Social Trends – Page 26 – Digital Finance Analytics (DFA) Blog

The Slow Strangle That Higher Rates Causes…

While analysts still talk about the strength of the consumer, if you chose to look below the hood there are real issues emerging, thanks to the higher for longer interest rates that are now in the system because of Central Banks attempts to quell the inflation that they created by their earlier actions.

Jerome Powell conceded this past week that with perfect hindsight, their monetary policy settings through the pandemic would have been tighter – with rates not dropped so low, and quantitative easing less extreme.

My surveys in Australia continue to highlight the pressure on some households with for the first time more than half of mortgage holders underwater from a cashflow perspective. And its not only in Australia.

Americans, for example are falling behind on their auto loans at the highest rate in nearly three decades. With interest rate hikes making newer loans more expensive, millions of car owners are struggling to afford their payments. It’s a clear indication of distress at a time when the economy is sending mixed signals, particularly about the health of consumer spending.

And in the UK the bad news keeps coming for Britain’s lettings market, as a surge in mortgage payments pushes more landlords to the brink and threatens to pile extra misery on tenants.

Landlords paid 40% more mortgage interest in August than the same month a year ago, equating to an extra £4.3 billion ($5.3 billion), according to a report from broker Hamptons International. Mortgaged landlords handed over an average of 37% of their rental income to pay interest in August, up from 28% a year earlier.

“For some investors, this will be unaffordable,” said Aneisha Beveridge, head of research at Hamptons. “They will likely bow out, keeping upward pressure on rents.”

And more broadly, UK banks expect to tighten a squeeze on the mortgage market in the coming months as high interest rates stretch affordability and loan defaults pick up.

The Bank of England’s quarterly credit conditions survey found that lenders decreased the supply of mortgages in the third quarter and will restrict availability further in the coming months. Defaults and losses on home loans picked up in the third quarter as more households are forced to refinance at much higher interest rates.

http://www.martinnorth.com/

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

Property Investors Are Quitting Like Lemmings!

In my stress surveys I have been calling out the pressures on renters and property investors, especially in the Centre of Melbourne and other inner-city areas across the country.

The math is obvious. Despite rental increases, there is a limit on how much property investors can lift them, as renters are under pressure already. And property investors are also faced with significantly higher interest charges and other costs, to the point that the proportion of investors making cash flow positive returns has dropped to an all time low. Given that capital appreciation, the only other growth lever, is at best anemic, and in some cases non-existent, and the fact that you can now get 5 per cent of more on other investments, including term deposits and bonds, investors are continuing to bail. Inner City apartments are on the front line, as listings grow.

The AFR picked this topic up in an recent article, saying low capital gains and the large increase in holding costs are prompting more residential property investors to bail out of inner Melbourne and Sydney markets, data from CoreLogic shows.

The portion of investor-owned listings has ballooned to 60 per cent across Melbourne city over the three months to the September quarter, up from 56.7 per cent from the previous quarter and a sharp jump from the 50.9 per cent share a year ago.

http://www.martinnorth.com/

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

Today’s post is brought to you by Ribbon Property Consultants.

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More Evidence That Inflation Is Not Playing The Game

Wall Street’s main indexes closed lower on Thursday after a U.S. Treasury auction sent bond yields higher while investors were already digesting data that showed consumer prices rose more than anticipated in September.

After the data, the S&P 500 spent the morning zig-zagging between red and green. It turned decisively lower after a 1 p.m. EDT (1700 GMT) auction of 30-year U.S. Treasuries met weak demand.

US consumer prices advanced at a brisk pace for a second month, reinforcing the Federal Reserve’s intent to keep interest rates high and bring down inflation. Expectations ahead of Thursday’s publication of consumer price index numbers for September were for a continued clear reduction that would eliminate the last concerns that the Federal Reserve would be forced to raise interest rates once more. In the event, the market responded as though it had received a nasty shock, with bond yields surging higher while stocks sold off. An imminent Fed hike still looks unlikely — but evidently, many in the markets were hoping for any such chance to be extinguished.

The number was dominated by housing costs. Shelter inflation, on a year-on-year basis, is still above 7%. The clearest reason for disquietcomes from the “supercore” measure that Fed Chair Jerome Powell has emphasized in recent months — services excluding shelter. This category is heavily led by wage inflation, as labor is a large share of costs for such businesses.

Sentiment reversed after the 30-year Treasury auction, which drew weak demand and weighed heavily on the broader market sentiment. Swap contracts linked to future interest-rate decisions pushed the odds of another quarter-point hike back to about 50%, up from about 30% as recently as Wednesday.

http://www.martinnorth.com/

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

Today’s post is brought to you by Ribbon Property Consultants.

The RBA’s Third Phase Of Tightening, And What Happens Next…

The Reserve Bank of Australia’s (RBA) Assistant Governor (Financial Markets), Christopher Kent, gave an Address to Bloomberg on Wednesday where he expressed why the RBA is reluctant to lift the official cash rate further.

https://www.rba.gov.au/speeches/2023/sp-ag-2023-10-11.html

The RBA is in its “third phase” of monetary policy tightening as it assesses the impact of interest-rate rises to date, he said. The current stage is “an opportunity to see how the economy and how the data is evolving,’’ he said, reiterating that further rate increases may still be needed.

Much of the presentation concerned the lags as monetary policy takes effect. Basically, the RBA expects further impacts on the economy as the lagged effects of the 4.0% of monetary tightening delivered over the past 18 months flows through.

A ‘built in’ monetary tightening in Australia is one reason why the RBA is reluctant to lift the official cash rate further. Australia’s monetary system will tighten on its own as more pandemic era fixed rate mortgages reset from rates of around 2% to variable rates of more than 6%.

But that means those with big mortgages are being worst hit, while others are still enjoying their savings buffers and will continue to spend.

And the question will be, whether the current settings will crush inflation, or whether more rate hikes are needed. As I discussed the other day, there are significant pressures on the RBA to lift further, and some economists are expecting another one or two hikes into 2024.

Either way, there is little rate relief on the horizon for the next year plus.

http://www.martinnorth.com/

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

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.