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Property Markets Caught In Higher Rate Trap As Parents Help More To Buy!

We are at a significant point in the spring auction market as the prospect of early interest rate relief for home buyers becomes more uncertain in the months ahead, even though weekly clearance rates are so far holding steady, as overall property listings rise.

But within that less expensive property is shifting faster, driven by a further rise in those buying with the help of the family bank – with money from parents, grandparents or siblings, easing the purchase path, whilst other first time buyers are clubbing together to become joint owners of a new home, despite the potential risks.

More generally it’s another symptom of the broken housing market. If you want to learn more about this, and get the latest on our modelling, join us next Tuesday for my live stream at 8pm Sydney, where you can ask a question live. You can see the latest post code level analysis and we will also look at the broader trends.

This is a time for caution, given the rising levels of uncertainty, but that said, for many jumping from the rental sector to buying their own home could be equivalent to jumping from the frying pan into the fire in the current environment.

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Digital Finance Analytics (DFA) Blog

Property Markets Caught In Higher Rate Trap As Parents Help More To Buy!

00:00 / 00:14:34

A Dark Shadow Hangs Over Rate Cut Decisions Now!

In this week’s market update I am going to focus on the path of interest rates, as over this past week midst the US election we got a swathe of Central Bank rate decisions. The RBA held the cash rate on Tuesday, but the Fed, the Bank of England, Sweden’s Riksbank and the Hong Kong Monetary Authority all cut.

While Donald Trump won’t return to the White House for another 10 weeks, he’s already casting a shadow over central banks and with Trump 2.0 expected to boost growth and risk returning inflation, and actually there was (reasonable) speculation that the Fed might not cut rates after all, or at least hint heavily that it would pause at next month’s meeting. Certainly, some economists now expect fewer rate cuts from the Fed next year as trade tariffs may boost US inflation. That could reshape the easing path for central banks around the world, and add currency pressure on emerging markets.

Australia’s economic output could fall between 0.8% and 1.5%, or $20 billion to $37 billion if Trump imposed a suite of his economic policies including slashing America’s 21 per cent corporate tax rate to 15% KPMG estimated.

So all up, the level of uncertainly ahead has been amplified by the Trump victory, and the consequences will spill over into other markets. But we can expect higher interest rates in the months ahead, which is not good for those holding on by the skin of their teeth. This is going to get messy.

http://www.martinnorth.com/

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

Digital Finance Analytics (DFA) Blog

A Dark Shadow Hangs Over Rate Cut Decisions Now!

00:00 / 00:36:02

DFA Live Q&A: The Art Of Mortgage Underwriting: With Chris Bates

This is an edited version of a live discussion in which I discuss the US election results, and then I am joined by award winning mortgage broker Chris Bates as we answer some important questions about mortgage applications and underwriting. How do we get the best results, and are all mortgage brokers the same?

Chris is Managing Director at Flint Group https://flintgroup.au

Chris started as a financial Adviser back in 2007 and sold his Financial Advise business in 2020. Chris has grown into one of Australia’s top Mortgage Brokers and is passionate about taking the product providing industry to a trusted advise base profession.

He is known for regularly airing his views on sound property investing on both LinkedIn and popular industry podcasts The Elephant in the Room and Australian Property Podcast.

http://www.martinnorth.com/

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

https://digitalfinanceanalytics.com/blog/dfa-one-to-one/ for our One to One Service.

Digital Finance Analytics (DFA) Blog

DFA Live Q&A: The Art Of Mortgage Underwriting: With Chris Bates

00:00 / 01:09:36

Albo: It’s the Economy Stupid!

The early results from the US election indicates a strong Trump win. It is clear that households have reacted to the significant rises in costs of living, and put the economy and migration ahead of other issues such as rowe v wade related issues.

It’s the economy stupid, a phrase coined by James Carville in 1992, when he was advising Bill Clinton in his successful run for the White House.

Forget that, and you get ejected as Rishi Sunak in the UK and Biden in the US can attest. And the focus is not stock market performance, but whether people feel better off or worse off than previously. There are of course always excuses, such COVID and wars, but at the end of the day personal finances lead. This is important given the upcoming Australian election and to that end, its worth underscoring that while the first wave of inflation was global and pandemic-related. But later waves were home grown. Albo made Australian inflation much worse than it needed to be, drove interest rates higher than they needed to be, and gutted households much more than they needed to be!

All up, the real costs of living are still significantly elevated compared with the start of Albo’s Government, so they risk becoming a one term Government, with poles neck and neck at the moment.

This helps to explain the move announced over the weekend to reduce HEC debt and offer more TAFE places, in an attempt to paper over the damage. But Albo, just remember it’s the economy stupid!

http://www.martinnorth.com/

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

Digital Finance Analytics (DFA) Blog

Albo: It’s the Economy Stupid!

00:00 / 00:08:56

DFA Live Q&A HD Replay: Investing Now With Damien Klassen

This is an edited version of a live discussion with Head of Investments at Nucleus Wealth and Walk The World Funds, Damien Klassen. As the US election closes out, and the RBA releases the latest decision, how are markets shaping up, which segments are risk exposed, and what strategies need to be considered given the international cross currents and economic uncertainties.

http://www.martinnorth.com/

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

Digital Finance Analytics (DFA) Blog

DFA Live Q&A HD Replay: Investing Now With Damien Klassen

00:00 / 01:28:47

Australia, The Land Of Droughts, Flooding Rains And Massive Household Debt!

A popular poem penned by Sydney-born Dorothea Mackellar in the early years of last century speaks lyrically of a vast brown continent shaped by ragged mountain ranges, sweeping plains, jewel seas, golden noonday sun, droughts and flooding rains.

But today any description of Australia must refer to the vast record-breaking expanse of debt held by households, mostly for mortgages. Total loans outstanding are according to the RBA $1.58 trillion for owner occupied mortgages and a further $749.1 billion for investor mortgages.

Australia has the third-highest level of household debt for countries in the Organisation for Economic Co-operation and Development (OECD), worth 211% of net disposable income per household.

And the IMF reported that Australia has the highest level of mortgage stress in the developed world, according to figures from the International Monetary Fund, with 15% of income devoted to paying off loans. But that is an average across all households and small business. In fact, of course many are now putting 40% or more of their disposable income on mortgage repayments, crowding out other spending.

Borrowers have been floored by a series of rate rises by the Reserve Bank of Australia to the current 4.35%. The increased cost of borrowing has left Australia at the top of the league for debt with Canada second followed by Norway and the Netherlands.

I was asked to extract data from my household surveys for news.com.au and they published various articles including “Sydney Stressing Over $1m Home Loan Debt.

This comes as a recent survey from Finder.com.au revealed many homeowners were just months away from having to give up their properties due to financial duress. Close to one in seven mortgage holders told the poll they would be forced to sell or seek hardship from their bank unless rates were cut by February.

As I said in the article, the amount of debt we have compared to incomes makes us massive outliers compared to the rest of the developed world.

Of course the pain is not equally shared, but more detailed analysis shows that in some areas of the country the average owner occupied mortgage is in the millions. So today, I am going to share my more detailed analysis, using our mapping tools.

http://www.martinnorth.com/

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

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

Digital Finance Analytics (DFA) Blog

Australia, The Land Of Droughts, Flooding Rains And Massive Household Debt!

00:00 / 00:13:14

The Property Price Downturn Is Spreading….

I have been saying for some time that some property markets are on the turn. More evidence of this has now been published. And while aggregate data is averaged, CoreLogic’s October report does highlights a modest rise in national home values, but easing annual growth, and shifting market dynamics across different regions and property segments with wider falls.

They say that nationally, their Home Value Index recorded a 0.3% rise in October, but it was driven by mid-sized capitals like Perth, which saw a 1.4% increase, whereas Sydney saw a -0.1% decline in home values, alongside declines in Darwin (-1.0%), Canberra (-0.3%), Melbourne (-0.2%), as well as regional Victoria (-0.2%) in the month.

We also see that upper quartile house values are falling more than lower quartile values, which recorded a rise. The trend of stronger performance in the affordable market segment is consistent across capital cities.

A combination of less borrowing capacity and broader affordability challenges, as well as a higher-than-average share of investors and first home buyers in the market is the most likely explanation for stronger conditions across the lower value cohorts of the market.

Slower growth in home values has been accompanied by a rise in advertised stock levels. Based on a rolling four week count of listings to October 27th, advertised inventory has increased 12.7% since the end of winter across the combined capitals, with the largest increase occurring in Perth where listings are 20.6% higher, albeit from an exceptionally low base.

Alongside the rise in advertised supply, the number of home sales looks to be fading. Estimates for capital city sales activity over the three months ending October were down -7.5% from three months earlier and -1.6% lower than at the same time last year.

My analysis shows that more investors are under water from a cash flow perspective, and we are seeing more investors jumping ship, while others are buying.

All up given the higher for longer trajectory of both inflation and interest rates, I suspect we will see continued weakness in several markets into 2025.

But as always we need to go granular to see the detail across locations and property types. I will be sharing some of my mapping on this in the next few days.

http://www.martinnorth.com/

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

Find more at https://digitalfinanceanalytics.com/blog/ where you can subscribe to our research alerts

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

Digital Finance Analytics (DFA) Blog

The Property Price Downturn Is Spreading….

00:00 / 00:09:36

Never Trust The Government?

In our surveys we include a question on whether households trust the federal and state governments to do the right thing for them. And the answer is a resounding, no. The question of whether we do trust those elected officials who theoretically at least should be looking after our interests, seems to highlight that in many countries, from Australia, UK, Canada, New Zealand and America, Government is on the nose.

Perhaps this is one reason why there are attempts in train to close down free speech, as illustrated by the misinformation and disinformation bill currently on the books in the Australian parliament. See my earlier post about this MAD bill and why it must be resisted.

In our surveys we find many households struggling with rising costs and flat real incomes, an ability to get ahead, or find a place to live, and ever more pressure on family relationships as a result. In other words, many blame bad government policy for their own predicaments. They are right.

The recently released report on Government action during the COVID period cuts to the heart of the question of trust as the three-person inquiry panel slammed the approaches towards such issues as lockdowns, vaccine mandates, and school and border closures, saying they lacked transparency and compassion, and were often not evidence-based. Now let me say straight away the scope of this inquiry was deliberately hobbled to avoid key questions around vaccines, and other issues, which is in itself shameful, but even so, the COVID-19 inquiry found that heavy-handed, inconsistent and insensitive pandemic restrictions meant people were unlikely to accept such measures again.

Economic modelling presented to the inquiry found that inflation could have peaked at about 6 per cent, instead of 8 per cent in December 2022, if the federal government’s more than $300 billion of pandemic spending and Reserve Bank of Australia’s near-zero interest rate policies were less stimulatory.

So all up, we can draw three conclusions.

Too much tax payer money was thrown at the problem in a poorly targeted inflation stoking manner. This is why inflation loomed to the fore in the past few years.

Too much was through directly and indirectly at the housing market, stoking home prices and rents, and exacerbated the distortions which were already in the market. No wonder prices have accelerated relative to incomes. No wonder too the construction sector is all but wrecked, with many firms subsequently failing while construction costs rise.

And there is still a resistance to admit errors both from Government and the RBA. Those in positions of responsibility may have done their best, but it was simply not good enough.

We expect, and rightly demand more from our elected leaders. They collectively failed us and the fallout continues to this day.

The right critical observation is that trust will be hard to recover. Given recent behaviour, it may never be healed, which spells risks to democracy itself. Queue the MAD bill.

http://www.martinnorth.com/

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Digital Finance Analytics (DFA) Blog

Never Trust The Government?

00:00 / 00:16:51

Big Consequences As The Inflation Higher For Longer Drama Plays Out As Expected…

Well now we know. While the annual Australian headline inflation rate slipped to 2.8%, which is just within the RBA’s target 2-3% band, from 3.8% in the June quarter and is the lowest since March 2021, underlying inflation remains well above the RBA’s 2 per cent to 3 per cent target band at 3.5 per cent in line with forecasts. Annual Goods inflation was 1.4 per cent, down from 3.2 per cent in the June quarter.

The trimmed mean measure of consumer prices, which smooths out volatile items, rose 0.8% in the three months through September, matching estimates, but services inflation rose to 4.6% from 4.5% last time around. This is the prices of all those things you can’t drop on your foot. The biggest culprits were rent, insurance, education, and medical, dental and hospital services costs. Education prices were up 6.4 per cent. The cost of taking pets to the vet rose by 5.8 per cent in the year to September, while the price of a haircut went up by 6.3 per cent and the cost of a visit to the mechanic jumped by 4.3 per cent. The common theme. Wages growth.

While a first rate cut in February remains possible, with the consumer starting to feel more upbeat, wealth booming, strong population growth keeping housing costs sticky and governments still spending up a storm, the RBA doesn’t appear to have a lot of room to move.

Next year’s RBA board meetings are not until mid-February, the end of March and late May – a mile away for anyone struggling with debt.

Higher for longer remains my call as financial pressures on many households continue to build. Something will break. No Christmas rate cut present coming from Santa this year.

http://www.martinnorth.com/

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

Digital Finance Analytics (DFA) Blog

Big Consequences As The Inflation Higher For Longer Drama Plays Out As Expected…

00:00 / 00:13:37