On The Front Line: Mortgage And Advice Industry

I discuss the latest developments in the property market with Chris Bates, Financial Adviser and Mortgage Broker.

Drawing from his direct experience in the market, we look at the current state of play.

Chris can be found at www.wealthful.com.au & www.theelephantintheroom.com.au,  plus via LinkedIn

This is what policymakers can and can’t do about low wage growth

From The Conversation.

This is longer than the usual Conversation article, so allow some time to read and enjoy.


The crisis really is in real wage growth. – Reserve Bank Governor Philip Lowe, 2017

Increased inequality and low wage growth are constraining economic growth. But why is wage growth so low? And how should policymakers respond?

Income inequality has increased significantly in most advanced economies since the early 1980s. In particular, very low rates of wage increase are widely blamed for the weak growth in aggregate demand this century and secular stagnation since the Global Financial Crisis. The GFC was itself brought on by the rise in consumer debt that was used at first to support demand in an attempt to offset the impact of weak wage growth.

Fairfax columnist Ross Gittins recently noted that “many economists were disappointed by this week’s news … that consumer prices rose only 2.1%”. That was because low inflation is “usually a symptom of weak growth in economic activity and, in particular, of weak growth in wages”.

Thus, today it is widely agreed that wages need to increase faster. The OECD, the IMF, leading US scholars, former US Treasury Secretary Larry Summers, Nobel prize winner Joseph Stiglitz and most recently Stephen Bell and I in our book, Fair Share, have all argued that increasing inequality is bad for economic growth.

To solve this problem, the critical issue for policymakers is what is causing this rising inequality and weak wage growth? Unless we better understand the causes, we are unlikely to achieve an effective policy solution.

First, we can quickly dismiss the explanation offered by federal Treasurer Scott Morrison, whose so-called “economic plan” assumes present low wage growth will respond positively to higher company profits. According to Morrison, a company tax cut will lead to more investment and thus more jobs, so eventually the benefits will trickle down and increase wages.

Unfortunately, this logic is the reverse of reality. It ignores the evidence that slow wage growth across all the developed economies has been a problem over a couple of decades now.

Slow wage growth is a continuing long-term problem in the developed economies. CC BY-ND

 

In fact, the evidence strongly suggests higher profits will not drive higher wages. The benefits of a company tax cut will largely be returned to shareholders, while the only wages that increase will be those of senior management.

Instead, higher investment will require increased consumer demand. And that in turn depends on stronger wage growth. In short, aggregate demand in a flat economy, like ours, is wages-led. Wages drive investment, not the other way around.

Broadly speaking, there are two serious schools of thought about what is causing weak wage growth and rising inequality.

One explanation puts most of the blame on a weakening of trade-union power.

The other explanation emphasises the impacts of technological change and, to a lesser extent, globalisation on the labour market. Together technology and globalisation are said to have changed job structures and demands for skills. They have reduced the share of middle-level jobs, which has directly increased income inequality, and they can depress the demand for labour more generally and thus wages in developed countries, but especially for less skilled labour.

These two explanations are not mutually exclusive – both may have played a role. However, I want to consider their relative significance as the basis for arguing which policy responses should be given priority.

Trade union power in Australia and its impact

A very distinguished professor of labour economics and former Industrial Relations Commission deputy president, Joe Isaac, recently argued persuasively that an important explanation of slow wage growth is “to be found in the change in the balance of power in favour of employers and against workers and unions”.

Isaac starts by noting that union membership in Australia has fallen from about 50% of all employees in the 1970s to the present 15%. This is one of the lowest rates in the OECD.

Isaac also finds some correlation between income inequality (measured by the Gini coefficient) and trade union density for 11 OECD countries. More relevant, though, would be the change in inequality relative to the change in union membership, especially as Australia has always had a relatively high Gini coefficient.

Isaac argues that this loss of membership and the reduced authority of the Fair Work Commission has weakened the bargaining power of organised labour in Australia. Employers are now able “to determine no wage increase or an increase less than their profits would warrant, with less resistance from workers and unions”. Although Isaac admits that “this conclusion is based on the association over time of union power decline and slow wages growth”, he concludes that “it seems reasonable to claim, at least prima facie, a causal connection between them”.

I am more sceptical. While I wouldn’t rule out any impact on wages and employee conditions from a decline in trade union membership and the possibly associated changes in the power of the Fair Work Commission, I question Isaac’s analysis for the following reasons.

First, it is uncertain how much trade union power has declined as a result of loss of membership. Another test of trade union power is the proportion of wages determined by awards and collective agreements – as Isaac shows, this proportion has largely remained the same in Australia. Indeed, in some countries, such as France, trade union membership has always been very low, but they have a highly centralised system of wage determination, which allows the unions a lot of influence.

Second, other countries have also experienced increases in inequality – much greater than in Australia in most cases – but don’t seem to have experienced any notable loss of union power. For example, some of the biggest increases in inequality over the last 30 years, as measured by the Gini coefficient for final disposable income, have occurred in countries like Sweden, Finland and Germany, which are not associated with any loss of trade union power.

Third, Isaac’s analysis of wage inequality focuses entirely on a decline in the wage share of total factor income. This ignores changes within the distribution of earnings. These latter changes are more important in many countries, and certainly for Australia.

While the wage share in Australia has declined since the 1970s and early 1980s, this was at least partly a result of deliberate policy under the Hawke/Keating governments’ Accord with the trade unions, when it was accepted that the wage share had been too high. Even today the wage share is still higher than in 1960, when the economy was generally considered to be performing exceptionally well.

Fourth, the changes in the distribution of earnings largely reflect changes in the structure of occupations rather than changes in relative wage rates. But trade unions seek to influence wage rates, and it is difficult to see how they can exert much direct influence over the structure of jobs.

For these various reasons, I don’t think the loss, if any, of trade union power can explain much of the increase in inequality in most countries over the last 30 years. It is necessary to look elsewhere for the explanation, and the main driver seems to have been the impact of technological change.

Impacts of technology and globalisation

In Fair Share, Stephen Bell and I examine the causes of increased inequality over the last 30 years in most of the advanced economies. A critical starting point is to distinguish between changes in the job structure and changes in relative wage rates. As we note:

Even if there were no change in relative wage rates, but employment increased faster for both high-paid and low-paid jobs, the earnings distribution would show up as more unequal. What would have happened is that the composition of the top and lowest deciles of earnings would have altered, which would increase the median income of the top decile and reduce the median income of the lowest decile, which would in turn be reported as an increase in the inequality of earnings.

The consensus in the studies we reviewed is that increased inequality of earnings largely reflects the impact of technological change. Globalisation and increased participation in global value chains may also have played a role, but less so in Australia, which we attribute to Australia having a more flexible labour market than, say, America.

We also surmise that increased financialisation and the capture of rents generated by technological change may help explain the very large increase in remuneration for the top 1%.

Interestingly, the OECD specifically rejected the hypothesis that regulatory changes have helped drive any significant increase in inequality. It found that “the net effect of regulatory reforms on trends in ‘overall earnings inequality’ remains indeterminant in most cases”.

The principal impact of technological change, and globalisation to a lesser extent, has been to reduce the share of middle-level jobs. In particular, new information and communications technology has had its greatest impact on relatively routine tasks involving middle-level jobs, such as clerical occupations and the operation of basic machinery.

Technological change has also driven the fall in the relative price of capital goods. This has led to some substitution of capital for labour. Again, this is “particularly pronounced in industries with a high predominance of routine tasks”, as the OECD notes.

These changes in job structure and the relative decline in the middle-level jobs have been the most important cause of increasing inequality in many countries, including Australia. Technological progress has also led to an increase in the demand for skills. In some countries that has increased the premium paid for skilled labour, but the extent of this depends upon the policy response affecting the supply of skills.

In Australia’s case, Bell and I find that the premium for skills, and consequently relative wage rates, did not change much because of the increase in education and training effort. Accordingly, much of the increase in earnings inequality in Australia reflects changes in the job structure rather than changes in relative wage rates (see also Keating and Coelli & Borland).

So what does this mean for policy?

Consistent with his view that a weakening of trade union power has driven the increase in inequality, Isaac recommends changing the Fair Work Act to rectify “the unbalanced industrial power in the labour market”. I can support most of Isaac’s recommended changes, and especially greater rights of union entry, which should help better police adherence to awards and wage agreements.

I also agree that Isaac’s recommended legislative changes are unlikely to result in unions abusing their increased power. This is because, as he puts it, “there are now prevailing forces, such as global competition and structural changes, which will continue to keep union power in check”.

However, these “prevailing forces” are what really caused most of the increase in inequality, as discussed above. I therefore doubt that these legislative changes will do much to reverse the increase in earnings inequality.

Instead, the best way to respond to the impact of technological change on the job structure and possible associated changes in wage premiums is to improve education and training. Enhanced education, training and labour market policies will help workers adjust to the challenges posed by new technologies and will also spur the adoption of those technologies.

In addition, if the supply of skills thereby increases in line with the increase in their demand, there should not need to be any change in relative wage rates. Although these types of reforms take time, in the end they can boost both aggregate demand and potential output, with benefits all round.

In short, as Thomas Piketty, in his major study on inequality, concluded:

To sum up: the best way to increase wages and reduce wage inequalities in the long run is to invest in education and skills.

Author: Michael Keating Visiting Fellow, College of Business & Economics, Australian National University

Finance drives everything — including your insecurity at work

From The Conversation.

There’s a common link between the many things that have promoted insecurity at work: the growth of franchising; labour hire; contracting out; spin-off firms; outsourcing; global supply chains; the gig economy; and so on. It’s money.

At first, that seems too obvious to say. But I’m talking about the way financial concerns have taken control of seemingly every aspect of organisational decision-making.

And behind that lies the rise and rise of finance capital.

Over the past three decades there has been a shift in resources from the rest of the economy to finance. Specifically, to finance capital.

One way to see this is in the chart below. It shows the income shares of labour and capital, and the breakdown for each between the finance and non-finance (“industrial”) sectors, in two four-year periods. They were 1990-91 to 1993-94 (when the ABS started publishing income by industry) and, most recently, 2013-14 to 2016-17. (I use four-year periods to reduce annual fluctuations and show the longer-term trends. Here is more detail and explanation of methods.)

Income shares of labour and capital

Factor shares by industry, 1990-94 and 2013-17. Source: ABS Cat No 5206.0

The key thing to notice in the chart is that finance capital’s share of national income doubled (it’s the dark red boxes in the lower right-hand side of the chart), while everyone else’s went down.

So, over that quarter-century, the share of labour income (wages, salaries and supplements) in national income fell. In the early 1990s it totalled 55.02% — that’s what you get when you add labour income in finance, 3.21%, to labour income in “industrial” sectors, 51.81%. In recent years this fell to 53.58%. There were falls in both finance labour income (from 3.81 to 2.83% of national income) and industrial labour income.

The total share of profits and “mixed income” accordingly rose from 44.99% to 46.42%. The thing is, all of that increase (and a bit more) went to finance capital. Profits in finance went from 3.16% to 6.16% of the economy.

At the same time there has been a large increase in the share of national income going to the very wealthy — the top 0.1% — in Australia and many other countries.

This shift in resources does not reflect more people being needed to do important finance jobs. Nor is it higher rewards for workers in finance. The portion of national income, and for that matter employment, devoted to labour in the financial sector actually fell from 3.21% to 2.83%.

The economy devotes proportionately no more labour time now to financial services than it did a quarter century ago. Yet rewards to finance have increased immensely. The share of national income going to “industrial” sector profits and “mixed income” has declined.

In short, the widely recognised shift in income from labour to capital is really a net shift in income from labour, and from capital (including unincorporated enterprises) in other industries, to finance capital.

Finance matters

You may have heard about “financialisation”. It’s not really about more financial activity. It is about the growth of finance capital and its impact on the behaviour of other actors.

Financialisation has led to finance capital taking the lead shareholdings in most large corporations, not just in Australia but in other major countries (to varying degrees) as well.

This role as main shareholder and, of course, chief lender to industrial capital has driven the corporate restructuring over the past three decades that has led to greater worker insecurity and low wages growth (as I recently discussed here).

When “industrial capital” has been restructured over recent decades — to promote franchising, labour hire, contracting out, spin-off firms, outsourcing, global supply chains, and even the emergence of the gig economy — it has been driven by the demands of finance capital. Casualisation is just one manifestation of this.

Short-term logic

Now there’s no conspiracy here (or, at least, the system doesn’t rely on one). There is actually a lot of competitive mindset in the financial sector. This is just the logic of how the system increasingly has come to work. Financial returns, particularly over the short term, have become the principal (really, the only) fact driving corporate behaviour.

This has come at the expense of human considerations.

That same logic is behind resistance to action on climate change. Continuing carbon emissions are the perfect, and deadly, example of short-term profits overriding longer-term interests.

Yet even finance capital is not monolithic. There are parts of finance capital that have a longer-term perspective (“there’s no business on a dead planet”). So they are effectively in battle with those parts of finance capital for which the short term is everything. The former want governments to intervene in, for example, carbon pricing.

Policy questions

All this leaves some big questions for policymakers about how to redress the new imbalance of power.

In part, it requires changing institutional arrangements (including industrial relations laws) that in recent years have made it much harder for workers to obtain a fair share of increases in national income. It requires rethinking of how we regulate work.

But it also requires rethinking of how we regulate product markets and financial markets.

The almost global reduction in regulation of the financial sector over three decades ago has ultimately led to this imbalance. It is time to rethink all of that.

Author: David Peetz Professor of Employment Relations, Centre for Work, Organisation and Wellbeing, Griffith University

How have your family’s fortunes changed?

From The Conversation.

Do you feel that, overall, you’re “better off” than you were in the past? Or that things are getting worse, or have plateaued?

We now have the data to get us a pretty good answer to that question, right down to the detail by “family types”, as categorised by the Household, Income and Labour Dynamics in Australia (HILDA) Survey. Starting in 2001, this longitudinal survey now tracks more than 17,500 people in 9,500 households.

The interactive below lets you drag and drop your family members into the house to see what the HILDA data reveal.

One measure we’re showing is what economists call “equivalised income”. That’s different to your total household income; here’s how the HILDA report explains it:

Overall, median equivalised incomes have gone up since 2001 for all family types, but some have fared better than others, as this chart from the full HILDA report shows:

For the purposes of interpreting the HILDA data, you might need to be a bit flexible when deciding which “family type” applies to you. For example, a household with two single, adult sisters living together will be classified as two single-person “families”, even though they might see themselves as a family unit.

And it’s worth remembering, as the HILDA report notes:

… some households will contain multiple “families”. For example, a household containing a non-elderly couple living with a non-dependent son will contain a non-elderly couple family and a non-elderly single male. Both of these families will, of course, have the same household equivalised income. Also note that, to be classified as having dependent children, the children must live with the parent or guardian at least 50% of the time. Consequently, individuals with dependent children who reside with them less than 50% of the time will not be classified as having resident dependent children.


Household Financial Pressure Tightens Some More

Digital Finance Analytics (DFA) has released the July 2018 mortgage stress and default analysis update. The latest RBA data on household debt to income to March reached a new high of 190.1[1], and CBA today said in their results announcement ”there has been an uptick in home loan arrears as some households experienced difficulties with rising essential costs and limited income growth, leading to some pockets of stress”.

So no surprise to see mortgage stress continuing to rise. Across Australia, more than 990,000 households are estimated to be now in mortgage stress (last month 970,000). This equates to 30.4% of owner occupied borrowing households. In addition, more than 23,000 of these are in severe stress. We estimate that more than 57,900 households risk 30-day default in the next 12 months. We expect bank portfolio losses to be around 2.7 basis points, though losses in WA are higher at 5.1 basis points.  We continue to see the impact of flat wages growth, rising living costs and higher real mortgage rates.

Martin North, Principal of Digital Finance Analytics says “households remain under pressure, with many coping with very large mortgages against stretched incomes, reflecting the over generous lending standards which existed until recently. Some who are less stretched are able to refinance to cut their monthly repayments, but we find that the more stretched households are locked in to existing higher rate loans”.

“Given that lending for housing continues to rise at more than 6% on an annualised basis, household pressure is still set to get more intense. In addition, prices are falling in some post codes, and the threat of negative equity is now rearing its ugly head”.

“The caustic formula of coping with rising living costs – notably child care, school fees and fuel – whilst real incomes continue to fall and underemployment is causing significant pain. Many households have larger mortgages, thanks to the strong rise in home prices, especially in the main eastern state centres, and now prices are slipping. While mortgage interest rates remain quite low for owner occupied borrowers, those with interest only loans or investment loans have seen significant rises. Many are dipping into savings to support their finances.”

Recent easing interest rate pressures on the banks has decreased the need for them to lift rates higher by reference to the Bank Bill Swap Rates (BBSW), despite the fact that a number of smaller players have done so already.

Our analysis uses the DFA core market model which combines information from our 52,000 household surveys, public data from the RBA, ABS and APRA; and private data from lenders and aggregators. The data is current to end June 2018. We analyse household cash flow based on real incomes, outgoings and mortgage repayments, rather than using an arbitrary 30% of income.

Households are defined as “stressed” when net income (or cash flow) does not cover ongoing costs. They may or may not have access to other available assets, and some have paid ahead, but households in mild stress have little leeway in their cash flows, whereas those in severe stress are unable to meet repayments from current income. In both cases, households manage this deficit by cutting back on spending, putting more on credit cards and seeking to refinance, restructure or sell their home.  Those in severe stress are more likely to be seeking hardship assistance and are often forced to sell.

Probability of default extends our mortgage stress analysis by overlaying economic indicators such as employment, future wage growth and cpi changes.  Our Core Market Model also examines the potential of portfolio risk of loss in basis point and value terms. Losses are likely to be higher among more affluent households, contrary to the popular belief that affluent households are well protected.

The outlined data and analysis on mortgage stress does not occur in a vacuum. The revelations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Commission) have highlighted deep issues in the regulatory environment that have contributed to the household debt “stress bomb”. However, most of the media commentary on the regulatory framework has been superficial or poorly informed. For example, several commentators have strongly criticised the Australian Securities and Investments Commission (ASIC) for not doing enough but have failed to explain what ASIC has in fact done, and what it ought to have done.

The Commission has highlighted major concerns regarding the law and practice of responsible lending. North has published widely on responsible lending law, standards and practices over the last 3-4 years, and continues to do so. Her latest work (which is co-authored with Therese Wilson from Griffith University) outlines and critiques the responsible lending actions taken ASIC from the beginning of 2014 until the end of June 2017. This paper was published by the Federal Law Review, a top ranked law journal, this month. A draft version of the paper can be downloaded at https://ssrn.com/author=905894.

The responsible lending study by North and Wilson found that ASIC proactively engaged with lenders, encouraged tighter lending standards, and sought or imposed severe penalties for egregious conduct. Further, ASIC strategically targeted credit products commonly acknowledged as the riskiest or most material from a borrower’s perspective, such as small amount credit contracts (commonly referred to as payday loans), interest only home loans, and car loans. North suggests “ASIC deserves commendation for these efforts but could (and should) have done more given the very high levels of household debt. The area of lending of most concern, and that ASIC should have targeted more robustly and systematically, is home mortgages (including investment and owner occupier loans).”

Reported concerns regarding actions taken by the other major regulator of the finance sector, the Australian Prudential Regulation Authority (APRA), have been muted so far. However, an upcoming paper by North and Wilson suggests APRA (rather than ASIC) should be the primary focus of regulatory criticism. This paper concludes that “APRA failed to reasonably prevent or constrain the accumulation of major systemic risks across the financial system and its regulatory approach was light touch at best.”

Stress by The Numbers.

Regional analysis shows that NSW has 267,298 households in stress (264,737 last month), VIC 279,207 (266,958 last month), QLD  174,137 (172,088 last month) and WA has 132,035 (129,741 last month). The probability of default over the next 12 months rose, with around 11,000 in WA, around 10,500 in QLD, 14,500 in VIC and 15,300 in NSW.

The largest financial losses relating to bank write-offs reside in NSW ($1.3 billion) from Owner Occupied borrowers) and VIC ($943 million) from Owner Occupied Borrowers, which equates to 2.10 and 2.7 basis points respectively. Losses are likely to be highest in WA at 5.1 basis points, which equates to $744 million from Owner Occupied borrowers.

Top Post Codes By Stressed Households

[1] RBA E2 Household Finances – Selected Ratios March 2018

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Note that the detailed results from our surveys and analysis are made available to our paying clients.

Adams/North – Exposing Financial Propaganda

In the latest edition, John Adams, the Economist, and I discuss the recent data on household debt, and look at some commentators view that the current accepted high debt is not a problem at all.  Fake news or fact?Watch the video, or read John’s original article.

You can read John’s original article.

Households dipping into savings to pay for basics: ME Bank

An increasing number of Australians are struggling with the cost of living, dipping into their short-term savings just to get by, ME Bank’s latest Household Financial Comfort Report says, via The New Daily.

The biannual survey released Monday asked 1500 people to rate their household comfort for the first half of 2018, showing short-term cash savings to be the biggest area of decline.

A bright spot in the otherwise gloomy findings came for renters, who reported a lessening in financial stress, thanks largely to a cooling housing market and falling rents.

The report’s Household Financial Comfort Index, which surveys how ordinary Australian perceive their own financial wellbeing, saw a 3 per cent drop on the February results to 4.93 out of 10 for the first half of 2018 – “its lowest level in a couple of years”.

Living expenses were the biggest reason for using short-term savings, the survey found.

In the past year, 17 per cent of households could not always pay their utilities bills on time, 19 per cent sought financial help from family or friends and 15 per cent pawned or sold something to buy necessities, the findings showed.

“Australians generally can dip into their savings to get by,” consulting economist for ME Jeff Oughton said.

“However some households may get to a point where there’s no more savings to draw from,” Mr Oughton said.

“Currently, around a quarter of Australian households have less than $1000 in cash savings,” he added.

The report said the worst-affected demographic was young singles and couples under 30 with no kids.

This group reported falls across all areas of comfort, including in their ability to handle a financial emergency.

Meanwhile, ‘baby boomers’ continued to report the highest financial comfort of all generations.

The report revealed housing stress was still broadly unchanged for households with mortgages.

Some 45 per cent of mortgage holders reported to they contributed more than 30 per cent of their disposable income toward their home loans the past six months.

“The good news for renters is that financial stress has lessened somewhat during the past six months, thanks to the housing market cooling and rents falling,” Mr Oughton said.

“While almost three-quarters (72 per cent) of renters were previously contributing over 30 per cent of their disposable income towards rent, this number dropped significantly to two-thirds (67 per cent in the most recent survey,” he added.

Number of Australians becoming homeowners plummets: HILDA survey

From The Real Estate Conversation

Renters are quickly becoming a growing demographic in Australia, as fresh research reveals the proportion of Australian renters becoming homeowners has nosedived.

In news that will hardly come as a surprise to most millennials, the number of Australian renters eventually becoming homeowners has plummeted over the last 15 years – particularly for those between the ages of 18 and 24.

The latest Household, Income and Labour Dynamics in Australia (HILDA) survey found the overall proportion of people living in rental accomodation has increased by 23 per cent since 2001 to 31.3 per cent in 2016.

Undoubtedly as a result of this, the survey correspondingly found people aged between 15 and 24 are choosing to live with their parents longer.

Melbourne Institute deputy director and report co-author Roger Wilkins told WLLIAMS MEDIA the findings from the survey highlights the plight of renters.

“Renters, particularly younger ones, are finding it increasingly harder to achieve home ownership,” Wilkins said.

According to the HILDA survey, renters were far more likely to be under housing or financial stress than homeowners.

Source: HILDA Survey

Findings from the survey show renting has declined since 2011 for the 25 to 34 age group.

“But this is not because they are more likely to be home owners, however. Rather, as with the trend for the 15 to 24 age group, it reflects the trend towards remaining in the parental home, which is often owner-occupied, until older ages,” the report said.

Over the survey period, which began in 2001 and tracks over 17,500 people across 9,500 households, the number of renters aged between 18 and 24 transitioning into home ownership has dropped massively, from 13.5 per cent down to just 7.5 per cent.

The declining rates of home ownership demonstrate the growing evidence of ‘intergenerational inequality’.

Source: HILDA survey

“There has been a growth in inequality across the generations, and this is very much tied to home ownership,” Wilkins said.

Despite this, research from Westpac shows more millennials than ever are saving up for their first property.

The data, released earlier this year, shows the highest number of first home buyer loans in March and April 2018, compared to the same period in the previous two years.

Kathryn Carpenter, Westpac’s Head of Savings, told WILLIAMS MEDIA that first home buyers are being diligent with their savings and digging deep to save for a home.

Related reading: Advice for first home buyers after new research shows most are clueless about buying property: ME Bank

“Millennials are often depicted as a generation more focused on life experiences and living in the ‘now’. However, our research shows that many are in fact taking saving for a home deposit seriously and prioritising it above other goals including travel or lifestyle,” Carpenter said.

“It is great to see our millennial customers making the most of their savings plans, and the timing could not be better with the current cooling of the property market.”

Source: HILDA survey

The research also revealed the younger end of the millennial spectrum (18-24) are already starting to save for a home.

“Our data shows reaching 25 appears to be a key tipping point for customers moving from thinking about saving for a home, to seriously saving for one”, commented Carpenter.

Dion Tolley, a real estate agent from Place Bulimba, told WILLIAMS MEDIA he has started to see more first home buyers entering the market.

“The investor market has pretty much left in the last year, given the investor squeeze from the banks, and the pressure they are putting on with lending requirements. Also with the changes to stamp duty concession at $499,000, we are definitely seeing more first home buyers entering the market along with those interest rates. As the concession has been extended for 12 months, more first home buyers are moving into the market instead of renting,” Tolley said.

“I think most people are sick of paying off investors mortgages and want to own their own homes.

“Most first home buyers typically purchase between the $350,000 to $499,000 threshold, and will typically go for the two-bedroom, two-bathroom, one car apartments. Established properties are more consistently snapped up than off the plan apartments.

“It has usually taken most of my clients who are first home buyers a couple of years to save up a decent deposit. Their parents will use the equity from their own home to tip them over that 20 per cent threshold to avoid lenders mortgage insurance because that does add on a fair whack to the weekly mortgage repayments,” he said.

Homeowners face refi challenges as home values fall

From Australian Broker

As many as 15% of surveyed homeowners have faced challenges when trying to refinance, due to falling property prices.

Research conducted by mortgage lender State Custodians, quizzed 1,022 home owners on their ability to refinance in the current climate, as national average home values continues to fall.

According to CoreLogic market data for the month of July, capital city home prices declined by 0.6% and now stand 2.4% lower over the year; it is the largest monthly decline in six and a half years. The national home price index also declined by 0.6% to average a 1.6% decline over the year.

The figures published by State Custodians also revealed that young people were the most affected, with around 34% of those under the age of 34 saying they’ve been unsuccessful in re-financing because of declining property values.

“Property prices have been stagnating and falling across much of Australia for some time now – especially in the major capital markets of Sydney and Melbourne – which has made refinancing tougher for some,” State Custodian general manager Joanna Pretty said in a statement.

“Anyone who has not yet built up a substantial amount of equity in property or whose property has fallen in value is more likely to be unsuccessful in seeking refinancing,” she added.

However, there is some good news as 29% of respondents said they are confident their property’s value has improved since purchase. Further, 41% of people with mortgages have successfully refinanced their home and experienced no problem getting a better rate as their property’s value increased.

Pretty said that when refinancing, homeowners and investors are often overly confident that their property increased in value.

“Declines in property value are influenced by what is happening in the market and the land value of the area,” she said. She explained that valuation of homes even in good areas can still come back below expectation due to poor property maintenance and upkeep.

Pretty suggested that “it may also be helpful to be present when a valuer visits to point out improvements that may not be immediately apparent, such as solar panels.”

Elsewhere, AB says brokers can help the thousands of people labelled ‘mortgage prisoners’ by directing them to non-bank lenders, is the call from an industry association.

Mortgage prisoners are borrowers unable to refinance to a lower interest rate due to changed lending criteria by the banks.

The Finance Brokers Association of Australia (FBAA) has said that going to non-banks is the way to overcome this.

FBAA executive director Peter White said the government should also step in and push banks to be realistic with their modelling.

He revealed he personally brought up the issue with federal treasurer Scott Morrison when the two caught up at a recent lunch.

White said banks have recently increased the interest rate ‘buffer’ they add onto a loan to ensure the borrower has capacity to pay if rates rise, but the extent of the increase has led to a situation where borrowers who are already paying a mortgage are being rejected for loans that actually reduce their repayments.

He said, “It’s madness. Someone wants to refinance to pay a lower rate yet the bank adds an extra 4% to the interest rate and decides the borrower can’t afford to pay less.”

He said while he understands the need for a lender to add a safety net to the prevailing interest rate, they are now effectively doubling the rate to a level where the borrower can’t meet the new lending criteria.

He added, “This doesn’t affect the wealthy, it affects those who can least afford it and it has almost stalled the home loan refinance market.”

The assessment change is a knee-jerk reaction by the banks to recent inquiries and the royal commission, according to White, who predicts the banks may start to set an even higher rate.

He said the situation only reinforces the value of the expert advice that finance brokers provide and has urged brokers to be proactive in the space.

He said, “Many Australians are not even aware of non-bank lenders, let alone the difference or that they are not under some of the same regulatory oversight, so we must educate and help them. We know the banks won’t!”

Changing demographics to alter dwelling demand

From The Adviser

As Generation Y begins to enter the housing market, there could be a change in the types of dwellings sought after, a new report has suggested.

According to industry analyst and economic forecasters BIS Oxford Economics, changes to the age profile of the population over the next decade will likely result in a shift in the type of demand for dwellings, as Generation Y – those currently aged around 20 to 34 years old – begin to have their own families and move onto the property ladder.

According to BIS’s Emerging Trends in Residential Market Demand report, which examines trends revealed by a detailed analysis of Census data from the past 25 years, there will be “solid demand for units and apartments over the next decade” driven by an overall increase in “the propensity to be living in higher density dwellings across all age groups”.

The report outlines that while there will be continued demand for units and apartments over the next decade, the growth in demand will eventually slow.

Senior manager for residential property at BIS Oxford Economics, Angie Zigomanis, has suggested that, over the past 15 years, there has been rapid population growth among 20-to 34-year olds, as well as strong net overseas migration inflows, which have helped support the boom in apartment construction in the past decade by supplying a steady stream of new tenants to the market.

Mr Zigomanis also noted that there is evidence that people are staying in apartments and townhouses longer.

The analyst highlighted that, in Sydney, more than half (53 per cent) of households aged 35-to 39-years old, and nearly half (49 per cent) of households with children at a pre-school age, now live in these smaller dwellings.

While households have typically favoured townhouses over apartments, in Sydney and Melbourne, there has been an acceleration in the take-up of apartments by both groups since the 2011 Census. The trend has also been similar, although less pronounced in Brisbane, Adelaide and Perth, the report added.

Looking to the future, BIS notes that rising demand for smaller dwellings by Generation Y over the next decade would be apparent across all capital cities, although will be most pronounced in Sydney, and to a lesser extent Melbourne, where separate houses are least affordable.

In Brisbane, Adelaide and Perth, it argued, householders would be much more likely to be in a detached house once they enter their late 30s and 40s, and strong demand for new separate houses is therefore likely to continue.

However, BIS argues that it is likely that rising house prices and decreasing housing affordability in the most desirable locations in the capital cities are causing “an increasing trade-off” for some couples and family buyers between price, size of dwelling, and location, with many seeking smaller and more affordable dwellings to remain close to their desired location.

The analysts argued that, should this trade-off activity increase as Generation Y gets older, then this provides an opportunity for developers in all capital cities to meet this demand, especially given the fact that the boom in multi-unit dwelling construction has up until now been investment-driven “with design being geared toward Generation Y renters living as singles, couples without children, and in share households,” BIS said.

“To meet the potential growing number of Generation Y families in established areas, multi-unit dwellings will need to be designed to be more appropriate to family life, offering more space, both indoor and some outdoor, or located adjacent to public outdoor spaces,” said Mr Zigomanis.

“In particular, new apartment designs will need to change to provide more appropriate product for Generation Y families.”

However, should Generation Y follow the trend of the previous generations and eschew renting for owning their own, larger dwellings as they age, then this would “support a decade-long boom in demand for new houses and land in the new housing estates on the outskirts of Australia’s major cities and affordable major regional centres,” said Mr Zigomanis.

“Pressure is also likely to be maintained on house prices in established areas, as competition remains strong for Generation Y families looking to remain in the established areas where they have already been living and renting in smaller apartments,” he said.