Home Prices – Page 68 – Digital Finance Analytics (DFA) Blog

Australia’s Home Price Growth Nothing Special

The latest data from the BIS, which tracks residential property price growth has been released. It shows that home price inflation is widespread across many countries, and in that context, Australia (average 8 capital cities) is nothing special, we are in the middle of the pack.

Base-lined in 2010, this data series is the most comprehensive available, though with all the issues of matching data from multiple sources and translating it to a common basis. In most cases, this series covers all types of dwellings in markets for both new and existing dwellings in the country as a whole.

Hong Kong has the strongest growth, and New Zealand and Canada are both well ahead of Australia. We track quite closely with the USA. Spain sits at the bottom of the selected series.

We can also look at the change YOY, which shows that Australian residential prices are accelerating, whilst the macroprudential measures deployed in New Zealand is slowing growth there. Iceland, Canada and Hong Kong are all accelerating.

Two observations. First home price growth is not just a local issue – as we discussed recently there are a range of complex factors driving asset prices higher.

Second, whilst we are in middle of the pack in terms of home price growth, our total debt burden is much higher, we are near the top of the pack on this measure. Once again driven by a complex range of interrelated factors.

How governments have widened the gap between generations in home ownership

From The Conversation.

Various government policies have fuelled the demand for housing over time, expanding the wealth of older home owners and pushing it further and further beyond the reach of young would-be home buyers. A new study highlights this divide between millennials and their boomer parents.

The study is part of a Committee of Economic Development of Australia (CEDA) report called Housing Australia. It compares trends in property ownership across age groups over a period of three decades.

Between 1982 and 2013, the share of home owners among 25-34 year olds shrunk the most, by more than 20%. On the other hand, the share of home owners among those aged 65+ years has risen slightly.

The rate of renting has spiralled among young people. By 2013, renting had outstripped home ownership among 25-34 year olds.

Same policies, different impacts on generations

There is undoubtedly a growing intergenerational divide in access to the housing market. The timing of policy reforms has been a major driver of this widening housing wealth gap.

Negative gearing has long advantaged property investors, potentially crowding out aspiring first home buyers. While negative gearing was briefly quarantined in 1985, this was repealed after just two years.

The appeal of negative gearing grew as financial deregulation spread rapidly during the 70s and 80s. This deregulation widened access to mortgage finance, but also pushed real property prices to ever higher levels.

In 1999, the Ralph review paved the way for the reform of capital gains tax on investment properties. Instead of taxing real capital gains at investors’ marginal income tax rates, only 50% of capital gains were taxed from 1999 onwards, albeit at nominal values.

The move, designed to promote investment activity, actually aggravated housing market volatility. The confluence of negative gearing benefits and the capital gains tax discount encouraged investors to go into more debt to finance buying property, taxed at discounted rates. The First Home Owners Grant, introduced in 2000, was another lever that increased demand. In the face of land supply constraints, these sorts of subsidies were likely to result in rising house prices.

Other policy reforms, while not directly housing related, have also affected young people’s opportunities to accumulate wealth.

The Higher Education Contribution Scheme (HECS) was introduced in 1989, at a time when many Gen X’s were entering tertiary education. This ended access to the free education that their boomer parents enjoyed.

HECS parameters were tightened over time. And in 1997, HECS contribution rates rose for new students and repayment thresholds were reduced.

Of course, the 1992 introduction of the superannuation guarantee would have boosted Gen X’s retirement savings relative to boomers. However, these savings are not accessible till the compulsory preservation age, so can’t be used now to buy a house.

All these policies have clearly had varying generational impacts, adversely affecting home purchase opportunities for younger generations while delivering significant wealth expansion to older home owners.

An intergenerational housing policy lens

A new housing landscape has emerged in recent years. It is marked by precarious home ownership and long-term renting for young people.

It’s also dominated by a growing wealth chasm – not just between the young and old – but also between young people who have access to wealth transfers from affluent parents and those who do not.

The majority of housing related policies do not consider issues of equity across generations. There are currently very few examples of potential housing reforms that can benefit multiple generations.

However, there is one policy that could – the abolition of stamp duties. It would remove a significant barrier to downsizing by seniors.

The equity released from downsizing would boost retirement incomes for seniors, while freeing up more housing space for young growing families. Negative impacts on revenue flowing to government could be mitigated by a simultaneous implementation of a broad based land tax. This would in turn push down house prices.

As life expectancies increase, the need for governments to take into account policy impact on different generations is critical. On the other hand, policies that take a short-term view will only worsen intergenerational tensions and entrench property ownership as a marker of distinction between the “haves” and “have nots” in Australia.

Author: Rachel Ong, Deputy Director, Bankwest Curtin Economics Centre, Curtin University

Rising mortgage debt is the biggest threat to super balances

From The New Daily.

New data suggests rising property prices are a threat to the retirement system, as many Australians use their superannuation balances to pay off their mortgages before they retire.

The latest investment update from NAB highlights that many Australians are concerned about ending their working lives in debt. It reported an increase in the number of respondents who feared a lack of retirement savings. It also found that paying down debt was the highest priority for the next 12 months.

Likewise, the 2017 Household, Income and Labour Dynamics in Australia (HILDA) report – widely reported in recent days for its concerning home ownership numbers – also showed that both men and women were spending considerable chunks of their super to pay debts.

It found that men paying down debts spent on average $240,000 to do so in 2015, or 58 per cent of their super, while men helping family members spent $108,500, around 84 per cent of super. Women paying down debt spent $120,500, or 70 per cent of super and those helping family spent $67,000, or 48 per cent of super.

Some men and women also spent up big on things for themselves, as the following table shows. However, men spent far more than women here, indicating the gender imbalance in superannuation accounts.

Ian Yates, chief executive of the Council on the Ageing (COTA), said rising property prices could force more people to pay down more mortgage debt on retirement in the future.

“People are paying off debts of not inconsequential amounts on retirement. The numbers doing it and the amounts used surprised me,” he told The New Daily.

“It’s a concerning trend and if people plan to use their super to pay off a mortgage then they are not using it to provide retirement income.”

He said this could result in the government being faced with a dilemma.

“Given the family home is untaxed, the increased use of concessionally-taxed superannuation to pay off homes in retirement would not be what the government intended,” he said.

That could mean governments would be forced to review both superannuation and housing policy as “both superannuation and the age pension are predicated on high levels of home ownership”.

The HILDA report also showed that both men and women are retiring later with the average age of women retirees reaching 63.8 years in 2015 and men 66.1 years.

Mr Yates said the rise in retirement ages, while partly due to desire to work longer, also had a negative financial driver.

“A lot of people got frightened by the market crash accompanying the financial crisis and decided they need a bigger financial buffer before they retire.”

For 16 years the HILDA survey, run by the University of Melbourne, has polled the same 17,000 Australians.

The report’s author, Professor Roger Wilkins, pointed to the falling home ownership levels among younger people. In 2014, approximately 25 per cent of men and women aged 18 to 39 were home owners, down from nearly 36 per cent in 2002.

Younger people with housing debt saw average mortgages up from $169,000 to $336,500 between 2002 and 2014.

That reality plus rising prices meaning people have to save longer before buying “could result in the superannuation system being thwarted in its aim to provide retirement income by rises in outstanding mortgage debt”, Professor Wilkins told The New Daily.

Why is Melbourne’s property market outpacing Sydney’s?

From The Real Estate Conversation.

Recent data suggests Melbourne’s property market is beginning to outpace Sydney’s, and this trend is likely to continue as affordability, higher interest rates and migration patterns all favour the southern city, say experts.

In June, Melbourne’s median dwelling price rose 2.71 per cent, compared with Sydney’s increase of 2.21 per cent, according to CoreLogic.

In the year to 30 June, Melbourne price growth also outpaced Sydney’s. Melbourne’s median dwelling price rose 13.7 percent (to $913,060), while Sydney’s median dwelling price rose only 12.2 per cent (to a median price of $1,118,020).

And there are other signs the Melbourne market is outpacing Sydney’s.

Melbourne’s clearance rate last week was higher than Sydney’s. Last week, Melbourne’s clearance rate was 77.4 per cent, compared with 72.9 per cent for Sydney. A total of 753 properties went to auction in Melbourne, compared with 600 in Sydney.

And Melbourne houses are selling slightly more quickly than Sydney’s. Melbourne houses are selling within 29 days, while Sydney houses are selling within 31 days. Vendors are discounting houses to achieve a sale to the tune of 4.5 per cent in Sydney, compared with the lower discount of 3.8 per cent in Melbourne.

Cameron Kusher, senior research analyst with CoreLogic, says there are four reasons the Melbourne real estate market is likely to see prices grow more strongly than Sydney’s prices.

Firstly, Melbourne prices are much lower than Sydney’s, so Melbourne prices are unlikely to see any correction to the same degree as Sydney.

Second, interstate migration into NSW is waning, while it is continuing to strengthen in Victoria, partly because of housing affordability, says Kusher.

The 2016 Census revealed that Melbourne is growing more quickly than Sydney, with the southern city adding 1,859 people per week between the 2001 and 2016, and Sydney adding only 1,656 people per week. And while Sydney remains the largest city, with a population of 4.8 million, Melbourne isn’t far behind with a population of 4.5 million.

The third reason Kusher gave for Melbourne’s relatively strong performance is there are more properties advertised for sale in Sydney. “There are currently 13.3% more properties advertised for sale in Sydney than at the same time last year, while in Melbourne listings are just 0.1% higher than a year ago,” said Kusher. So people looking to buy in Sydney have greater choice, which keeps price growth contained, he said.

And finally, Kusher says that higher interest rates are likely to have more of an impact in Sydney, because a higher proportion of the market is made up of investors. CoreLogic’s May data showed that investors accounted for 55.1% of new mortgage demand (excluding refinances) in NSW, and 44.6% of new mortgage demand in Victoria.

“If the higher interest rates are discouraging investment (as they appear to be),” says Kusher, “it is going to be having a much bigger impact on market demand in Sydney than in Melbourne given their much higher level of participation.”

Rick Daniel, agent with Nelson Alexander Fitzroy, told SCHWARTZWILLIAMS the Melbourne market is seeing strong interest from interstate.

“Towards the end of last year, we saw quite an influx of interstate investors” into the Melbourne market, he said.

“Melbourne provides quite a lot of value,” he said, adding that buyers also see lifestyle benefits of buying in Melbourne, because transport is easy, and the inner-city suburbs are eminently walkable.

Daniel said that even though the Melbourne market is experiencing the seasonal slow down, “there still seems to be some activity,” he said, adding that unique properties, such as the one at 6 Oxford Street, Collingwood, are still attracting strong interest, including from interstate.

Chris Wilkins, principal of Ray White Drummoyne, told SCHWARTZWILLIAMS the Sydney market is in a “holding pattern”, and the “feeling [in the market] is worse than last year”.

Wilkins said he has had several potential sellers sitting on their hands because there is nothing for them to buy.

Rod Fox of 1st City Real Estate Double Bay told SCHWARTZWILLIAMS the “urgency” has gone out of the Sydney market. Fox said that six months ago, any property that came onto the market sold very quickly, and often for higher-than-expected prices. Fox said that previously, 80 per cent of properties were selling before auction, and that figure has now halved.

But Fox said good quality properties are still selling quickly and for good prices, but overall, Sydney “buyers are more cautious”.

Taxing empty homes: a step towards affordable housing, but much more can be done

From The Conversation.

Vacant housing rates are rising in our major cities. Across Australia on census night, 11.2% of housing was recorded as unoccupied – a total of 1,089,165 dwellings. With housing affordability stress also intensifying, the moment for a push on empty property taxes looks to have arrived.

The 2016 Census showed empty property numbers up by 19% in Melbourne and 15% in Sydney over the past five years alone. Considering that thousands of people sleep rough – almost 7,000 on census night in 2011, more than 400 per night in Sydney in 2017 – and that hundreds of thousands face overcrowded homes or unaffordable rents, these seem like cruel and immoral revelations.

Public awareness of unused homes has been growing in Australia and globally. In London, Vancouver and elsewhere – just as in Sydney and Melbourne – the night-time spectacle of dark spaces in newly built “luxury towers” has triggered outrage.

This has struck a chord with the public not only because of its connotations of obscene wealth inequality and waste, but also because of the contended link to foreign ownership.

Early movers on vacancy tax

Against this backdrop, the Victorian state government has felt sufficiently emboldened to legislate an empty homes tax. Federally, the shadow treasurer, Chris Bowen, recently backed a standard vacant dwelling tax across all the nation’s major cities.

Similar measures have come into force in Vancouver and Paris. And Ontario’s provincial government recently granted Toronto new powers to tax empty properties .
Both Vancouver (above) and Melbourne now have a 1% capital value charge on homes left vacant. Tim Welbourn/flickr, CC BY-NC
Emulating Vancouver, Victoria’s tax is a 1% capital value charge on homes vacant for at least six months in a year. Curiously, though, it applies only in Melbourne’s inner and middle suburbs. And there are exceptions – if the property is a grossly under-used second home you pay only if you’re a foreigner.

Also, as in Vancouver, tax liability relies on self-reporting, which is seemingly a loophole. This might be less problematic if all owners were required to confirm their properties were occupied for at least six months of the past year. But that would be administratively cumbersome.

This highlights a broader “practicability challenge” for empty property taxes. For example, how do you define acceptable reasons for a property being empty?

In principle, such a tax should probably be limited to habitable dwellings. So, if you own a speculative vacancy, what do you do? Remove the kitchen sink to declare it unliveable?

How can we be sure a home is empty?

Lack of reliable data on empty homes is a major problem in Australia. Census figures are useful mainly because they indicate trends over time, but they substantially overstate the true number of long-term vacant habitable properties because they include temporarily empty dwellings (including second homes).
About 150,000 dwellings in Sydney and Melbourne, including many apartments, are ‘speculative vacancies’, but establishing tax liability isn’t simple. Dean Lewins/AAP
Using Victorian water records, Prosper Australia estimates about half of Melbourne’s census-recorded vacant properties are long-term “speculative vacancies”. That’s 82,000 homes.

Applying a similar “conversion factor” to Sydney’s census numbers would indicate around 68,000 speculative vacancies. Australia-wide, the Prosper Australia findings imply around 300,000 speculative vacancies – 3% of all housing. That’s equivalent to two years’ house building at current rates.

According to University of Queensland real estate economics expert Cameron Murray, a national tax that entirely eliminated this glut might moderate the price of housing by 1-2%. Therefore, although worthwhile, dealing with this element of our inefficient use of land and property would provide only a small easing of Australia’s broader affordability problem.

Making better use of a scarce resource

Taxing long-term empty properties is consistent with making more efficient use of our housing stock – a scarce resource. A big-picture implication is that tackling Australia’s housing stress shouldn’t be seen as purely about boosting new housing supply – as commonly portrayed by governments.

It should also be about making more efficient and equitable use of existing housing and housing-designated land.

Penalising empty dwellings is fine if it can be practicably achieved. That’s especially if the revenue is used to enhance the trivial amount of public funding going into building affordable rental housing in most of our states and territories.

But empty homes represent just a small element of our increasingly inefficient and wasteful use of housing and the increasingly unequal distribution of our national wealth.

One aspect of this is the under-utilisation of occupied housing. Australian Bureau of Statistics survey data show that, across Australia, more than a million homes (mainly owner-occupied) have three or more spare bedrooms. A comparison of the latest statistics (for 2013-14) with those for 2007-08 suggests this body of “grossly under-utilised” properties grew by more than 250,000 in the last six years.

Our tax system does nothing to discourage this increasingly wasteful use of housing. It’s arguably encouraged by the “tax on mobility” constituted by stamp duty and the exemption of the family home from the pension assets test.

A parallel issue is the speculative land banks owned by developers. The volume of development approvals far exceeds the amount of actual building. In the past year in Sydney, for example, 56,000 development approvals were granted – but only 38,000 homes were built.

In many cases, getting an approval is just part of land speculation. The owner then hoards the site until “market conditions are right” for on-selling as approved for development at a fat profit.

Properly addressing these issues calls for something much more ambitious than an empty property tax. The federal government should be encouraging all states and territories to follow the ACT’s lead by phasing in a broad-based land tax to replace stamp duty.

Such a tax will provide a stronger financial incentive to make effective use of land and property. The Grattan Institute estimates this switch would also “add up to A$9 billion annually to gross domestic product”. How much longer can we afford to ignore this obvious policy innovation?

Author: Hal Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW

The cold weather has done nothing to cool Melbourne property prices

From The Real Estate Conversation.

The cold weather hasn’t cooled Melbourne’s property prices: in the three months to 30 June, the city’s median house price increased for the fifth consecutive quarter.

New REIV data shows the metropolitan Melbourne median house price rose 2.9 per cent in the three months to June 30, to $822,000.

The top growth suburbs were spread right across Melbourne, and at both the low and high ends of the market, from Broadmeadows and Roxburgh Park in the north, to Malvern East and Toorak in the south-east.

Croydon in the outer east experienced the city’s largest quarterly increase, up more than 20 per cent to a median of $810,000.

Source: REIV.

REIV acting president Richard Simpson said Melbourne’s property market continues to perform strongly, boosted by a buoyant auction market.

“It has been an exceptional year for the property sector, with numerous auction records falling in the first half of 2017,” he said.

“More than 10,300 homes have gone under the hammer in the June quarter – a record for this time of year.

Simpson attributed the strong price growth to strong population growth, record low interest rates, and strong buyer demand.

“It’s certainly a sellers’ market at present with strong competition for homes across the city, particularly in Melbourne’s more affordable areas,” said Simpson.

Half of the top-growth suburbs are priced below the Melbourne’s median, suggesting buyers continue to seek value further from the city, he said.

Source: REIV.

The data confirms Toorak’s position as Melbourne’s most expensive suburb.

Source: REIV.

Melbourne’s apartment sector performed similarly well in the June quarter, with the metropolitan Melbourne median apartment price increasing 4.3 per cent to $606,500.

“Contrary to popular opinion, Melbourne’s apartment market has been growing steadily for the past year with strong price growth in inner city areas,” said Simpson.

House prices in regional Victoria rose strongly for the second consecutive quarter, up two per cent in June to a record high $385,000.

Four outdated assumptions prevent progress on affordable housing

From The Conversation.

Housing influences everything from productivity and employment through to intergenerational poverty and childhood education. Yet outdated concepts and thinking are shaping Australia’s troubled housing system.

My recent research – involving in-depth interviews with leaders across government, NGOs, the private sector and academia – identified four misguided assumptions about affordable housing.

These key assumptions are about:

the difference between housing affordability and affordable housing;

home ownership versus renting;

stereotypes about those in need of affordable housing; and

voters not valuing affordable housing.

Tackling these assumptions could help change how Australians think about their housing system.

Housing affordability versus affordable housing

The cost of home ownership has long been of concern for governments and people. These discussions largely relate to “housing affordability”, as it applies to those who live in – or aspire to live in – their own home.

There are two other categories in the housing market, which are less glamorous and well publicised. These are those in the private rental market (with or without government assistance), and those who cannot access the private rental market (and thus require access to social housing).

“Affordable housing” largely relates to these latter two categories. Specifically, it refers to public and community housing, as well as the affordable end of the private rental market.

It is not well appreciated that the requirements of affordable housing are related to – but not the same as – those for housing affordability. The challenges of home ownership for middle-to-high-income earners are very different to the struggles of low-income earners in finding a place to rent – let alone own. Yet there is an assumption that increasing supply is a silver bullet for both groups.

However, increasing supply for middle-to-high-income earners doesn’t necessarily create more affordable housing for low-income earners. The benefits don’t simply trickle down.

Likewise, actions to improve affordable housing do not necessarily relate to, or affect, the housing investments of middle-to-high-income earners.

Prioritising home ownership over renting

Home ownership is not possible for many, due to various life circumstances. Some people may have been able to access social housing or, due to decade-long waiting lists, have been exposed to the vagaries of the private rental market.

For others, renting is a choice. Private rental has become a long-term option for many Australians: about one-third of Australian households rent.

Despite its importance, the rental market remains the least secure and most neglected pillar of our housing system. Neglect has led to a chronic shortage of affordable rental properties for low-to-moderate-income earners, particularly anywhere near employment.

Australia also lags behind many other countries when it comes to tenancy regulations. Leases of 12 months or less are the norm.

Culturally, home ownership is still seen as superior to renting. Such deeply entrenched views accompany an assumption that renting is a short-term transitional phase, not a desirable end state.

Stigmas and stereotyping of those in need

Stereotypes abound about those who require affordable housing. This, in part, is fuelled by media portrayals and lack of lived experience.

People who experience housing stress or need assistance are in fact diverse. They include the homeless through to essential workers on moderate incomes.

A significant proportion of people in social housing are aged under 14 or older than 55. Home owners can even encounter unforeseen surprises: one in five experience instability in their housing tenure.

Stigmas associated with affordable housing can lead to a wider lack of empathy for those in need, and a reluctance to ask for help by those who need it.

The alienation of those with a mental illness or disability can be even worse. This has many implications, not least for planning decisions. A “not in my backyard” mentality of local residents has blocked more than one plan for affordable housing.

Voters not valuing affordable housing

Government at all levels play an active role in Australia’s housing system. Taxation settings, financial regulation, infrastructure development, land use planning, immigration and income support all affect housing outcomes. Likewise, commercial operators, NGO, government and community housing providers are all shaped by the regulatory and policy structures of government (and its many silos).

The fragmentation in policies, providers and services perpetuates the serious gaps in housing provision.

Mental health patients in hospitals and domestic violence victims are unable to leave because their only pathway is homelessness. Desperate families compromise on food, education and health while waiting on social housing availability.

Significant frustrations expressed with government decision-making are at least partly voters’ responsibility. The electorate seems to tolerate perpetual changes of government policies and the inconsistencies in state and Commonwealth government objectives.

Shelter is a key part of our existence. Yet a lack of wider public awareness about the role affordable housing plays in both society and the economy means voters don’t rate it as a priority. Until they do, governments are unlikely to make it a priority, either.

Author: Fiona McKenzie, Co-Founder and Director of Strategy, Australian Futures Project, La Trobe University

Norway’s House Price Boom

Does this sound familiar? From The IMF Blog.

Think Londoners and New Yorkers have it bad when it comes to sky-high house prices? Residents of Oslo have reason to gripe, too.

House prices in the Norwegian capital are among the world’s highest, as measured by the average cost of a home relative to household median income. Prices in Oslo are perhaps the most visible symptom of a real estate boom across the oil-rich, Nordic nation of 5.2 million people.

Nationwide, the cost of a home relative to income has almost doubled since the mid-1990s. Strong demand for housing in Norway has been driven by growing incomes, the rising number of households relative to housing supply, low interest rates, and generous tax incentives for home ownership.

Our Chart of the Week shows the evolution of Norway’s house price-to-income ratio compared with that in the 35 countries of the Organization for Economic Cooperation and Development, the Paris-based group of advanced economies, and euro area countries. As house prices have risen, so has household debt, which—as measured in percent of disposable income―has reached historic levels and is among the highest in the OECD.

All of this raises the risk that a large correction in house prices—driven for example by slower real income growth, a reverse in sentiment, or interest rate hikes―could weaken household finances and depress private demand, which could in turn hurt corporate and bank earnings. That’s among the messages of Norway: Selected Issues, a paper published by the IMF on July 5 in conjunction with the annual checkup, known as an Article IV Consultation.

The Norwegian authorities have already taken important steps to protect the economy from the impact of a potential housing bust, such as requiring banks to hold more capital and introducing tighter mortgage regulations. In particular, some early signs of softening in housing market conditions emerged recently following the introduction at the beginning of this year of a debt-to-income limit on new mortgages—in line with IMF’s past advice. But more may be needed if vulnerabilities in the housing sector intensify. Options could include tighter limits on loan-to-value ratios, higher mortgage risk weights, and reducing the scope for banks to deviate from mortgage regulations.

In the longer term, the ability of the financial sector and the economy more broadly to withstand housing market shocks should be strengthened through reforms like reducing tax preferences for housing, relaxing constraints on new property construction, and developing the rental market to provide more alternatives to home ownership.

Inequality Rules – The Property Imperative Weekly 8th July 2017

The Reserve Bank held the cash rate, more banks hiked mortgage interest rates, household debt rose again and our latest research showed that more than 800,000 households across Australia are experiencing mortgage stress. Welcome to the latest edition of the Property Imperative Weekly.

HSBC said the housing bubble fears were overblown. At a national level, a key reason for rising housing prices has been housing under-supply, Chief Economist Paul Bloxham wrote in a research note on Thursday and suggested that a significant fall in Australian housing prices, as occurred in the U.S. and Spain during the global financial crisis, is unlikely.

But data from CoreLogic showed whilst home prices rose in the last quarter, whilst auction volumes fell, and housing affordability deteriorated. The national price to income ratio was recorded at 7.3 compared to 7.2 a year earlier, and 6.1 a decade ago. It would have taken 1.5 years of gross annual household income for a deposit nationally at the end of the March compared to 1.4 years a year earlier and 1.2 years a decade ago. The discounted variable mortgage rate for owner occupiers was 4.55% and an average mortgage required 38.9% of a household’s income.

New data from the RBA showed that the household debt to income rose to a high of 190.4. Households are more in debt than they have ever been, and the main question has to be, can it all be repaid down the track, before mortgage interest rates rise so high that more get into difficulty.

Our June mortgage stress results showed that across the nation, more than 810,000 households are estimated to be now in mortgage stress up from 794,000 last month, with 29,000 of these in severe stress. This equates to 25.4% of households, up from 24.8% last month. We also estimate that nearly 55,000 households risk default in the next 12 months. The main drivers are rising mortgage rates and living costs whilst real incomes continue to fall and underemployment is on the rise. This is a deadly combination and is touching households across the country, not just in the mortgage belts.

We analyse household cash flow based on real incomes, outgoings and mortgage repayments. Households are “stressed” when income does not cover ongoing costs, rather than identifying a set proportion of income, (such as 30%) going on the mortgage. Stressed households are less likely to spend at the shops, which acts as a drag anchor on future growth. The number of households impacted are economically significant, especially as household debt continues to climb to new record levels.

Census data shows that Home ownership has continued to fall among younger Australians. Only 36 per cent of people aged 25-29 said they owned their home outright or with a mortgage – likely the lowest level since at least the 1960s. Home ownership for the next age group, 30-34, also declined, to 49 per cent, which is likely another record low.

Overall inequality in Australia is rising, between those who have property and those who do not. Australia has prominent examples of economic policies that disproportionately benefit the upper-middle class, such as the capital gains tax discount and superannuation tax incentives. We also have a geographically concentrated income distribution, with the rich living in neighbourhoods with other rich people. The poor are also more likely to live in close proximity to people who share their disadvantage.

There were major changes to mortgage rates and underwriting standards this week, with many following the herd by lifting rates for interest only borrowers, especially investors whilst making small downward movements in principal and interest loan rates, especially at lower LVRs.

NAB will start automatically rejecting customers who want to borrow a high multiple of their income and only pay interest on their home loan, amid concerns over the growing risks created by rising household indebtedness. While NAB already calculates loan-to-income ratios when assessing loans, it has not previously used the metric to determine whether a customer gets a loan, and such a blanket approach is unusual in the industry.

We have maintained for some time that LTI is an important measure. It should be use more widely in Australia, as it is a better indicator of risk than LVR (especially in a rising market).

Several more banks tweaked their mortgage rates this week. Virgin Money for example increased its variable and fixed rates for new owner occupied loans for LVRs of over 90% by 35 basis points or 0.35%, and increased its standard variable rates for owner occupied and investment interest online loans by 25 basis points.

Auswide Bank announced an increase to their reference rates for investment home loans and lines of credit of 25 basis points from 11 July 2017 will result in a new standard variable rate (SVR) of 6.10%. They blamed funding pressures and regulatory limits on investment and interest only lending.

ING Direct changed their reference rates, for owner-occupier borrowers, the principal and interest rates will decrease by 5 basis points. But for owner-occupier borrowers, interest-only rates will increase by 20 basis points and investor borrowers on interest-only loans will cop a 35 basis point rise. They are also encouraging borrowers to switch to principal and interest repayment loans.

Bendigo Bank lifted variable interest rates by 30 basis points for existing owner occupied interest only customers and 40 basis points for existing investment interest only customers. They also lifted business loans with new business interest only variable rates up by 40 to 80 basis points and fixed interest only rates increasing by 10 to 40 basis points. On the other hand, new Business Investment P&I variable rates will decrease by 15 basis points and fixed P&I interest rates decreased by 30 basis points.

The RBA held the official cash rate at 1.5 per cent for the tenth time on Tuesday. It hasn’t moved since a 25 basis point cut in August 2016. But Analysis shows that the gap between the RBA rate and the standard rate banks quote to mortgage borrowers is around the widest in 20 years. The Banks did not pass on the full benefit of the RBA’s record-low rates in order to offset costs and prop up profits. Last year there was a massive race to the bottom in terms of discounts to try to gain volume and share. Many banks dented their margins in the process. But now they’ve now got the perfect cover, thanks to APRA’s regulatory intervention, and so we expect to see mortgage rates continuing to grind higher, particularly for investors and anyone on interest-only. This will simply lead to more mortgage stress down the track whilst the banks rebuild their profit margins. Another example of inequality.

And that’s the Property Imperative to the 8th July. Check back again next week