Mortgage Arrears Rise – Fitch

Fitch Ratings says Australia’s mortgage arrears increased by 12bp qoq to 1.21% at end-1Q17, due to seasonal Christmas/holiday spending and possible difficulties faced by consumers because of low real-wage growth. The qoq increase in arrears from 4Q16 to 1Q17 was less than 1Q16 (16bp qoq to 1.10%).

The 30+ days arrears in 1Q17 were 11bp higher yoy, despite an improved economic environment and lower standard variable interest rates. Unemployment increased slightly by 2bp and real wage growth was low, but positive. Underemployment has been growing despite relatively stable unemployment.

Fitch Ratings expects arrears to fall in 2Q17 and 3Q17 after the holiday season due to the current low interest rate environment and decreasing unemployment.

Fitch-rated residential mortgage-backed securities transactions have continued to experience extremely low levels of realised losses since closing and an increasing lenders’ mortgage insurance (LMI) payment ratio since 4Q12. Excess spread was sufficient to cover principal shortfalls during 1Q17

The overlooked victims of Australia’s runaway property market

From The New Daily.

Young people may have been hit hard by Melbourne and Sydney’s steep property prices, but experts warn that soaring home values are creating victims at all levels of the market, including people who already own homes.

This week’s Household, Income and Labour Dynamics in Australia (HILDA) report showed that home ownership among 18 to 39-year-olds has fallen from 36 per cent in 2002 to a new low of 25 per cent.

On top of that, between 2002 to 2014, the average mortgage debt of young homeowners increased by 99 per cent in real terms, from $169,000 to $337,000.

But there are other victims overlooked in a national housing debate that focusses on the young.

An inflated property market has wide-ranging repercussions for many demographics, according to Greville Pabst, executive chair of WBP Property Group and a judge on The Block TV show.

“Socially, you’re going to see a very big divide between the haves and the have nots,” Mr Pabst said.

Here are a few examples of the potentially overlooked casualties of Australia’s real estate boom.

Renters

It’s no surprise that many renters don’t fare well in expensive property markets, as the demand for rentals pushes up prices.

The latest Department of Health and Human Services’ rental affordability data revealed that a mere 5.7 per cent of new lettings were deemed affordable over the March quarter — the lowest since the report was first compiled in March 2000.

“Renters face the dilemma of paying off someone else’s mortgage and not building up equity in a property which can be a good form of security and wealth,” Bessie Hassan, property expert at Finder.com.au, said.

“There’s greater flexibility with being able to move around but they also don’t have the freedom to renovate or upgrade the property to suit their personal tastes.”

Singles

Unfortunately for singles, the dream of home ownership is even tougher because they need to service a mortgage on one income.

“This can greatly affect the areas or regions where you can afford to live and your ability to manage the ongoing costs such as repairs and maintenance,” Ms Hassan said.

“Singles may need to reside within fringe suburbs as they’re priced out of inner-city suburbs.”

In particular, pregnant single women may have to leave the workforce or pull back to part-time or casual work, which can impact their ability to afford a home, Ms Hassan said.

“Single borrowers may also be seen as higher-risk borrowers [by banks] due to a lack of dual income.”

Owner-occupiers

While owner-occupiers have fewer problems than renters or singles, an inflated property market often leaves families or couples beached in the one spot for many years.

Upgrading to a bigger home becomes too expensive once agent fees, marketing costs and stamp duty are taken into account.

“If you’re selling a property for $1 million, then you are looking at paying at least $80,000 in stamp duty and associated costs,” property lecturer Peter Koulizos said.

“That’s money that could be spent on renovation instead. So people are staying put more; there’s less mobility.”

Greville Pabst at WBP Property Group added that many Generation Xers had secured mortgages at very low interest rates, but were also highly leveraged.

“Interest rates will go up and some of these people may be in trouble.”

Retirees

While many pensioners own their own homes, they’re often saddled with expensive land tax bills.

“As the value of their property goes up so does their tax bill, which they struggle to pay because they’re asset rich, but cash poor,” Mr Pabst said.

Furthermore, according to the HILDA report, young adults are living with their parents longer: 60 per cent of men aged 22 to 25 and 48 per cent of women the same age were living with their parents in 2015, compared with 43 per cent and 27 per cent respectively in 2001.

Parents may own their own home, but it could be full of their adult children. Or they may find themselves digging into their retirement savings to help their kids onto the ladder.

“Those that can afford it are now helping their children buy a home,” Mr Pabst said.

“That is the great divide that is only going to increase.”

RBA Bullish On Growth

The latest RBA Statement on Monetary Policy released today appears to be very upbeat. Despite forecasting growth down a bit in the near term, they are still holding the view of growth above 3% later, and if this is correct, supported by and improving international economic outlook, a rise in business investment, strong exports and low unemployment, then it seems to me conditions would be right to lift the cash rate towards the neutral position (which as we saw recently they hold to be 2% higher than current levels). That said, many economic commentators think the RBA is overly bullish, given high household debt and flat income growth, and risks in the property market.  Here are some relevant extracts.

The economy is expected to grow at an annual rate of around 3 per cent over the next couple of years, which is a bit higher than estimates of potential growth. The unemployment rate is accordingly expected to edge lower. Underlying inflation is higher than late last year; it is expected to reach around 2 per cent over the second half of 2017 and increase a little thereafter. The forecast for headline inflation has been revised a little higher, and lies between 2 and 3 per cent over much of the forecast period.

The forecast pick-up in inflation reflects a number of factors. As spare capacity in the labour market declines, this is expected to lead to a gradual increase in wage growth from its current low rates. Higher utilities inflation will add to overall inflation over the next year, although it is difficult to know exactly how much higher energy costs will be built into the prices of other goods and services. Headline inflation will also be boosted by further tobacco excise increases over the next couple of years.

Working in the opposite direction are the effects of the recent exchange rate appreciation, ongoing competition in the retail industry and low rent inflation.

By the end of the forecast period, the unemployment rate is forecast to be a little under 5½ per cent. This forecast is little changed from three months ago, and implies that some spare capacity in the labour market will remain. Recent stronger conditions in the labour market have afforded greater confidence in this forecast. Since the start of the year, around 165 000 full-time jobs have been created, average hours worked have increased and labour force participation has risen. Employment has increased in every state over this period, including in the miningexposed states. This suggests that the drag on economic activity from the earlier declines in the terms of trade and falling mining investment is running its course. The unemployment and underemployment rates have both edged lower. Indicators of labour demand point to continued employment growth and little change in the unemployment rate over coming quarters.

Wage growth is expected to remain subdued, but to increase gradually over the forecast period as labour market conditions continue to improve. The increase in minimum and award wages announced by the Fair Work Commission will add a little to wage growth in the September quarter.

The experience of some economies that are already close to full employment suggests that declining spare capacity might take some time to flow through to wage and thus price inflation. Inflationary pressures could instead emerge more quickly if workers seek to ‘catch up’ after a long period of low wage growth. The recent growth in employment is supporting growth in household income and indications are that growth in household consumption increased in the June quarter. Further out, continued employment growth and somewhat faster average household income growth are expected to support consumption growth, which is forecast to be a little above its post-crisis average in the period ahead.

A number of factors could offset the forces supporting stronger consumption growth. Slow real wage growth is likely to weigh on consumption, especially if households expect the slow growth to continue for some time.

However, ongoing expectations for low real wage growth remain a key downside risk for household spending. The recent sharp increase in the relative price of utilities poses a further downside risk to the non-energy part of household consumption to the extent that households find it hard to reduce their energy consumption; this is likely to have a larger effect on the consumption decisions of lower-income households.

Some households may also feel constrained from spending more out of their current incomes because of elevated levels of household debt. This effect would become more prominent if housing prices and other housing market conditions were to weaken significantly. Household debt is likely to remain elevated for some time: housing credit growth overall has been steady over the past six months, but has continued to outpace income growth. The composition of that debt is changing, however, as lenders respond to regulators’ recent measures to contain risks in the mortgage market. Investor credit growth has moderated and loan approvals data suggest this will continue in coming months. Also, new interest-only lending has declined recently in response to the higher interest rates now applying to these loans and other actions by the banks to tighten lending standards.

Dwelling investment is likely to recover from the partly weather-related weakness of the March quarter and stay at a high level over the next year or so, sustained by the large pipeline of residential building work already approved or underway. However, dwelling investment is not expected to make a material contribution to GDP growth.

The number of new residential building approvals has stepped down since last year; if they remain at this level, dwelling investment would be expected to start to decline in a year or so. Conditions in the established housing markets of the two largest cities remain fairly strong, although housing price growth appears to have eased a bit in recent months, more so in Sydney than in Melbourne. Housing prices in Perth have declined a little further, while growth in apartment prices in Brisbane has been weak.

Looking at Bank Funding the RBA says the implied spread between lending rates and debt funding costs for the major banks is estimated to have increased over the past year. Most of this increase was a result of higher interest rates on investor and interest-only housing lending. Lower funding costs have also contributed to the increase in the implied spread.

Housing credit growth has been stable over recent months. Growth in investor housing credit has declined recently, after accelerating through the second half of 2016. This has been largely offset by slightly faster growth in housing credit extended to owner-occupiers.

There are a number of uncertainties that could affect housing prices, particularly in the eastern states. The risk of more weakness in apartment prices in some locations where a large amount of supply is coming online remains. This could mean that buildings approved but not commenced do not go ahead, in which case dwelling investment and related household spending would be weaker than expected. Declining housing prices could also cause difficulties for some apartment developers.

Recent state and federal budget measures intended to restrain foreign investment have not yet had time to have had their full effects, which are uncertain; however, the effects are likely to be
largest in housing markets where foreign buyers have been most active, particularly inner-city apartments.

 

Retail Turnover Remains Pretty Flat

The trend estimate for Australian retail turnover rose 0.4 per cent in June 2017 following a 0.4 per cent rise in May 2017. Compared to June 2016, the trend estimate rose 3.6 per cent, according to the latest Australian Bureau of Statistics (ABS) Retail Trade figures.

In seasonally adjusted terms, Australian retail turnover rose 0.3 per cent in June 2017 , following a rise of 0.6 per cent in May 2017.

“In seasonally adjusted terms in June 2017, we saw rises in Household goods retailing (0.9 per cent), Cafes, restaurants and takeaway food services (0.5 per cent), Clothing footwear and personal accessory retailing (0.8 per cent) and Other retailing (0.2 per cent),” said Ben James, Director of Quarterly Economy Wide Surveys. “There was a fall in Department stores (-0.3 per cent), while Food retailing (0.0 per cent) was relatively unchanged.”

The trend by state shows Tasmania and ACT ahead of the average, with Western Australian and NT, continuing to trail.

In seasonally adjusted terms there were rises in New South Wales (0.5 per cent), Queensland (0.7 per cent), South Australia (0.3 per cent), Tasmania (0.6 per cent), the Northern Territory (1.2 per cent) and Western Australia (0.1 per cent). There were falls in Victoria (-0.3 per cent) and the Australian Capital Territory (-0.1 per cent).

Online retail turnover contributed 4.1 per cent to total retail turnover in original terms.

In seasonally adjusted volume terms, turnover rose 1.5 per cent in the June quarter 2017, following a rise of 0.2 per cent in the March quarter 2017. The largest contributor to the rise was Household goods retailing, which rose 2.5 per cent in seasonally adjusted volume terms in the June quarter 2017.

US Firms Coy About Borrowing More

From Moody’s

Comparatively thin high-yield bond spreads complement an increased willingness by banks to supply credit to businesses. The increased willingness to make business loans owes much to a benign outlook for defaults.

According to the Fed’s latest survey of senior bank loan officers, the net percent of banks tightening business — or commercial & industrial (C&I) — loan standards dipped from the +2.2 percentage point average of the four-quarters-ending with Q2- 2017 to the -3.9 points of Q3-2017. Moreover, the net percent of banks widening interest-rate spreads on new business loans plunged from the -7.9 percentage point average of the year-ended Q2-2017 to Q3-2017’s -21.1 points.

Though banks are more willing to lend to businesses, the business sector’s demand for C&I loans has receded. The same Fed survey of senior bank loan officers also found that the net percent of banks reporting a stronger demand for C&I loans from business customers sank from the -2.1 percentage-point average of the year-ended June 2017 to Q3-2017’s -11.8 points, which was the lowest quarter-long score since Q4-2011’s -15.7 points. However, Q4-2011’s reading followed a string of strong results as shown by the +14.9-point average of yearlong 2011.

By contrast, as of Q3-2017, the yearlong average of the net percent of banks reporting a stronger demand for C&I loans from business customers dropped to -6.2 points for its lowest such average since the -9.5 points of yearlong 2010. (Figure 3.)

Business borrowing says cycle upturn is past its prime

It is worth noting how the latest slide by the business-sector’s demand for C&I loans has occurred more than four years following a recession. In the context of a mature business cycle upturn, the yearlong average of the net percent of banks reporting a stronger demand for C&I loans previously sank to the -6.2 points of the span-ended Q3-2017 in Q2-2007 and Q4-2000.

Recessions materialized within 12 months of the previous two comparable drops by the business sector’s demand for bank credit. Granted the US may stay clear of a recession well into 2018, but the reality is that the current business cycle upturn is showing signs of age. Thus, the upside for interest rates is limited, especially if the annual, or year-to-year, rate of core PCE price index inflation stays under 2%. (Figure 4.)

A pronounced slowing by the annual growth rate of outstanding bank C&I loans from Q2-2016’s 10.2% surge to Q2-2017’s 2.2% rise is in keeping with a softer demand for C&I loans by business borrowers. However, the pace of newly rated bank loan programs from high-yield issuers tells a much different story.

After surging by 140.2% in Q1-2017 from Q1-2016’s depressed pace, the annual increase of new high-yield bank loan programs slowed to 2.1% in Q2-2017. Nonetheless, recent activity suggests the year-over-year growth rate for new high-yield bank loan programs will accelerate to roughly 16% during 2017’s third quarter. Support for this view comes from July 2017’s $52.4 billion of new bank loan programs from high-yield issuers that more than doubled the $24.1 billion of July 2016.

Lately, the growth of high-yield bank loan programs has been powered by refinancings of outstanding debt and the funding of acquisitions. Today’s relative ease of refinancing outstanding debt at easier terms highlights ample systemic liquidity, which will help suppress the incidence of default. Abundant liquidity also facilitates the take-over of weaker, default prone businesses by financially stronger entities. (Figure 5.)

Cross-selling ‘doesn’t work’, says bank CEO

From The Adviser.

Suncorp Group CEO Michael Cameron has suggested that cross-selling products to customers “doesn’t work”, but has touted the group’s new Marketplace model as being of benefit to brokers and customers alike.

Speaking after the release of the group’s full-year financial results, the CEO and managing director of the Suncorp Group said that its Marketplace model—which brings together products and services from across the company’s brands, including Suncorp, AAMI, GIO and Apia, as well as solutions from other providers—aims to provide customers with the option to find, use and buy additional services without being actively “cross-sold”.

The model takes advantage of the group’s buying and procurement power to give its customers access to a range of services and goods (such as car hire) from outside the group.

In a media briefing, Mr Cameron explained: “[The] traditional cross-sell doesn’t work. It hasn’t worked in Australia or anywhere else in the world. That goes along with both insurance and finance [products], which are really about creating value from your customers. But we are about creating value for our customers by providing access via call centres, apps, over-the-counter advisers, etc., to a huge suite of products and services and brands that we don’t manufacture or we bring from outside of the organisation.”

Mr Cameron added that the Marketplace model goes as far as potentially providing access to “many of [the group’s] competitors products”.

According to the group CEO, this Marketplace model, and associated app, is in the process of being rolled out to intermediaries, including brokers, and could benefit their business.

When The Adviser asked Mr Cameron about Suncorp’s broker strategy and remuneration, he said: “It is a very important area and I think if I look at it from a regulator’s perspective, there has been a lot of focus on reward and performance around some of the third-party intermediary distribution.

“Most brokers or distributors in this area tend to be very singularly focused on a particular product and very much shop around for various deals across the industry. By providing the Marketplace capability not only to ourselves, but to our intermediaries and our partners, we are actually able to put them into a position where they can provide a broader range of products and services with different brands. [This is] very much a complimentary type of service[s] that will allow more of a journey of buying a home, rather than just simply getting a loan.”

He added: “What we are going to be doing is putting into the hands of our intermediaries the skills, capabilities and, more importantly, the platform to be able to broaden that service that they provide to their ultimate customer.

“That is quite exciting, and I think the customers will be the real winners. And I also feel . . . that it is the sort of thing that our regulators will be pleased about as well as we create [model] for our customers rather than from our customers.”

The Suncorp CEO said that it is working on the Marketplace “single digital experience” (and will be investing an additional $100 million [after tax] to deliver the “key components” of this in the coming financial year), which is already being rolled out to the broker network.

He said: “We are already starting to roll out, through parts of our network, some of those benefits to our brokers today, and it will probably be never-ending. . . . We will continue to add access to a variety of products and services.”

While the group has been investing heavily in the Marketplace model and technology, the endeavour has not been without its hurdles.

The bank’s migration of loans and lending origination to the core banking platform, supplied by Oracle, began last year but has “taken longer than expected to fully embed and adapt for use in the Australian market”.

The group has revealed that while it will soon complete the final migration phase for the remaining retail loans, it will then “pause the migration of deposits and transaction banking products, pending further system enhancements from the vendor”.

Speaking at the briefing on 3 August, Mr Cameron said: “Just in relation to Oracle and our relationship there, what we have chosen to do with just a small group of our products is to leave them running on the old system rather than take a chance or risk in actually launching on a new platform.

“At the end of the day, the customer experience is what counts. We don’t want to be in a situation where we are getting outages, so all we are really doing is waiting for a new version of the same software to be released, which incorporates the sorts of things that we want rather than build them ourselves internally.”

He continued: “It will actually cost us a little less. It will de-risk the operations from a customer perspective, and it means just running two systems for a period of time.

“Whilst it’s not ideal, it’s something we thought long and hard about. But it certainly won’t be getting in the way of building and launching a single digital platform and, in many ways, it does help us free up capacity to do that.”

Overall, the full-year results show that the group made $1.07 billion of net profit after tax, up 3.6 per cent on the prior year, which Mr Cameron said was indicative of “disciplined management of margin and sensible balance between reducing overheads and investing in the future”.

Suncorp Bank’s housing portfolio now sits at $44.8 billion (up from $44.27 billion in 2016), with 66 per cent coming from the “intermediary channel”.

A Dip into Subzero Policy Rates

From The IMF Blog.

Zero was gradually adopted in the ancient world—both east and west—as the ultimate point of reference, a point above and below which things change. For the ancient Egyptians, zero represented the base of pyramids. In science it became the freezing point of water, in geography the altitude of the sea, in history the starting point of calendars.

In the realm of monetary policy, zero was typically seen as the lower bound for interest rates. That has changed in recent years in the context of a slow recovery from the 2008 crisis. Several central banks hit zero and began experimenting with negative interest rate policies. Most did so to counter very low inflation, but some also were concerned about currencies that were too strong.

Financial stability

Questions arose. Should we worry about the effectiveness of negative rates and their potential side effects? Would such policies support demand? Would they undermine financial stability? Would rate cuts below zero have different effects than above zero? We offered some answers in a recent paper drawing on the initial experience of the euro area, Denmark, Japan, Sweden, and Switzerland.

Our paper confirms and builds on initial discussions in IMFBlog by José Viñals, a former director of the IMF’s Monetary and Capital Markets Department, and some of his colleagues. Among our conclusions: the mechanics of monetary policy’s effect on the economy is similar above and below zero, and so far the overall impact on bank profits and lending has been small. But there are limits to the policy.

Why consider the effects of negative rates now, when talk is shifting to interest rate normalization? For two reasons. First, we have accumulated enough experience—two years in most cases, more in others—to gauge the effects with greater certainty. Second, with rates expected to be generally lower in the new normal, the odds of hitting zero if monetary policy needs to be eased again are likely to be higher.

Why worry?

The fear is that negative rates could squeeze bank profits. Banks make money by charging borrowers more than they pay depositors. This margin could be compressed if deposit rates don’t fall as fast as lending rates or ultimately bottom out at zero. This scenario could put financial stability at risk because lower profits would make banks less resilient to shocks. It could also undermine the impact of monetary policy on lending, growth, and price stability.

Banks will hesitate to impose negative rates on depositors who have the option to withdraw their money and stash it in a safe. While storing, moving, and insuring cash is costly, it could be cheaper than paying the bank to hold money if rates are pushed very far below zero. Where is the tipping point? No one knows for sure. Depositors with larger cash balances and higher liquidity needs—such as companies—will tolerate more negative rates before switching to cash. Banks can thus afford to pass on negative rates to some of their depositors, and they have.

Banks can also cushion their margins by lowering lending rates by less than the policy rate cut. This will happen automatically if their portfolios consist primarily of long-term and fixed-rate loans and other assets. (At the same time, this more limited pass-through will reduce the impact of the policy rate cut.) Banks that rely more on large deposits and wholesale funding may gain ground against those relying primarily on retail deposits.

Further, even if margins compress somewhat, profits will not necessarily drop. Banks can support profits by charging fees and commissions, lowering provisioning charges as borrowers become safer, switching to cheaper wholesale funding, cutting costs, and booking capital gains from policy rate cuts. In addition, lower rates will spur economic growth and thus demand for bank services, which will ease the pressure on margins.

Early days

A review of early country experiences with relatively small cuts below zero supports this more benign view.

Overall, the policy seems to have worked well: money market rates and bond yields fell in every country we looked at. Currencies also weakened somewhat, at least temporarily. Deposit rates mostly remained positive, except those of large companies. Lending rates declined somewhat, though less than policy rates. Banks benefited from lower wholesale funding costs, and some raised fees. Bank profits have generally been resilient. Lending has held up.

But some banks suffered. As predicted, negative rates weighed on profits of banks with a greater share of deposit funding, small retail clients, short-term loans, and loans indexed to the policy rate (for example, in some southern members of the euro area). Banks facing tougher competition from lower-cost lenders and capital markets were also hurt.

Not the whole answer

So far, so good. Negative-rate policies appear to have helped domestic monetary conditions somewhat, with no major side effects on bank profits, payment systems, or market functioning.

However, if policy rates remain negative for a long time, or if a deeper dive below zero is contemplated, the effectiveness of the policy and the stability of the financial system could be at risk. Further, the ability of depositors to switch to cash limits how much rates can be cut. Other monetary support, combined with fiscal policy and structural reforms, remain critical to support recoveries.

Computer says no: robo-advice is growing but we still don’t trust it

From The Conversation.

People are open to receiving financial advice from robots, our studies show, but there might be a way to go to in convincing people to trust them over a human.

We surveyed 138 people about their attitudes to, and preferences for, superannuation advice from a human or a computer. Unsurprisingly, most stated they would prefer to deal with a human across a broad range of financial decisions.

Some did prefer the computer – these tended to be younger people, and those on higher incomes. In a follow-up study we tested whether this would change after people actually used the technology.

We did this by exposing 101 people to an online calculator, in which they learned how increasing their superannuation contributions would change their income in retirement. We compared these to another 101 people in a control group who simply read some general information about retirement income.

A little over half of our sample indicated that they would trust robo-advice. Those who got advice from the online calculator showed a small, but statistically significant, increase in trust towards robo-advice. However, most still stated they preferred human advice, and were slightly less willing to pay for automated advice after trying out the calculator.

The openness of younger people is encouraging, as they tend to be the most disengaged from their superannuation, but also have the most to gain from getting it right (as the benefits will build up for longer).

How the robots could help

Automated financial advice systems (so-called “robo-advisors”) have great potential to extend the reach of professional financial advice.

Digital technology has quietly revolutionised the world of banking and financial services. Automatic Teller Machines (ATMs) were an early example of a computer replacing a human worker. Interestingly banks responded to this increasing productivity by employing more people.

Financial advice is the latest frontier for automation, with a number of “robo-advisors” beginning to interact with customers. Even though we face a growing number of financial decisions, most Australians currently don’t get formal financial advice. Cost is a significant barrier to this.

Like many digital products, robo-advisors are costly to design and build, but once up and running they can serve large numbers of people. These bots could extend low-cost and dependable advice to those who currently miss out.

Robo-advice is currently a small part of the financial services market, but it is forecast to grow rapidly. In the US, firms such as Betterment and Wealthfront have begun to disrupt the wealth management industry. In Australia robo-advice products are being developed both by startups and industry incumbents.

But financial advice is about more than numbers. While technology can easily handle the maths, people may also need the human touch. They may want emotional support and motivation, rather than just the cold hard facts, to get them to confidently engage with these difficult and important decisions. Trust requires good design.

Digital technology might also prove useful in getting people more engaged with their financial decisions. Most Australians pay remarkably little attention to their superannuation, even though it makes up a significant portion of our overall wealth (second only to the family home).

Robo-advice could help people learn, and try out different scenarios, without the worry of appearing ignorant to a person. Unfortunately, our experiment found little evidence for this – overall levels of motivation, and perceptions of autonomy and competence were unchanged.

Distinguishing between people who were initially more engaged or less engaged with their superannuation, our study showed that the online calculator had a greater impact on those who were initially less engaged. This suggests robo-advice might prove most useful to those who need it the most, making them feel more competent and in control.

So for those of us who don’t pay enough attention to our financial decision-making, the robots are here to help.

 

Authors: Andrew Reeson, Behavioural Economist, CSIRO; Andreas Duenser, Research Scientist

 

There’s a growing problem in Australia’s housing market

From Business Insider.

Australia’s population is increasing, as are the number of residential dwellings that exist.

However, despite more people and property in Australia, housing turnover levels are not — they’re falling in most of Australia’s capitals.

This chart from CoreLogic shows monthly housing turnover levels across Australia in the past two decades. The group has used a 6-month moving average to better demonstrate the trend seen over that period.

Source: CoreLogic

While there has been some modest movement over that period in either direction, it’s essentially been flat from the levels seen two decades ago.

So what gives? Why are housing turnover levels static despite more people and property now existing in Australia?

According to Cameron Kusher, research analyst at CoreLogic, it comes down to “inefficiencies in the housing market”.

“This is likely due to a number of reasons including the impost of stamp duty which discourages transactions, higher prices which lead to greater commission on sales and no real incentives for people to downsize homes when their children leave or they reach retirement,” he said in a note released today.

“These inefficiencies also have an economic impact as the high cost of exiting and entering the housing market is likely to impact on labour mobility as home owners may choose not to move for employment because of these high costs.”

According to research released by Australia’s Housing Industry Association (HIA) today, the average stamp duty bill paid by an Australian owner-occupier increased by 16.4% to $20,725 over the past 12 months.

And that’s nationally with the average cost in Sydney and Melbourne — Australia’s most expensive housing markets where just under 40% of Australia’s population live — substantially higher at $29,105 and $26,870 respectively.

The median dwelling prices in both those cities has more than doubled since the start of 2009, according to CoreLogic.

This is not only exacerbating housing affordability constraints in those cities, contributing to lower housing turnover levels, but also contributes to higher stamp duty costs, which, as Kusher suggests, provides a disincentive for families, couples and individuals to move to more appropriate housing for their circumstances.

Despite the reluctance of state governments to forego this revenue cash cow, there’s surely a case to reduce transnational costs to encourage more mobility in the housing market.

AUSTRAC seeks civil penalty orders against CBA

Australia’s financial intelligence and regulatory agency, AUSTRAC, today initiated civil penalty proceedings in the Federal Court against the Commonwealth Bank of Australia (CBA) for serious and systemic non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).

AUSTRAC acting CEO Peter Clark said that this action follows an investigation by AUSTRAC into CBA’s compliance, particularly regarding its use of intelligent deposit machines (IDMs).

AUSTRAC’s action alleges over 53,700 contraventions of the AML/CTF Act. In summary:

  • CBA did not comply with its own AML/CTF program, because it did not carry out any assessment of the money laundering and terrorism financing (ML/TF) risk of IDMs before their rollout in 2012. CBA took no steps to assess the ML/TF risk until mid-2015 – three years after they were introduced.
  • For a period of three years, CBA did not comply with the requirements of its AML/CTF program relating to monitoring transactions on 778,370 accounts.
  • CBA failed to give 53,506 threshold transaction reports (TTRs) to AUSTRAC on time for cash transactions of $10,000 or more through IDMs from November 2012 to September 2015.
  • These late TTRs represent approximately 95 per cent of the threshold transactions that occurred through the bank’s IDMs from November 2012 to September 2015 and had a total value of around $624.7 million.
  • AUSTRAC alleges that the bank failed to report suspicious matters either on time or at all involving transactions totalling over $77 million.
  • Even after CBA became aware of suspected money laundering or structuring on CBA accounts, it did not monitor its customers to mitigate and manage ML/TF risk, including the ongoing ML/TF risks of doing business with those customers.

Mr Clark said that today’s action should send a clear message to all reporting entities about the importance of meeting their AML/CTF obligations.

“By failing to have sound AML/CTF systems and controls in place, businesses are at risk of being misused for criminal purposes,” Mr Clark said.

“AUSTRAC’s goal is to have a financial sector that is vigilant and capable of responding, including through innovation, to threats of criminal exploitation.”

“We believe this can be achieved by working collaboratively with and supporting industry. We will continue to work in this way with our industry partners who also share this aim and demonstrate a strong commitment to it.”