Property Market – Page 32 – Digital Finance Analytics (DFA) Blog

Downgrading Housing Forecasts – Fast!

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

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

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

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

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

Go to the Walk The World Universe at https://walktheworld.com.au/

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

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

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

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

Go to the Walk The World Universe at https://walktheworld.com.au/

Savings Turned Into “Investment Products” As Property Collapse Widens

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/

Operation Anti-spruik Part 3: Queensland

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

Go to the Walk The World Universe at https://walktheworld.com.au/

The Property Crash Is Just Getting Started…

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

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

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

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

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

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

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

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

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

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

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