PEXA just released their second edition of their Cash Purchases Report which highlights residential property transactions that were funded entirely with cash. That is, residential properties purchased without a home loan. The share of mortgage-free transactions rose by 2.9 percentage points to 28.5 per cent of all home sales.
And this is important, because it helps to explain the apparent contradiction between the rise in property prices at a time when mortgage interest rates have also risen, a weird combination to say the least.
Some migrants, from the near 1 million arriving, come with sufficient cash to buy, as well as many downsizing Australians who have enjoyed the capital growth in recent years. So there is an ever larger portion of buyers that will be relatively unaffected by rising interest rates. This is another example of unequal access to housing, at the expense of mortgaged borrowers, especially in a higher interest rate environment.
Mortgage borrowers are being punished for the exuberance in demand for cash buyers. And more broadly, interest rates will remain higher for longer, because the interest rate lever is less powerful which gives the RBA and every Australian an inflation headache.
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This is an edited version of my live discussion about the latest from our surveys, as we look at mortgage, rental, investor and financial stress across the country, down to a post code level.
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Another chat with our property insider Edwin Almeida, as we look at the latest from the market. More supply questions, as construction costs rise, while some plan to offer zero deposit loans to attract voters.
Meantime the rental crisis deepens and opinion is divided in the WeeChat sphere.
The craziness continues…
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Today’s post is brought to you by Ribbon Property Consultants.
The Commonwealth Bank subsidiary Bankwest, the 130-year-old former Bank of Western Australia bank announced last Wednesday that it was moving to become a digital-only bank and would close 45 locations in the state. The 45 Bankwest branches that have been earmarked for closure will close their doors by October this year. There are 28 locations in Perth and 17 in regional WA. A further 15 branches will be rebranded under the Commonwealth Bank banner and are expected to finish their transformation by the end of the year.
Yes, this is the same CBA whose CEO Mat Comyn on 20th September 2023 in a statement to the Senate Inquiry into regional branch closures promised not to close more branches until at least 2026, even though they specifically excluded Bankwest from their statement, while saying “we recognise the unique and important contribution that regional Australia makes to our country”. “Our decision to pause regional branch closures is also predicated on customers and communities valuing our decision to stay”.
Committee member Senator Richard Colbeck said the Senate committee has been hearing plenty of people raising concerns about the vital banking services being lost.
“Every week in our hearings we hear from local communities how important these essential services are and how their communities are affected, yet those who are given a license to provide those services, the so-called service sector, continuously ignore those pleas and withdraw services – it is as though their ears were painted on,” he said.
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A deep dive on mortgage stress, using our mapping tools, as we look across Australia to identify the areas with the highest stress counts – defined in cash flow terms.
This is ahead of my upcoming live stream on Tuesday 12th March, where we will look at specific post code level data. Mark your diaries…
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The desperate quest for housing is playing out across Australia, with renters fighting to find an affordable place, and being confronted with significant rent hikes, while others are trying to buy their way into the property market, despite tight lending conditions, and are fighting directly with some property investors who are still hoovering up more property as well as new migrants who are still arriving in their thousands. It’s a mess, and many are getting crusted in the process.
So, the latest data underscores the issue as the ABS released their lending indicators on Thursday, and they reported that for total housing new loan volumes fell 3.9% to $25.1b, after a fall of 4.1% in December. But it was still 8.5% higher compared to a year ago. Incomes of course are not growing at anything like that!
Within that, the total for owner-occupier housing fell 4.6% to $15.9b but was 3.4% higher compared to a year ago, while for investor housing new loans fell 2.6% to $9.2b but was 18.5% higher compared to a year ago.
The mortgage cliff, where cheap sub-2% loans were reset to much higher rates is coming towards the end of the road, although CBA also warned on Wednesday that debts servicing costs will continue to rise as the remaining cheap pandemic fixed rate mortgages reset to variable. And some of the cheapest fixes are yet to expire, according to my surveys. In addition, some cheap deals seem to have been extended on their original terms for some borrowers so the funding pressures will remain.
All up, the ABS said In January 2024 in seasonally adjusted terms, the value of external refinancing for total housing fell 5.0% to $16.1b and was 19.5% lower compared to a year ago, while for owner-occupier housing new loans fell 7.4% to $10.3b and was 24.3% lower compared to a year ago and for investor housing they fell fell 0.5% to $5.8b and was 9.1% lower compared to a year ago. One reason apart from the cliff problem is that lenders have reduced competitive cashback offers.
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Today’s post is brought to you by Ribbon Property Consultants.
Well, now we know, according to official data Australian households are faring worse than the broader economy and are mired in recession. The Australia’s economy slowed in the final three months of last year, growing 0.2%, easing from an upwardly revised 0.3% in the prior quarter, and below expectations. From a year earlier, the economy grew 1.5% and this annual result was the weakest, outside the pandemic, since the final quarter of 2000 and below the decade average of 2.4%.
Wednesday’s data showed government spending and private business investment were the main drivers of growth, outpacing household consumption. Government spending was driven by “benefits for households, with more spending on medical products and services and higher employee expenses across commonwealth departments,” the ABS, said. A referendum for an Indigenous advisory body to Parliament “held during the quarter also contributed to the rise in employee expenses.”
The more important per capita measure, (activity divided by population) showed that the per capita recession deepened as higher rates and rising living costs dragged on household spending, despite record migration for a fourth consecutive quarter. In per person terms, GDP fell 0.3% from the third quarter and was 1% lower than a year earlier, the deepest downturn, also outside of the Covid-era, since 1991. Real per capita household final consumption plunged by 2.5% in 2023,
Inflation continued to impact most goods and services. The consumer price index rose 0.6 per cent in the December quarter and was up 4.1 per cent in the past 12 months. This was the smallest quarterly rise since March quarter 2021. Insurance got more expensive, as higher insurance premiums sent prices up 3.8 per cent. Increased tobacco taxes saw the price of cigarettes up 7.0 per cent.
Wage reviews pushed wage growth higher. The wage price index rose 0.9 per cent during the quarter and 4.2 per cent over the year. This was the highest recorded annual growth since the March quarter 2009. Public sector wages grew 1.3 per cent on the back of new workplace agreements, including those for teachers and nurses.
The labour market started to slow. Job vacancies fell slightly by 0.7 per cent during the quarter but remained high. The unemployment rate inched up reaching 3.9 per cent in the month of December, as participation rates stayed close to record highs.
Labour productivity rose again. We worked similar hours to last quarter, with the amount of time we spent at work remaining historically high. Overall labour productivity rose 0.5 per cent during the quarter, which was the second successive quarterly rise following a period of falling labour productivity. While the increase pushed labour productivity back to late 2019 levels, the RBA has warned that growth must be sustained at an annual rate of about 1 per cent to prevent current rates of wage growth from fuelling high inflation. NAB group chief economist Alan Oster said the strength of the underlying pace of productivity growth remained uncertain.
One of the biggest pressures on household budgets is personal income tax, which ate up a record 16.5 per cent of earnings over the past year as wage inflation pushed workers into higher tax brackets. Because tax brackets are not indexed to inflation, increases in nominal wages lead to increases in average taxes, since a greater proportion of a worker’s pay is pushed into the highest bracket applicable to them.
Our latest surveys to the end of February reveals the current state of Household Finances in Australian as measured by cash flow. A record 73.3% of those living in the rental sector are under pressure, while just over half of those with a mortgage are also in net negative cash flow. All up around 48% of households or 4.7 million families are struggling. The causes are clear to see, with costs of living still outstripping real incomes, high mortgage interest rates thanks to RBA monetary policy and rental cost driven sky high. Massive net migration, and bad government housing policies have created this disaster, which will likely be with us for decades. Housing affordability is shot.
So, in today’s show I will walk through the latest findings, ahead of a live show during which we will examine the data at a post code level. That show will be on Tuesday 12th March 2024.
But here we examine how we measure cash flow stress, examine the latest results across mortgage, rental, investor and overall financial stress, and also look at our price scenarios for the months ahead, alongside our estimates of mortgage defaults in the next 12 months.
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Our latest Friday afternoon chat with journalist Tarric Brooker focussed in the great housing debate, which has become a touchstone for debate in Parliament at the moment.
And using the great charts which Tarric presents we look at the issue from multiple dimensions, as well as a quick look at China’s property sector.
You can find Tarric’s charts here: https://avidcom.substack.com/p/dfa-chart-pack-1st-march-2024
