall to 5.2% or thereabouts as reported by the RBA is sufficient to drive prices lower. Most Central Bankers just do not understand this critical linkage, preferring to believe that as credit creates assets, increasing debt is a zero sum game – this is just plain wrong!

We updated our scenarios, and you can watch the replay of our recent live stream where we discussed our thinking – the probability of more significant home price falls is rising. Even in the smaller markets. Have no doubt this will have a significant impact on the broader economy. GDP will fall.

Locally, the markets, were all over the place this week, in volatile trading. The S&P ASX 100 rose 0.51% to 4,711, still reflecting recent lows on Friday. The ASX VIX eased a little on Friday down 2.41%, but at 16.55 is still in “fear” territory. The banks did better on Friday, with the S&P ASX 200 Financials up 1.08% to 5,731. AMP was up 1.65% to 2.46, still near the bottom, ANZ was up 2.29% to 26.34, Bank of Queensland was up 0.62% to 9.79, Bendigo was up 1.17% to 10.40, CBA rose 0.95% on Friday, to 71.30, NAB was up 1.03% to 24.48, Suncorp was up 0.67% to 13.49, Westpac was up 1.4% to 26.04, Mortgage Insurer Genworth was up 0.91% to 2.21 and continues in the doldrums. Macquarie Group was up 0.29% to 114.53.

The Australian Dollar US Dollar slid 0.25% to 72.36, still in its trading range, while the bitcoin Aussie fell 10.38% to 5,297 and the Aussie Spot Gold rate fell 0.11% to 1,691.

Stocks on Wall Street ended lower as another tumble in oil prices weighed on energy stocks. The Dow fell 0.73% ending at 24,286, while the broader S&P 500 index lost 0.66% to 2,632. The tech-heavy Nasdaq composite was down 0.48% to 6,939. The volatility index rose 2.74% to 21.37 as the gyrations continue. Trading was light after the Thanksgiving break. The S&P 100 was down 0.84% to 1,161.

The S&P 500 Financials was down 0.91% to 430.5 signalling more weakness in the financial sector, while Goldman Sachs fell 1.86% to 189.02.

Crude oil prices fell more than 7.7% as concerns persisted about a supply glut, down to 50.42. Dow components Exxon Mobil fell 2.7% and Chevron slumped 3.3%.

Helping the sinking sentiment, of course, was the notion that President Donald Trump would successfully prevent OPEC from slashing production when the cartel meets in Vienna on Dec. 6, by using his “no-sanctions trump card” for Saudi Arabia, which has admitted a premeditated murder of journalist Jamal Khashoggi, but denies any involvement by Crown Prince Mohammed bin Salman.

The energy sector has lost 16.5% since the beginning of October, making it the worst performing S&P sector during the period and putting it on pace for its biggest two-month drop since September 2011.

“If we get clarity on any of these – oil prices, trade war with China and the Federal Reserve’s rate of monetary policy tightening – we could go a long way towards making investors comfortable in investing in the market,” one analyst said.

Meanwhile, retail stocks were in focus with Black Friday sales underway. Discounts will continue through to Cyber Monday as investors will look to see if the companies can overcome an underwhelming retail earnings season. Walmart was up more than 1%, but Amazon.com dropped 0.96% to 1,502. Apple fell 2.54% to 172.20 and Intel fell 1.04% to 46.54. Google was also down 1.28% to 1.030.

Cryptocurrency prices slumped on Friday, with Bitcoin falling to a new 14-month low down 6.59% to $4,342, The digital currency is down more than 75% from its peak of $20,000 in 2017. Meanwhile, UK regulators warned investors against digital coin derivatives earlier this week. The Financial Conduct Authority (FCA) could ban some crypto-based derivatives, Christopher Woolard, executive director of strategy and competition at the FCA, said at a crypto event in London. “We’re concerned that retail consumers are being sold complex, volatile and often leveraged derivatives products based on exchange tokens … Given this, the FCA will also consult on a prohibition of the sale to retail consumers of derivatives referencing certain types of cryptoassets (for example, exchange tokens), including contracts-for-difference, options, futures and transferable securities,” Woolard warned.

The US Dollar index was up 0.26% to 96.96. The Euro USD was down 0.61% to 1.13 and the British Pound US Dollar was down 0.47% to 1.28, on more Brexit weakness. Deutsche Bank was down 0.84% to 8.18. Gold was down 0.37% to 1,223.

All this may slow the FED’s drove towards higher rates, with the 3-month rate down 0.02% to 2.41% and the 10-Year rate down 0.48% to 3.05. That said, I expect another couple of hikes, which will put the cat among the pigeons in terms of corporate debt, and funding costs more generally.

We believe there will be further market volatility in the run up to Christmas, and more home price falls locally. Thus we cannot think of any good reason why you would consider buying property in the current climate – best to ignore the spruikers, and so call great mortgage offers, and bide your time. Those with a current mortgage should check to see if better refinanced rates are available, but that will depend on your risk profile. But for some, there are savings to be made (though the Banks may like to hope you are not smart enough to find them!).

And by the way, if you value the content we produce please do consider joining our Patreon programme, where you can support our ability to continue to make great content.

Today, Do The Bears Have It? – The Property Imperative Weekly 17 Nov 2018

Welcome to the Property Imperative weekly to 17th November 2018, our digest of the latest finance and property news with a distinctively Australian flavour.

Watch the video, listen to the podcast or read the transcript.

<span style="display: inline-block; width: 0px; overflow: hidden; line-height: 0;" data-mce-type="bookmark" class="mce_SELRES_start"></span> scrollings=”no” <span style="display: inline-block; width: 0px; overflow: hidden; line-height: 0;" data-mce-type="bookmark" class="mce_SELRES_start"></span>
It has been a roller coaster ride on all fronts this week, with more market gyrations, larger predicted falls in home prices locally, and the first “unnatural act” from the Government to try and sustain the finance sector, ahead of next year’s election, expect more ahead.

And by the way you value the content we produce please do consider joining our Patreon programme, where you can support our ability to continue to make great content.

We start with the markets this week the Dow closed lower for the week, despite a rally on Friday that came despite the White House reportedly walked backed President Donald Trump’s upbeat comments on trade.

The Dow Jones Industrial Average rose 0.49% to 25,413 at the end of the week, the S&P 500 rose 0.22% to 2,736, but the Nasdaq Composite fell 0.15%.

After the falls earlier in the week, Wall Street went into rally mode Friday after Trump said he was hopeful the U.S. and China will reach a consensus on trade deal. Later the White House, however, peddled a more sombre narrative on trade in the wake of Trump’s comments, telling CNBC that a deal was not coming soon. Still, the broader averages held their gains, but that did little to avert a weekly loss following a rout in tech. The fear index, the VIX eased a little on Friday, down 9.21% to 18.14, but is still elevated, signalling uncertainty ahead.

In tech, Facebook fell 3% amid the fallout from a New York Times article detailing how the company conspired to cover up warnings that Russia had used the social media platform to disrupt the U.S. election in 2016. Apple moved higher after recent falls, up 1.11% to 193.53, while Alphabet fell 0.26% to 1,068. Intel was up 1.5% to 48.53.

Financials were mixed, with the S&P 500 Financials index up 0.06% on Friday to 443.45 but Goldman Sachs Group was down 0.8% to 202.12.

Sentiment on stocks were also lifted by easing concerns about steeper U.S. rate increases after Federal Reserve Vice Chairman Richard Clarida indicated that the U.S. central bank may stop at the neutral rate, rather than continue hiking beyond the neutral rate, which might be interpreted as an effective “rate cut,” JPMorgan said in a note to clients. The 3m bond rate slid 0.67% to 2.35, and the 10-year was 1.71% down on Friday to 3.065. Clarida does not expect a big increase in inflation this year. With that in mind, both central bankers are still confident enough in the domestic economy to proceed with a December rate hike, but there’s a good chance that it will be accompanied by a less hawkish outlook.

Energy added steel to the rally on Friday as oil prices settled flat, but slumped 6% for the week on concerns about a global glut in supplies. The WTI futures was up 0.66% to 56.83. Oil bears are back to taunting Saudi Arabia by pressuring the market again, just two days after giving a reprieve to the record sell off in crude.

In fact, West Texas Intermediate and Brent crude futures settled steady to slightly higher on Friday after rallying more than 2% earlier in the day on fears that the oil-rich kingdom and the OPEC cartel it leads could cut supplies substantially at a December 6-7 meeting. Friday’s s rebound didn’t help crude’s weekly loss of 6%, making it the sixth-straight week in the red.

Prices initially rose on an analysis from tanker-tracking firm ClipperData that showed Saudi Arabia was already loading fewer barrels on ships bound for the United States this month, continuing a trend that began in September. By sending fewer barrels to the United States, the Saudis hope to starve U.S. crude stockpiles, which have swelled by nearly 50 million barrels the past eight weeks. It’s a strategy the kingdom used last year while working alongside OPEC members, Russia and other producers to rescue oil prices from lows under $50 a barrel. But after the morning highs in New York trade, prices turned volatile before returning to positive territory just before the close. Adding pressure to the market was weekly U.S. oil rig data showing drilling activity at its highest in over three years, after an addition of two rigs this week.

In an extreme turn of events, the fire from Bitcoin Cash’s hardfork war has spread wildly across the entire crypto market, burning through virtually every cryptocurrency and leaving many investors burnt too. Bitcoin had more than $28 billion stripped from the market, as it fell beyond the support of its long-standing safety net at $5,800.

Gold was higher, up 1.9% to 1,222 on Friday, with some suggesting that the US$ bull run might be ending, as economic outperformance, rising interest rates, equity market pressure and trade policy all look suspect, and a switch to metals might make sense. But more likely it is the risks around Brexit, Theresa May could be fighting for her political survival, but the Brexit crisis she’s in has thrown gold bulls a lifeline. Initially resigned to losing the market’s $1,200 support level as the week began, fans of the yellow metal not only got to stay in their comfort zone but also saw their best weekly gain in five as hedgers rushed to the relative safely of bullion after the pounding taken by sterling from Britain’s EU-exit woes. Tory MPs may have enough votes – 48 are needed – for a letter of no confidence that would force a vote in Parliament. If the rebels within her ranks really do have the votes to force a no-confidence motion UK politics will be thrown into an even greater existential crisis.

Not that a change in leadership there would make much difference. U.K. Prime May on Friday reshuffled her minister team and took personal charge of the divorce talks with the European Union. The moves came at the end of an extraordinary week in which seven members of her government resigned and a push to force her from power gained momentum.

The pound gained 0.4% against the U.S. dollar on Friday, rebounding a bit from Thursday’s plunge. But sterling still suffered a loss for the week and volatility soared to a two-year high. The British Pound Dollar was up 0.48% on Friday to 1.2835, while the Euro USD rose 0.76% to 1.1414. The US Dollar index fell 0.51% to 96.43. Deutsche Bank, was down 0.06% to 8.59, not helped by recent Eurozone bank stress test results.

All 3 of the commodity currencies traded higher on Friday with the Australian hitting a 2-month high and the New Zealand dollar hitting a 4-month high. AUD and NZD ripped higher on the hope that President Trump will forgo another round of tariffs on China. Ever since the mid-term elections, his tone toward China has been softening. The Aussie ended up 0.76% to 73.32, helped by strong jobs numbers in October and bullish noises from both the treasurer and the RBA.

In the local market, the ASX 100 fell 0.17% to 4,711, reflecting similar weakness in US stocks. The ASX Financials was also down, 0.09% to 5,635.60 in bearish territory. Regional Bendigo bank was up 0.99% to 10.20, while Suncorp fell 0.15% to 13.54 and the Bank of Queensland was higher up 0.82% to 9.78. Macquarie who generates more than half of its business offshore, rose 0.16% to 119.00 whilst the majors were softer, with NAB down 0.46% to 23.77, Westpac down 0.28% to 25.27, then went ex. Dividend this week, ANZ was down 0.12% on Friday to 25.36 while CBA was up a tad to 68.90. Lenders Mortgage Insurer Genworth tracked lower down 0.91% to 2.18, not least because they are exposed to the housing sector and the investment markets, both of which look weaker. AMP continues in weak territory, although up 1.98% to 2.58. The Australian VIX index eased back, down 3.33% to 16.80, still will in the nervous zone. The Aussie Bitcoin dropped 2.76% to 7,492 and the Aussie Gold slid 0.06% to 1,666.43.

The property news continues south, with the latest CoreLogic average clearance rate down again last week, with only 42.7 per cent of homes successful at auction. And that excludes the large number of unreported results, so the true numbers in even worse. There were 1,541 auctions held across the combined capital cities, having decreased from the 2,928 auctions held over the week prior when a higher 47 per cent cleared. Both volumes and clearance rates continue to track lower each week when compared to the same period last year (2,046 auctions, 61.5 per cent).

In Melbourne, final results saw the clearance rate fall last week, with 45.7 per cent of the 266 auctions successful, down from the 48.6 per cent across a significantly higher 1,709 auctions over the week prior. Across Sydney, the final auction clearance rate came in at 42.6 per cent across a slightly higher volume of auctions week-on-week, with 813 held, up from 798 the previous week when 45.3 per cent cleared. Sydney’s final clearance rate last week was not only the lowest seen this year, but the lowest the city has seen since December 2008.

The only capital city to see more than 50 per cent of auctions successful last week was Adelaide (50.8 per cent), however this was lower than the prior week’s 57.6 per cent. Brisbane saw the lowest clearance rate, with only 30 per cent of homes selling.

Geelong recorded the highest clearance rate of all the non-capital city regions, with 57.1 per cent of auctions reporting as successful, while the Sunshine Coast region had the highest volume of auctions (55).

CoreLogic are expecting more auctions today, so we will see if this eventuate.

I discussed the latest household data at a UBS forum on Monday, other members of the Panel were included Tim Lawless from CoreLogic and Christopher Joye Coolabah Capital as well as Jon Mott Head of Banks at UBS and George Tharenou their Chief economist. You can watch my segment of the discussion “Some Thoughts About The Housing Market” via a scratch recording I made. Frankly demand for property continues to weaken, as supply rises, and sales volumes fall. First time buyers and investors are becoming more cautious. Jon Mott has been negative on the sector for some time and his new note proposes a worst case scenario in which Aussie house prices crash 30%, the RBA cuts rate to zero and launches quantitative easing, and banks are crushed by cascading bad debts, cut dividends and class actions. Smartly he has developed a range of different scenarios (scenarios will sound familiar to anyone following DFA, as we have been doing this for years, it’s the best way to communicate the intrinsic uncertainty in the system.

He thinks that his scenario 3 – housing correction is most likely, with a 10% drop in prices, and that the banks will be challenged in this environment. But if prices fall further, the banks get hit with class actions, and bad debts they will have to cut dividends.

SQM’s Louis Christopher also issued their latest Boom-to-Bust report, and guess what, he also used scenarios. SQM’s base case forecast is for dwelling prices to fall between -6% to -3%, which is a continuation of the current falls of 4.5% over the past 12 months. Sydney and Melbourne will drive the falls. Other cities will record mixed results with Hobart expected to have a third year of strong price rises of 5% to 9%. The base case forecasts assume no changes in interest rates, a Labor win at the next Federal Election with Negative Gearing repeal and CGT changes coming into effect 1 July 2020. If SQM Research is correct on the Sydney and Melbourne forecasts, it will mean by the end of 2019, the peak to trough declines will be at least in the order of 12% to 17% for these two cities. SQM Research believes that, presuming the RBA does not intervene in the market, 2020 could also record price declines due in part to the repeal of Negative Gearing which is a firmly stated Labor party objective. As such there is a risk that the total peak to trough declines could be in the order of 20% to 30% for our two largest capital cities. The range is dependent on: When, if and how the RBA responds to the downturn; How the economy responds to the downturn; Will the banks be required to lift rates out of cycle; Will negative gearing and capital gains tax concessions be repealed as per the Labor Party’s policy. Christopher said, “If the RBA does not respond and/or the bank lift interest rates again in 2019, it is possible the peak to trough falls in Sydney and Melbourne could be even more than this negative range. But we do take the view that the downturn in Sydney and Melbourne will be a significant negative for the overall economy, and so the central bank will eventually respond at some point and cut interest rates.”

Gareth Aird the senior economist at CBA discussed the drivers of dwelling prices, and identified four leading indicators that capture the momentum in the property market well. They are: (i) the flow of credit (i.e. housing finance); (ii) auction clearance rates; (iii) foreign residential demand; and (iv) the house price expectations index from the WBC/MI Consumer Sentiment survey. Presently all of these indicators are pointing to dwelling prices continuing to deflate over the near term (up to six months).

Indeed, credit and prices are strongly correlated, as we have discussed before. From a dwelling price perspective, the flow of credit matters more than changes in the stock. The annual change in housing finance has a close leading relationship with the annual change in dwelling prices by around six months. New lending is driven by the supply and demand for credit. The latest housing finance data indicates that the flow of housing credit continues to fall. And the pace of the decline has accelerated (chart 3). Credit to investors has been trending down for the past 1½ years. But it’s the shift downwards in lending to owner-occupiers that is behind the recent acceleration in the decline of credit.

Generally, auction clearance rates are a leading indicator of prices. Auction clearance rates tend to lead prices on average by two months. Auctions are more popular in Sydney and Melbourne as a means of selling a property. As such, the link between auction clearance rates and property prices is very much a Sydney and Melbourne story. As a rough rule of thumb, the annual change in dwelling prices tends to be negative when the auction clearance rate is below 55%.

Over the past two years, foreign investment in Australian property has waned. This is primarily due to a lift in state government stamp duties levied to foreign investors as well as tighter capital controls out of China. There is a decent relationship between the annual change in property prices against the share of sales going to foreign investors. Generally foreign purchases have led prices on average by around four months, although that lead time has shrunk more recently.

And finally on consumer sentiment, Aird says it has proved a very useful near term indicator of the annual change in dwelling prices. There is of course a self-fulfilling aspect at work. If households expect prices to weaken then demand for credit will fall and prices will correct lower. The reverse is also true when households expect price growth to accelerate. The WBC/MI house price expectations index is pointing to dwelling prices continuing to deflate over the near term.

The RBA’s Deputy Governor Guy Debelle summarised the Bank’s assessment of the various measures put in place to address the risks around housing lending. He argued risks are under control, though external shocks could still hit household balance sheets. Loose lending is not seen as a risk…. Hmmmm! Whilst the regulatory measures have significantly reduced the riskiness of new housing lending, we have masses of loans written under weaker regulation, which are still exposed.

He also again illustrated the fall in investor borrowing, the shift away from interest only loans, and a significant decrease in the maximum loan sizes now on offer – on average down 20%, though we think for some households the fall is significantly larger. He also showed some households were now paying higher rates, thanks to larger spreads over the P&I loan benchmark.

The trend unemployment moved a little lower according to the data from the ABS, from 5.2 per cent to 5.1 per cent in the month of October 2018. This is the lowest unemployment rate since early 2012 and the 25th consecutive monthly increase in employed full-time persons with an average increase of 20,300 employed per month. The trend underutilisation rate decreased 0.1 percentage points to 13.4 per cent and the trend participation rate remained steady at 65.6 per cent in October 2018.

But wages growth remains sluggish with the seasonally adjusted Wage Price Index (WPI) up 0.6 per cent in September quarter 2018 and 2.3 per cent through the year. The more reliable trend was 0.5% in the September quarter. Private sector wages grew by 0.55% over the quarter, whereas public sector wages grew by 0.61%. So Public Sector wages are growing more strongly, whilst the private sector continues to struggle. The weak wages growth will dent the budget projections and household budgets. Western Australia recorded the lowest through the year wage growth of 1.8 per cent while Tasmania recorded the highest of 2.6 per cent.

So no surprise that our household financial confidence index was lower in October The index measures households overall comfort level with their finances across a number of key dimensions. Recent home price trends, lower returns on deposits and share market gyrations have combined to take the index lower, despite strong employment trends. The wealth effect is now working in reverse, with a potential impact on future consumption. The index returned a result of 88.1, down from 88.4 last month. This continues the decline since late 2016, and is now approaching the lowest ratings from 2015. The convergence across the states continue as home price falls in NSW and VIC take a toll, with the southern state showing a significant slide. WA and QLD appear to be tracking quite closely. Across the age bands, younger households are under the most pressure (thanks to large mortgages, or renting) while those aged 50-60 years remain the most confident, thanks to lower net borrowing, and more savings and investments. For those aged 40-50 recent falls in property prices swamp any benefit from stock market performance. Those holding property for owner occupation remain the most positive, despite falls in paper values of their homes, but property investors are now registering significant concerns, thanks to flat or falling net income from rentals, falling capital values and concerns about the future of negative gearing and capital gains tax relief. More property investors signalled an intention to seek to sell property, as the switch from interest only to principal and interest loans continues. More than 41% of mortgage applications were rejected, compared with 5% last year, as more rigorous underwriting standards bare down. In fact those renting are in many cases more confident than property investors, significant turnaround. The great property investor decade in passing. You can watch our show “Household Financial Confidence Is In The Gutter”.

The use of the Household Expenditure Measure HEM may well be back in play, following the latest from the Westpac ASIC case. Given that at some banks HEM is still being used for around half of applications, and the Royal Commission commented specifically in the use of HEM, perhaps the law needs to be changed. The core of the argument is whether the loans were unsuitable, and that it seems would depend of the ultimate progress of the loan subsequently. In other words, it cannot be proved to be unsuitable until it falls over. ASIC would need to prove the loan was unsuitable! Actually we think the law says lenders have to verify expenses, and in other cases, for example in pay day lending specific inquiries are required as part of the assessment. But it’s as clear as mud at the moment! When is unsuitable lending to be demonstrated? This will have a significant impact on any potential class actions. And of course next week the Royal Commission start they next round, with senior bank executives and regulators on the stand. This should at very least be entertaining, and will perhaps get to the heart of the cultural issues in banking and finance. In this regard you should watch our recent show with John Dahlsen, business man and ex. ANZ Director, who has some important things to say about what has driven the poor outcomes from the sector and what needs to change. It’s a long piece, but highly relevant – “Thinking About Banking From The Inside”.

But for now, banks want more data on expenses, and the latest was ANZ who outlined new tighter rules from 20^th November, where mortgage applicants will need to provide much more evidence, and history on income and expenditure. Any income from bonuses will be ignored and income shaded to 80% and evidence of continuous employment is needed. As well as more granularity and evidence on expenditure, they also will want more detail on potential changes to personal circumstances.

And finally, this week we saw the first “unnatural act” from the Government to support the banking sector, in an attempt to alleviate the home price falls and lending freeze ahead of the election next year. The proposed $2 billion funding pool is small beer in the estimated $300 billion SME lending sector. There is precedent a decade ago when the government’s $15 billion co-investment with the private sector into the residential mortgage-backed securities market during the GFC. So the federal government announced a new, $2 billion Australian Business Securitisation Fund to help provide additional funding to small business lenders. But this is lipstick on a pig in my view, and does not get to the heart of the matter at all. But I expect more such measures in the run up to the next election.

And if you want to understand what is ahead, then watch my recent interview with Harry Dent, as we discuss the limitations of central banks, and how QE has really created a monster which is still running rampant. And we are also extending our reach into the New Zealand market with the help of Joe Wilkes, see our latest Ireland V New Zealand – A Passion For Rugby & Property.

But to sum up the state of play, the Bears are indeed in town, and we should prepare ourselves for more falls ahead. Our scenarios continue to play out as expected.

Finally, a quick reminder, our next live Q&A session is now scheduled for November 20^th at 8 pm Sydney time. You can schedule a reminder by using the YouTube Link and join in the live discussion, or send in questions beforehand. If previous sessions are any guide, it should be a lively event!

More From The Property Market Front Line – All Roads Lead To ROME (Sydney)

Edwin Almeida, our property market insider discusses the factors which have led to poor urban planning, and the impact this is having on the property market, and households.

Please consider supporting our work via Patreon

Please share this post to help to spread the word about the state of things….

How Would Negative Equity Fall With A 20% Home Price Fall?

AMP’s, Shane Oliver published a piece in which he revised up his expectations of the housing price correction from peak to trough to 20% in Sydney and Melbourne, and 10% nationally, a downgrade from their previous expectation for a 5% national average fall.

He has, along with a number of other economists progressively raised his expectations of the falls across the market as new data comes to hand. And specifically, he highlights the link between climbing home prices and credit availability. He says “this has taken the household debt to income ratio from the low end of OECD countries to the top end. The shift to overvaluation and high debt mostly occurred over the 1995-2005 period”.

We have taken his projections and run them across our Core Market Model. If his forecast were to eventuate, we think around 17% of borrowing households would fall into negative equity – meaning their outstanding mortgage would be greater than their property value.

Negative equity is tricky, because it limits households ability to refinance, trade up or down, as well have reducing overall economic activity and confidence. After the GFC, we saw many households in the UK locked into their properties for several years, the same could happen here.

In addition, of course there are implications for the banks (should they be adjusting their risk and capital models?) as well as for Lenders Mortgage Insurers, who cover the banks exposures above 80% of loan to value, unless they are covered by their captive insurers. In a falling market the insurers would likely be hit with higher levels of claims. Note of course there is not a one to one link between property price falls and defaults, the risks are much more complex.

But the results from our modelling are worth looking at in more detail, remembering we are using data from our household surveys and other sources. Around 560,000 households would be impacted, and we can slice and dice the data to begin to understand their profiles.

Our core segmentation highlights that Multicultural and Young Families would be hit most severely, in terms of the numbers of households in negative equity, with the Battling Urban and Disadvantaged Fringe following closely. But we also see a fair number of affluent households also caught in a negative equity trap. They are often highly leveraged.

Across our property segments, those holding property without an intent to trade up or down figure as the largest sector, plus those who have refinanced recently. The first time buyer cohort also shows up, but this is a smaller count.

Two states NSW and VIC see the bulk of the negative equity, both states with a strong recent run in prices, and now significant reversals. AMP says 20% falls are likely here.

We can also see the more granular regional view showing the same.

Looking across are geographic bands, we see the urban fringe and outer suburban rings most impacted.

Across the age bands, it is younger households who are most exposed.

Finally, in terms of income bands, those in the $50-100k and $100-150k bands are most strongly represented.

So, in a nutshell, younger households with more limited incomes are more likely to be exposed to negative equity, especially if they live in the main urban centres of Sydney and Melbourne, and they are more likely to be located in the outer suburban rings.

And finally, if we ran a uniform 20% fall across the country, the number impacted would more than double. Personally I think the smaller centres are also likely to fall further. But we will see!