Econometric House Price Modelling

Given the near $6 trillion of residential real estate, and the near $1.6 trillion of loans on these properties, future house price dynamics are important for households, banks, regulators and the wider economy. So it is worth thinking about where house prices might go. There is no rule that house prices can only rise. In the US they fell up to 40% and in the UK up to 25% post the GFC. Domain today reported falls in many states in the past few months.  In Australia, prices are way above long term trends.

Any modelling of future outcomes will be wrong. However we have been developing an econometric model which draws current data from our segmented household surveys and using a range of relationships we seek to estimate average house and unit prices by state, for properties in the main urban areas, and separately in the regional areas. Averages across Australia mask too many differences to be useful. Having used the model to track events over the past year, we feel confident enough of the algorithms to share some of the results.  But to stress, this model is only a guide, and its results are wrong!!

Our point of departure is data from the ABS on house and unit prices. We overlay our survey data with a range of factors to drive our modelling from a range of sources. These include:

  • Supply of property by type (building approvals and construction)
  • Demand for property by type (from the DFA survey)
  • Population growth and demography (combination of DFA survey and ABS)
  • Income growth (from ABS)
  • Unemployment rate (from ABS)
  • Inflation rate (from ABS)
  • GDP Growth rate (from ABS)
  • Demand for finance (from the survey)
  • Supply of finance (RBA and ABS data)
  • Interest rates (RBA)
  • Mortgage interest margins (RBA and DFA analysis)
  • Mortgage underwriting interest rate floors (APRA)
  • Choice modelling between investment types (DFA survey)
  • Choice modelling between property types (DFA survey)
  • Tax breaks (DFA survey and ATO)
  • Mortgage default rates (Various, including DFA survey)
  • Lender mortgage write-downs (Company results)
  • Penetration of Lenders Mortgage Insurance (DFA surveys and analysis)

We have six scenarios:

  • Strong recovery
  • Mild up turn
  • Base case (no changes from current settings)
  • Mild down turn
  • Severe down turn
  • Armageddon

Over the coming days we will discuss some of the initial analysis we have completed.  Today, we look at NSW.

In our base case to mid 2018, we expect to see the average house price in Sydney fall by 5.5% to $860,000 and the average unit in Sydney fall by 1.2% to $400,000. In regional areas, the average house price will fall 2.5% to $395,000 and units will fall by 10.6% to $309,000.

NSW-Base-April-2016If economic momentum becomes stronger, to mid 2018, the average house price in Sydney will still fall a little, by 1.4% to $897,000 and the average unit in Sydney will fall by 1.1% to $677,000. In regional areas, the average house price will rise 3.3% to $418,000 but units will fall by 9.3% to $313,000. The falls in Sydney will continue given the previous strong run, lower demand for investment property and static incomes.

Upside-NSW-Apr-2016If economic momentum falls, to mid 2018, we expect to see the average house price in Sydney fall by 17.5% to $751,000 and the average unit in Sydney fall by 16.3% to $573,000. In regional areas, the average house price will fall 14.6% to $346,000 and units will fall by 21.9% to $269,000. In this scenario, growth remains low, unemployment moves higher, incomes remain flat, and demand for property slows.

NSW-April-2016-DOwnturnIf economic momentum falls significantly, to mid 2018, we expect to see the average house price in Sydney fall by 26.1% to $672,000 and the average unit in Sydney fall by 28.4% to $490,000. In regional areas, the average house price will fall 25.2% to$303,000 and units will fall by 34.5% to $226,000. In this scenario, cash interest rates are cut further, unemployment rises, income falls in real terms, and demand for property falters.   This is our Armageddon scenario.

NSW-APirl-2016---CrashOur conclusion is that in NSW, there is more down side than upside in property at the moment and this will continue for some time to come. How severe the correction will be depends on the economic and growth outcomes.

Results are rather different in other states, and we will explore these scenarios in the next few days.

 

 

Housing Affordability: Baby Boomers vs. Gen Y

From On The House. Few owner occupiers today, nor many owner occupiers in 1989, could enjoy stress free and affordable weekly mortgage repayments. Lack of affordability is not so much a generational problem as it is a socio-economic problem.

Inter-generational arguments over affordability have again become salient in the media. Characterisations of moaning millennials were made by economist Stephen Koukoulas, prompting a response from young writer Osman Faruqi that baby boomers should choke on my soy flat white.

Confusion around the severity of housing affordability arises because dwelling prices change daily, yet the institutional papers and ABS data we look to are retrospective.

The Submission to the Inquiry into Home Ownership by the Reserve Bank of Australia in June 2015 explored ownership rates as a possible proxy for understanding the severity of housing affordability, and whether expensive housing was keeping young people out of the market. However, the home ownership rates referenced are only measured to 2012 – before the enormous housing boom of 2013 – and therefore the submission paper does not take into account the largest and longest housing boom we have seen in over 30 years.

Graph 2 shows the House Price Index for Australia’s eastern metropolitan markets over time. The increase in the HPI from 2013 (particularly in Sydney and other east coast markets) marks an unprecedented rate of growth in dwelling values.

Graph 2: House Price Index

Source: Onthehouse.com.au

Housing affordability is an undeniable problem in Australia today. It is measured using the ‘median multiple’, which is a measure employed by the World Bank. It is found by dividing median dwelling prices by gross annual median household income. An indicator of 5.1 or more is considered to be highly unaffordable.

We only have median household income data at a capital city level, up to 2012. To get a more accurate figure, I have indexed income by changes in average weekly earnings so I could work out the median multiples for each capital city. With the exception of Canberra, the median multiple is well above 5.1. In Sydney it is currently about 13.

The Interest Rate Debate

One of Koukoulas’ main arguments was that low interest rates have made it easier for young people to take out money to afford a home. He argues that baby boomers struggled with interest rates of over 17% in the 1980s.

While I don’t deny Koukoulas’ latter statement, it is important to get a better understanding of what low interest rates actually do to affordability.

Economics literature shows Australian’s have a high elasticity of demand for houses. This means that the more money people have access to, the more likely they are to buy houses. Low interest rates make the cost of borrowing money cheaper and access to money easier.

When interest rates are low, the cost of housing is bid up higher because more people are competing for housing. Graph 3 demonstrates the inverse relationship between interest rates and Australian median house values.

Graph 3: Interest Rates and Median House Values in Australia

Source: Onthehouse.com.au & ABS

Low interest rates have not worked in the favour of first home buyers. In fact, in 2014, for the first time in recorded history and while the cash rate was at historic lows, more money was lent to people who were buying investment housing compared to people who were buying something to live in (see Graph 4). This unusual phenomenon eased shortly after APRA placed higher risk weights and investment lending restrictions on banks, however it does show that owner occupiers, some of which are first home buyers, do not necessarily benefit from low interest rates.

Graph 4: Loans to Investors vs. Owner Occupiers

Source: Onthehouse.com.au & ABS

Home owners also faced high unaffordability in the late 1980s when interest rates increased sharply and average home loans peaked at 17%. The cost of loans became extremely high and some were forced to sell their home or take on multiple jobs in an attempt to pay off their rapidly growing debt. On top of this, house prices fell, which left some people with mortgage debt even after they lost their home.

ABS data shows that the average loan size of owner occupiers in NSW over the 1980s was approximately $80,000, while the average interest rate increased to 17% in 1989. Assuming a 30 year mortgage on $80,000 taken out in 1989, the total repayments work out to be around $263 per week, at a time when the average person across NSW was earning between $359 and $620 a week depending on their job status and sex . The $263 home loan assumption represents between 73% and 42% of average weekly earnings at the time.

Today, standard home loan rates are at approximately 5.35%. In February 2016, the average loan size taken out by owner occupiers in NSW was $416,000 . With the same loan assumptions as above, weekly repayments work out at approximately $536 per week. In November 2015, the average weekly earnings across NSW ranged between $951 and $1,712, depending on labour force status and sex, making repayments between 56% and 31% of average weekly earnings.

This analysis is fairly ‘back of the envelope’, but looking at these numbers suggests that few owner occupiers today, nor many owner occupiers in 1989, could enjoy stress free and affordable weekly mortgage repayments – which is considered to be no more that 30% of income. Exorbitant home loan repayments persist 25 years on, but for different reasons. A surge in interest rates overwhelmed young home owners in 1989, whereas today many young people are lucky to overcome the deposit hurdle due to enormous dwelling prices. In the case of owner occupiers today, this is with the ‘benefit’ of low interest rates.

Ambiguity still exists in this comparison, for many reasons. For example, average weekly earnings is looking at individuals rather than households. Young people in the 1980s were more likely to have formed double income households than young people today. 1989 was a different world to 2016, particularly in terms of the nature of the economy, technology, job vacancies and the terms of employment.

However, a lack of affordability is not so much a generational problem as it is a socio-economic problem. Years of analysis could be done trying to understand ‘who had it tougher’, but this seems like a waste of energy. Low income households and single parent families will face tougher challenges than members of Generation Y who are in high income brackets.

Consumers Eat More Data For The Same Price – ACCC

The Australian Competition and Consumer Commission has published its annual reports on the telecommunications sector for 2014–15. This year’s reports show that consumers continue to benefit from competition in the sector. However consumers in regional areas are less well served.

“Consumers are reaping the benefits of competition in the form of increased data allowances, new services, and lower prices,” ACCC Chairman Rod Sims said.

“Consistent with the trend in recent years, consumer demand for data is continuing to increase and is affecting both fixed and mobile networks.  On fixed networks, data consumption grew by 40 per cent to 1.3 million terabytes (TB) of data. On mobile networks, data consumption increased by 35 per cent to 110 000 TB.”

“The increase in demand for data is largely due to the popularity of audio-visual streaming services, including the introduction of subscription video on demand (SVOD) services such as Netflix, Presto, and Stan,” Mr Sims said.

Industry members have responded to the increase in demand by investing in their fixed and mobile networks to make sure that they have sufficient capacity to meet the data traffic.

Service providers have also responded by increasing data allowances. During 2014-15, data allowances increased by over 70 per cent for DSL internet services and more than doubled for post-paid mobile services.

At the same time, overall prices fell by 0.5 per cent in real terms in 2014-15.

“While a smaller reduction than in the previous eight years, which has seen a 3.3 per cent fall each year on average, this indicates that competition on factors other than price has been a feature of the market,” Mr Sims said.

“Given this, the ACCC will continue to take a particular interest in ensuring consumers receive accurate information about network performance.”

A number of important mergers and new alliances occurred in the past year, including TPG’s acquisition of iiNet and NBN Co’s acquisition of Optus’ hybrid fibre coaxial (HFC) network.

“The fixed broadband market is now relatively concentrated and further consolidation would receive close attention from the ACCC,” Mr Sims said.

The recent industry consolidation may reflect a desire to grow not only in response to increasing data traffic, but also to the growing presence of the National Broadband Network (NBN). The rollout of the NBN is one of the most significant features of the telecommunications market with nearly 700, 000 active services in 2014–15. The scale and complexity of the multi-technology mix NBN and its implications for competition and consumers continues to be a major area of ACCC interest.

“The communications sector faces a number of challenges in the transition to the NBN and as network operators manage increasing data traffic. We will continue to watch these developments closely and work to ensure that consumers continue to benefit from competition”, Mr Sims said.

 

WA and QLD Bears The Brunt of Personal Insolvencies In March Quarter

According to the latest data from the Australian Financial Security Authority, pressure is mounting in WA, with personal insolvencies in the March quarter 2016 compared to the March quarter 2015 rising 26.0%, bankruptcies increasing 19.6% and debt agreements in WA are now the highest on record. However Queensland has the highest number of insolvencies across the states with 2,197 recorded events in the quarter. This is a bellwether for mortgage defaults and house prices.

Across Australia, the number of personal insolvencies increased 2.0% in the March quarter 2016 (7,129) compared to the March quarter 2015 (6,989). It also increased 1.9% compared to the December quarter 2015 (6,994). The rise in personal insolvencies in the March quarter 2016 is the fourth consecutive rise when compared to the same quarter in the previous year.

Quarterly personal insolvency activity in AustraliaCases of personal insolvency are represented by bankruptcies, debt agreements and personal insolvency agreements.

Insolvency-3Queensland had more than 30% of the events, a little ahead of NSW at 28%, VIC at 20% and WA 10%.

Insolvency-1However, WA had the strongest rises year on year, followed by debt agreements in QLD with a rise of 25%. The 60% rise in NT is statistically small, though significant to those involved.

Insolvency-2WA also recorded the highest proportion of insolvencies which were business related at 19%, whilst QLD was at 18.5%.

Insolvenvcy-4Note that these figures refer to personal administrations under the Bankruptcy Act only (and not corporate insolvency). A business related bankruptcy is defined as being one in which an individual’s bankruptcy is directly related to his or her proprietary interest in a business.

Controversial history of Road Safety Tribunal shows minimum pay was doomed from the start

From The Conversation.

The federal government is rushing to abolish the Road Safety Remuneration Tribunal (RSRT) after the tribunal issued a controversial pay order establishing a national minimum pay rate and unpaid leave for truck drivers. This latest move is not surprising as the tribunal has had a short history plagued by controversy.

The government has indicated that, in legislating to abolish the RSRT, it will shift some of its functions to the National Heavy Vehicle Regulator (NHVR). The NHVR’s role is usually holding various stakeholders, like trucking companies and owner-operator truckers, accountable for implementing safe work practices, but its jurisdiction doesn’t extend to pay orders.

Given that abolition of the RSRT is foreshadowed because of its role in setting pay rates for contractor drivers, it is very unlikely the government will seek to add this function to the NHVR.

The history and purpose of the RSRT is rooted in addressing the problem of a uniform pay for truckers. When it was established in 2012, it was tasked with promoting safety in the road transport industry, primarily through pay.

It was created after the National Transport Commission found in 2008 that there was a link between driver remuneration and safety outcomes for truck drivers. The commission recommended a national scheme to set minimum safe rates for employee and owner drivers.

The tribunal is independent from the Fair Work Commission and regulates both employee drivers and contractor drivers, their employers and hirers and participants in the supply chain, such as supermarkets.

At first the RSRT spent time examining a broad range of stakeholder submissions from all parts of the road transport sector and engaged in widespread and lengthy consultation with industry stakeholders. From this, the main outcome has been two orders: the Road Transport and Distribution and Long Distance Operations Road Safety Remuneration Order 2014 (Road Transport Order) and the most recent Contractor Driver Minimum Payments Road Safety Remuneration Order 2016 (Payments Order).

The tribunal had only been established for 14 months when the Abbott Coalition government in 2013 contracted Jaguar Consulting to assess the RSRT’s operation.
In April of that year, Jaguar Consulting reported that the tribunal had achieved little of a concrete nature (it was yet to issue the 2014 order).

For the Jaguar report authors, only evidence of a decline in collisions and fatalities among truck drivers would have been valid indicators of whether the RSRT had improved road safety. Given that the RSRT had been in operation for such a short time and had yet to make any orders, that sort of data did not yet exist.

The Jaguar report did provide data showing that heavy vehicle collisions and fatalities had declined in recent years by a similar proportion to other forms of road transport. It attributed this to improvements in road safety generally. However, the the latest data on which it drew was from 2012, prior to the establishment of the RSRT.

In making its first order in 2014, the Road Transport Order, the RSRT set out minimum entitlements and requirements such as safe driving plans, payment time, drug and alcohol policies, training, whistle-blower protection and dispute resolution. The only specific provision regarding remuneration was Part 4, which imposed a requirement that when owner drivers issue invoices for payment they must be paid within 30 days.

The payment order in 2016, now the subject of considerable political discussion, established national minimum rates and unpaid leave to come into force on April 4, 2016.

It is not surprising that some owner drivers are anxious about this payment order and want its operation delayed. These drivers are probably among the most poorly remunerated in the industry and have extensive debt wrapped up in their trucks. Many are making a marginal living at best.

However, this situation cannot go on forever. Their situation will not improve until the supermarket chains, product manufacturers and other organisations at the top starting negotiating decent pay into their contracts. If the RSRT is abolished, these corporations will continue to avoid responsibility.

To assist in this transition, the federal government should be looking at developing a structural adjustment policy to ease the concerns of owner drivers as change occurs. Instead, the government is proposing to abolish the RSRT and transfer its powers to the NHVR.

The NHVR is a national body set up by an intergovernmental agreement between federal, state and territory governments. It relies upon matching legislation passed in each jurisdiction. Gaining agreement to substantial changes in its role cannot be done overnight or by the stroke of a pen in Canberra.

If, as the National Transport Commission said in 2008, the remuneration of drivers is linked to safety outcomes, owner driver safety will remain a long way off.

Author: Louise Thornthwaite, Senior Lecturer, Department of Marketing and Management, Macquarie University, Macquarie University

Will The Trucking Industry Be Safer With Higher Wages?

Two weeks ago we discussed the possible fall out from the proposed Road Safety Remuneration Tribunal (RSRT) order which implements a minimum rate for contractor drivers through the Contractor Driver Minimum Payments Road Safety Remuneration Order.

Now it appears the PM is acting, in response to owner drivers, some of whom appeared with him at press conferences to say they will be put out of business if they need to pay these minimum hourly rates.  The Government is arguing there is no link between pay rates and safely outcomes. Others suggest that the real agenda is that big business has woken up to the potential higher costs of transport which will impact their businesses, so they are wanting to resist the changes, which by the way are not relevant to large transport operators.

So what is the evidence?

The Government’s own reports show the transport industry is the most unsafe industry in Australia, with higher fatalities than any other − 12 times the average rate of all industries – and that RSRT orders will reduce crashes by 28 per cent.

The Review of the Road Safety Remuneration System Final Report from January 2016 was prepared by PricewaterhouseCoopers (PwC) in their capacity as advisors to the Commonwealth Department of Employment. They concluded:

“the focus of the System should be on the link between remuneration and road safety and only once the link has been appropriately established should those issues be targeted proportionately and directly”.

“our analysis of the costs and benefits of the System suggest that there will be a significant cost to the economy when both Road Safety Remuneration Orders are in effect, with any potential safety benefits significantly outweighed by the associated costs”.

“consistent with the direction set out in the Government’s Guide to Regulation it is hard to see how any system that results in a net cost to the economy could be aligned with government priorities and policies”.

Yet they cite data showing that since heavy vehicle national laws were adopted in 2014, accidents have reduced.

Trucking-1

They say “on balance, there is not enough evidence to conclusively prove that the Road Transport Order has had an impact on safety outcomes given the multiple causal factors affecting road safety. In addition to perspectives that the System has had no impact on safety outcomes, stakeholders conveyed to PwC that there is widespread non-compliance with the Road Transport Order within the industry due to its ‘unworkability’. If that is the case, it would be difficult to conclude that the introduction of the Order, which requires changed practice within supply chains is having any effect if it has indeed, not changed those practices”.

 

The key question is, to what extent do pay rates have a direct impact on safely? This must be answered before decisions are taken.

Millennials v baby boomers: a battle we could have done without

From The Conversation.

The generation of young people who came of age during the new millennium – “millennials”, as they’re commonly known – has divided opinion like no other. Some have deemed them a self-pitying and entitled bunch; lazy, deluded and narcissistic. Others take a more sympathetic view, raising concerns that millennials are at risk of becoming a “lost generation”. After all, they are making the transition into adulthood under much more precarious circumstances than their parents experienced as part of the “baby boomers” generation.

The challenges millennials face include the rising costs of education; an increased likelihood of unemployment and underemployment – even for a growing number of graduates – and falling incomes even when they are employed. For millennials, home ownership is an increasingly distant prospect, and private rents are soaring. To top it all off, young people have been hit particularly hard by benefit sanctions and cuts to public sector funding.

Since the global financial crisis, the supposed plight of the millennials has given rise to the argument that inequality is an age-related issue: young people are disadvantaged, while baby boomers collectively prosper at their expense. This idea is exemplified by the Guardian’s recent series on millennials, and perpetuated by other outlets. With austerity and weak economic growth ensuring that the opportunities for younger people are comparatively diminished, even academics are raising “the issue of youth-as-class”.

Facing the changes

We don’t deny that the experience of being young has changed significantly. But this notion of a single millennial experience deserves some serious questioning. While young people are encountering changes – and often challenges – in terms of employment, education and housing, they do not all experience this hostile landscape in the same way.

By talking about “the millennials” as a disadvantaged group, we’re in danger of obscuring other, more fundamental differences between young people. For example, class background is still a particularly important determinant of a young person’s life chances. Our ownresearch – as well as the work of many others – demonstrates the importance of parental support for young people transitioning into adulthood.

Where’s my parental support? from www.shutterstock.com

Having a room in the family home or access to other family finances is key to undertaking unpaid internships or volunteer work. A monthly allowance from your folks while at university facilitates access to important CV building activities, which top graduate employers seek from applicants. It ensures that during your exams you don’t have to carry on looking for a job, and it helps you to avoid the choice between eating or heating.

Gifting or loaning deposits for a rented or purchased home is still a middle-class practice. There are many other ways that parents can, and do, use their resources to help their children onto the property ladder.

Class struggle

So, while middle-class young people are clearly facing difficulties during their transition to independence, they are also more likely to have access to resources that are unavailable to their less-advantaged peers, which help to reduce risks and protect them from uncertainties. These resources help young people to “weather the storm” and influence who survives and prospers in the current conditions.

Let us recall some other significant class-based advantages: higher education remains very stratified, and those attending elite research-intensive institutions are disproportionately middle class. Children of middle-class parents earn more than peers of working class origins, even when they obtain employment in top jobs. And while baby-boomers may be holding onto the housing stock for now, the children of the property-owning middle classes will one day inherit it.

What’s in an age? from www.shutterstock.com

As well as class, research has long shown how gender, race, disability and a host of other factors work to shape a person’s future. More recent evidence suggests that the financial crisis and subsequent austerity have had a particularly disproportionate effect on women, certain black and minority ethnic groups and the disabled.

What’s more, proclaiming an inter-generational war unhelpfully clouds the fact that the prospects for certain groups of older people are just as bad – if not worse – than for many young people. Despite the dominant media image of the resource-rich retiree, many older people do not have comfortable pensions, homes or savings to fall back on. And as the state withdraws funding for public services such as social care, older women have been forced to step in and undertake unpaid labour by caring for elderly family members.

Declarations of inter-generational conflict between baby boomers and millennials might grab headlines. But the real story is the same as it ever was; that our society is plagued by long-standing, ongoing inequalities relating to class, race and gender. The portrayal of millennials as victims has allowed the experience of the squeezed middle class to take centre stage. Now, it’s up to us to question who’s really at a disadvantage in our society – and how we can make life fairer for all.

Authors: Steven Roberts, Senior Lecturer in Sociology, Monash University; Kim Allen, University Academic Fellow – Sociology , University of Leeds

Rents continue to rise despite national building boom

From Australian Broker.

Rents in most capital cities continue to rise due to an ongoing shortage of rental properties, according to the March Domain.com.au Rental Report.

Unit rents increased in Sydney, Melbourne, Brisbane, Hobart and Canberra over the March quarter, the report revealed.

Domain.com.au senior economist Dr. Andrew Wilson says rents remain at record levels despite the recent national apartment building boom intending to provide more available rental stock to capital city markets.

“Despite the recent influx of home building, we can expect to see upward pressure on both house and unit rents in most capital cities continuing in the foreseeable future.

“However, the clear exceptions to tight capital city rental markets are Perth and Darwin. Rents in these cities continue to fall reflecting the impact of the downturn in the resource economy and the end of the significant rental demand driven by a fly-in fly-out workforce.”

In Sydney, median unit rents increased sharply over the March quarter. The median unit rent was recorded at $520 per week, whilst for houses it was $530. Sydney unit rents have now increased by 4% over the past year.

Weekly median prices for houses remained unchanged over the March quarter, however, have increased by 1.9% over the year.

“Despite the significant numbers of new apartments entering the market, Sydney unit rents bounced back this quarter with a sharp 4% increase in the median weekly rental. This increase offers no relief for tenants with house rents remaining at record highs and already low vacancy rates continuing to tighten,” Dr Wilson said.

In Melbourne, median weekly unit rentals increased to $380 over the March quarter, reflecting a 4.1% annual increase – the highest unit rental growth rate of all capitals.

Melbourne house rents consolidated at the record $400 per week, an increase of 2.6% over the year.

“It has been a positive quarter for investors in Melbourne with unit rents now rising to record levels and vacancy rates falling, despite an unprecedented new apartment boom. Melbourne house rents remain at peak values as well, with low vacancy rates indicating no relief in sight for tenants,” Dr Wilson said.

House and unit rents in Brisbane increased by 2.5% and 2.7% respectively over the past year. In Adelaide, unit rents remained unchanged while house rents climbed by 2.9%.

House rents rose by a massive 6.1% in Hobart while unit rents rose by 1.8% over the year.  In Canberra, house rents increased by 4.4% over the past year with unit rents up by 1.3%.

Rents in Perth and Darwin, however, declined over the year. The median weekly house rent fell by 11.1% in Perth and unit rents fell by 9.1%. Darwin house and unit rents also fell steeply over the past year, down 15.4% and 13.5% respectively.

Mortgage Delinquency Mapped

Today we release the latest modelling of our mortgage probability of default, and a map showing the current and predicted default hot spots across Australia. The blue areas show the highest concentrations of mortgage defaults. The average is 1.2%, but our maps show those areas a little above the average (1.2%-1.7%) and the most risky (above 1.7%).  The highest risks are more than twice the national average.

PD-April-2016Mining heavy states and post codes are under the most pressure.

As part of our household surveys, we capture data on mortgage stress, and when we overlay industry employment data and loan portfolio default data, we can derive a relative risk of default score for each household segment, in each post code. This data covers mortgages only (not business credit or credit cards, which have their own modelling).

Given that income growth is static or falling, house prices and mortgage debt is high, and costs of living rising, (as highlighted in our Household Finance Confidence index) pressure on mortgage holders is likely to increase, especially if interest rates were to rise. In addition, the internal risk models the major banks use, will include a granular lens of risk of default.

So, some borrowers in the higher risk areas may find it more difficult to get a mortgage, without having to jump through some extra screening hoops, and may be required to stump up a larger deposit, or cop a higher rate.

In QLD, locations including Camooweal, Clermont, Theodore, Loganlea and Gulngai score the highest.

In NSW, locations including Quirindi, Stanhope Gardens, Duri, Greta and Brewarrina scored high.

In VIC, Berwick, Endeavour Hills, Darnum, Moonee Ponds and Pascoe Vale scored the highest.

In WA, Butler, Port Kennedy, Merriwa, Secret Harbour and Nowergup scored high.

In SA, Montacute, Marree, Macclesfield, Stirling and Uraidla scored the highest.

 

Australia’s Most Hated Fees Revealed

ATM fees frustrate Australians more than other banking and credit card fees and travel booking fees according to new research from ING DIRECT. Almost all Australians will take some action to avoid paying ATM fees – half will walk 10 minutes out of their way to get to a free ATM and 42 per cent will buy something they don’t need to get cash out.Almost half of the people who hate travel fees feel they are being ripped off. Top 5 accepted fees include Wi-Fi, restaurant service charges and mobile data roaming

Almost three quarters of people (72 per cent) who hate ATM fees say that it is because they believe it’s a service that should be free.

Psychologist Amanda Gordon explained, every day millions of people are feeling the frustration of paying fees and charges they think are unfair.

“Fee frustration may not seem significant, but these feelings of resentment can impact our ability to maintain a positive outlook in other aspects of our lives. Financial issues are regularly raised as a cause of stress for Australians, particularly among young women. Interestingly, ING DIRECT’s research shows that millennials and women were more likely to feel frustrated or angry about paying fees.”

“Bad spending habits are hard to break. Just like other habits, we need to become aware of what we are doing, stop following that same well-worn pathway without thinking, and actually notice where our money is going, rather than just complaining that it is disappearing. The best way for Australians to get ahead is to consciously and regularly focus on their finances by practicing money mindfulness,” said Gordon.

Apathy costing Australians dearly when it comes to paying unnecessary fees

John Arnott from ING DIRECT said people should not have to pay fees to access their own money.

“When you think about the total cost Australians pay in fees and charges it can have quite an impact on the family budget, which is already strained for many people.”

“Australians waste $500 million on ATM charges each year so it’s no surprise that’s the fee that tops the list. Our research shows almost all Australians will take some action to avoid ATM fees, but still too many people are paying. If you make two or three withdrawals a week, you are talking more than $300 a year, which is $300 too much,” he said.

Top ten fees Aussies find hardest to bear

  1. ATM fees
  2. Bank monthly account fees
  3. Booking fees for events and tickets
  4. Credit card surcharge fees
  5. Credit card annual fee
  6. Travel fees (e.g. airline booking fees)
  7. Fee for receiving a paper statement by mail
  8. Charge to use public toilets
  9. Road toll charges
  10. Late payment fees

Top five fees Aussies accept

  1. Wi-Fi fees
  2. Restaurant service charges
  3. Mobile data roaming charges
  4. Parking meter fees
  5. Currency conversion fees