Digital Finance Analytics (DFA) Blog
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Today I want to dissect some the latest data from New Zealand. In summary, inflation and costs of living continue to bite, more households are in financial distress, inward migration is at a record high, but the property market remains in the doldrums. Worth thinking about ahead of the general election at the weekend.
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Elevated inflation means central banks may have to keep policy rates higher in a way that stretches the capacity of borrowers to repay debt said the IMF in its latest Global Financial Stability Report.
And the Bank of England warned in their latest Financial Policy Summary that simply extending the term of mortgage loans is more about protecting banks than borrowers as risks build.
The International Monetary Fund (IMF) has updated its global growth forecasts, with the world expected to grow by 3% this year and 2.9% in 2024.
The IMF tips that Australia’s real GDP growth will slow even faster, from just 1.8% this year to 1.2% in 2024.
Headwinds also confront real estate. Home mortgages, typically the largest category of household borrowing, now carry much higher interest rates than just a year ago, eroding savings and weighing on housing markets. Countries with predominantly floating rate mortgages have generally experienced larger home price declines as higher interest rates translate more quickly into mortgage payment difficulties. Australia is highly exposed as rates have moved more on a weighted basis than many other countries.
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This is an edit of a live discussion using data from our core market model. We look at the latest mortgage stress data, and answer viewers questions.
Which post codes are most impacted, and what are the implications?
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Caveat Emptor! Note: this is NOT financial or property advice!!
More from our property insider, Edwin Almeida, as we look at the latest numbers, consider what may happen as we move through the spring selling season, and discuss the use of an umbrella when inspecting a house or apartment, and the rise of “kiddy-flats”.
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Today’s post is brought to you by Ribbon Property Consultants.
Wall Street’s main indexes were poised for a sharply lower open on Friday after a strong jobs report deepened fears that interest rates may stay elevated for an extended period.
The Labor Department’s report showed non-farm payrolls increased by 336,000 jobs in September on a monthly basis, against expectations of 170,000 additions, according to a Reuters poll of economists.
Unemployment rate stood at 3.8% against expectations of 3.7%, while average hourly earnings increased 0.2%, compared with estimates of 0.3%.
The S&P 500 eyed its fifth straight weekly fall, while the Dow is on track to decline for the third straight week.
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My latest Friday afternoon chat with journalist Tarric Brooker, as we look at the RBA’s latest Statement On Monetary Policy, and the recent Bond Market dynamics.
And we look at the economic fall out on households if rates go higher for longer. Tarric’s charts can be found at: https://avidcom.substack.com/p/dfa-chart-pack-6th-october-2023
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Despite all the hopium from the property lobbyists, the truth is more households are running out of runway with regards to their finances.
It has shown up in my latest surveys, with more than half of mortgage holders now struggling with cash flow, and 70% percent of renters in the same boat.
Next Tuesday on my live show I will be walking through the detail behind these numbers. But the pressure is also showing up in other statistics. For example, the Australian Bureau of Statistics last week revealed that value of household deposit accounts decreased by $6 billion in the June quarter, with it being the first decline in 16 years.
“This was the first fall in deposit balances since the Global Financial Crisis and indicates that the household sector was tapping into cash reserves amid rising cost pressures”, the ABS said.
The decline indicates that households are ‘running’ down savings built up during the pandemic to pay for bills and loans as a result of the Reserve Bank of Australia’s (RBA) aggressive interest rate hikes to fight inflation and the overleverage into property driven by weak lending standards and high prices. Something has to give.
Meanwhile, figures released by the RBA on Friday indicate a growing number of people are using their credit cards to cover the cost of increased bills, with the stock of personal credit having risen by 1.6% in the five months to August.
It seems to me the real pressures are now painfully obvious, and some are truly running out of runway.
But note, the RBA’s forward guidance on monetary policy was unchanged, stating that “some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks.”
So, buckle up people, turbulence ahead.
This is an edited version of a live discussion with Damien Klassen, Head of Investments at Walk The World Funds and Nucleus Wealth. Given the recent movements in bond yields, and the strong US$, markets are in the doldrums, and we will explore the current dynamics in play.
Original version here: https://youtube.com/live/VbBSqRZf3xo
Caveat Emptor! Note: this is NOT financial or property advice!!
I caught up with Steve again following the RBA no change announcement on Tuesday, and we discussed the implications, in the light of new research from Canstar about the state of play of household finances.
Steve Mickenbecker is in Canstar’s Group Executive Team, bringing more than 30 years of experience in the Australian financial services industry. As a financial commentator for Canstar, Steve enjoys sharing his expertise across topics such as home loans, superannuation, insurance, mortgages, banking, credit cards, investment, budgeting, money management and more.
https://www.canstar.com.au/team-members/steve-mickenbecker/
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This is an edit of a live discussion with mortgage broker Chris Bates. Chris started as a Financial Adviser back in 2007 and sold his Financial Advice business in 2020. Over the past 9 years, Chris has grown into one of Australia’s top Mortgage Brokers and is passionate about taking the product providing industry to a trusted advice based profession.
In 2022, Blusk won the Connective Broker of the year award. Connective is arguably Australia’s leading and largest Mortgage Aggregator. Chris has been finalist for the past three years. Chris was #1 with most loans settled in NSW and #2 nationally out of over 3,500 brokers.
Go to the Walk The World Universe at https://walktheworld.com.au/