Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
This is an edited version of our latest live discussion about the current state of the financial markets with Damien Klassen Head of Investments at Walk The World Funds and Nucleus Wealth. Included live questions from the audience.
Go to the Walk The World Universe at https://walktheworld.com.au/
Join us for a live discussion about the current state of the financial markets with Damien Klassen Head of Investments at Walk The World Funds and Nucleus Wealth. You can ask a question live.
Go to the Walk The World Universe at https://walktheworld.com.au/
Edwin Almeida, our Property Insider joins us through another ramble through the latest property news, including rooster cam, news from China, and the latest in listings numbers. We also look at the latest articles and consider the impact of the recent rains on high-rise property in particular. Go to the Walk The World Universe at https://walktheworld.com.au/
We look at the latest data as forecasters indicate a rise in mortgage rates as the RBA tackles inflation, leads to reduced lending, and risks of stagflation or recession.
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It started as an act of protest by fed-up apartment buyers in a single project in a city in central China.
Now tens of thousands of people around the country are withholding payments on their mortgages for homes that developers, including China Evergrande Group, have yet to finish.The movement has since spread to at least 301 projects in about 91 cities according to figures from a crowdsourced document titled “WeNeedHome.”
Tracking the extent of the protest has grown increasingly difficult after China began censoring in mid-July crowdsourced online documents tallying the number of boycotts. Such shared files have been a key source of data for global investors and researchers.
Real estate accounts for about 78% of household wealth in China—double the US rate—and families typically save for years and borrow from friends and family to purchase a home. As the Evergrande debacle unfolded last year, many market watchers said that the financial contagion would be limited by the fact that homebuyers in China often pay in cash.
But some did use mortgages, and the boycott underscores how much of the pain of the crisis has fallen on households. China’s outstanding mortgages stood at 38.3 trillion yuan at the end of 2021, according to the People’s Bank of China. GF Securities Co. expects that up to 2 trillion yuan ($296 billion) of mortgages could be impacted by the collective refusals. That’s the total balance of the loans; the amount that could be withheld will be smaller.
Should every buyer default, that would lead to a 388 billion-yuan increase in nonperforming loans, Jefferies’s said. Banks say the impact is much lower still. Lenders have detailed about 2.11 billion yuan of loans at risk from the protests, according toa tally of banks that have disclosed their exposure.
The wildcat boycott on loans worth as much as 2 trillion yuan ($296 billion) threatens to deepen China’s real estate slump by shifting focus from the country’s embattled property companies to its massive banks. Lenders have relied on mortgages as their safest source of revenue as Covid lockdowns stifle growth.
Go to the Walk The World Universe at https://walktheworld.com.au/
It is becoming a new sport, it seems – trying to assess the potential fall in property values across many markets here and around the world.
Indeed, Christopher Joye in the AFR writes: the great Aussie housing crash is accelerating, and it is being driven by the fastest and largest interest rate shock households have faced in modern history. Sydney house prices have now plunged almost 5 per cent since their peak only months ago according to CoreLogic. Home values in Melbourne are not far behind.
But let’s look at another market, because property price falls are being predicted around the western world, as Central Banks, appear at least, to be coordinating rate rise increases.
We might want to pause to consider the group-think, which has been exhibited for the past two decades – cutting rates after the 2007 and 2008 crisis, cutting them again radically ahead of COVID, to say nothing of the quantitative easing which has flooded markets with cheap money, and rate control, plus handing ultra-cheap funds to banks. I will leave you to judge how independent each central bank was and the degree of collusion, versus common reactions to the same economic out-turns, but the current mode of operation is driving highly inflated home prices which were driven by their bad policy – sharply down as they tighten. Some would suggest the High Priests of Finance, are not as powerful as they may like to appear.
So, let’s look at Canada’s housing market which has sharply shifted since the Bank of Canada began raising its benchmark interest rate from record lows in March. The central bank, seeking to rein in inflation that is running at its hottest in four decades, unveiled its largest one-time interest rate hike since 1998 last week. It raised the benchmark rate a full percentage point to 2.5% and promised more increases to come.
Go to the Walk The World Universe at https://walktheworld.com.au/
More analysis of recent price changes for property – this time in the West, and again strong correlation with high levels of mortgage stress. Thanks for Cookie Boy for doing the research.
We focused on more affordable houses, and spruikers note, prices are down.
Go to the Walk The World Universe at https://walktheworld.com.au/
My latest Friday afternoon chat with journalist Tarric Brooker, in which we explore home price dynamics, politics, and much more besides.
https://avidcom.substack.com/p/charts-that-matter-22nd-july-2022 for copies of the slides.
https://avidcom.substack.com/p/rising-rates-and-australias-over
Go to the Walk The World Universe at https://walktheworld.com.au/
More examples of asking price falls across NSW, QLD and SA, courtesy of Cookie Boy. We focus in on the South Coast where price falls are accelerating.
Go to the Walk The World Universe at https://walktheworld.com.au/
Social unrest is on the rise in China, triggered by a range of financial services related issues, across deposits and mortgages, with ordinary Chinese people are publicly revolting, with rapidly escalating boycotts on mortgage payments spread across at least 301 projects in about 91 cities.
In addition there were large-scale protests in the Henan province by bank depositors over the release of their frozen funds over what may be the nation’s biggest-ever bank scam. The incident comes in the light of the Henan branch of the Bank of China declaring that people’s savings in their branch are ‘investment products’ and can’t be withdrawn.
Authorities say they started repaying some victims last week even as a police investigation is still ongoing. But Chinese state media has not posted anything about the repayments.
The Henan bank scandal, in which 40 billion yuan (US$6 billion) in deposits have disappeared, is more than a Chinese banking crisis – it is a political crisis that could undermine people’s confidence in local governance and also other local banks, according to analysts.
The blow to public confidence in financial stability and the government’s ability to protect their legitimate interests could be a long-term issue, unless the central government can find ways to promptly repay the depositors, they say.
Police in central China’s Henan province have arrested a number of suspects allegedly involved in a “complicated” cash crisis involving rural banks, while investigators continue to search for the whereabouts of customers’ missing deposits.
The arrests come after months of protests from anguished savers, who have been unable to withdraw cash from their accounts at small rural banks in Henan and Anhui provinces.
The case has highlighted the vulnerability of lenders in China’s less-developed regions as the risk of recession grows in the world’s second largest economy.
The Chinese Communist Party’s tanks on Wednesday rolled on the streets to scare Henan bank protestors amid large-scale protests in the province by bank depositors over the release of frozen funds.
Go to the Walk The World Universe at https://walktheworld.com.au/