This is an edited version of a live discussion with Research Director from The Australian Citizens Party, Robbie Barwick as we look at the contemporary issues surrounding the battle to keep cash in the economy, branch closures, the current financial settings, and the broader political and economic background.
The imperative for change has rarely been stronger, and we literally stand on the brink….
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More from our property insider Edwin Almeida, as we discuss the migration question, granny flats, risks from above 4 story high-rise, and the rental crisis. Plus we look at the latest from the WeeChat universe.
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Today’s post is brought to you by Ribbon Property Consultants.
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.
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There is a critical issue now on the table, and it relates to what the right level of migration should be. In recent times, the taps have been open more than ever before, and there are significant consequences for households, and housing affordability. Some are now calling for a significant cut in migration, others are celebrating the potential for more home prices rises, as demand outstrips supply across the country.
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As I have warned, October can be a fickle month on the markets, and is proving to be so again. Growing volatility in U.S. stocks is driving a search for defensive assets, though investors may have fewer places to hide this time around.
On Friday, global stock markets, including those in the US and Europe, experienced declines due to rising US treasury yields which reached a 16-year high and the potential escalation of the Israel-Hamas conflict. The pan-European STOXX 600 index lost 1.36% and MSCI’s gauge of stocks across the globe shed 1.10%. Emerging market stocks lost 0.53%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.6% lower, while Japan’s Nikkei lost 0.54%. So, losses everywhere.
On Friday, US President Biden said he plans to ask Congress for another $US74 billion ($117.2 billion) to fund the wars in Ukraine and the Middle East.
Fed Speak is not helping either, while other Fed officials have hinted that the tightening cycle could be at an end, Federal Reserve Chairman Jerome Powell’s comments on Thursday underscored possible further interest rate hikes, driven by the robust US economy, strong retails sales and tight labor market.
In a Bloomberg TV interview, Mohamed El-Erian took Federal Reserve policymakers to task, saying the US economy is seeing a period of “greater uncertainty” because of a lack of vision from Fed officials.
“You cannot drive a car without some understanding of what the road ahead looks like. You can’t just look at the rear-view mirror and try to adjust to every curve you just had,” El-Erian, the chief economic adviser at Allianz, said. “That is not how you drive policy and it’s certainly not how you drive policy when the impact of policy happens with a lag,” he said. “This is the first Fed I know that has not gotten it.”
In a note, a Bank of America’s team led by Michael Gapen said the Fed could done lifting rates. “Fed commentary has all but confirmed that the Fed will stay on hold in November. We shift the last rate hike in our forecast out to December. We think the strong September data keep another hike in play. But it is a close call. There are meaningful risks that the Fed will either delay the last hike into 2024 or not hike again.”
“Investor sentiment is quite negative, and we believe it’s important to zoom out and focus on the long term – even the intermediate term – and a lot of this will fall by the wayside,” said Ross Mayfield, investment strategy analyst at Baird.
“There’s not enough attention being paid to company earnings, which have been coming in strong, and guidance has been solid,” Mayfield added. “Investors would be wise to pay attention to that as much as the macro events, the geopolitical tensions.”
On Thursday the yield on 10-year U.S. Treasury notes, the bedrock of the global financial system, was briefly bid above the 5% barrier for the first time since July 2007, touching 5.001%. While the benchmark yield eased back from that level, it posted its largest weekly surge since April 2022. The 30-year bond last rose in price to yield 5.078%, from 5.102% late on Thursday. With the 2 year in similar territory, such a flat yield curve is a sign of uncertainty, with some questioning whether the bond market has become unanchored, or whether the big US bond issuance has moved markets, or whether it simply reflects a risk premium. The MOVE index, which measures expected volatility in U.S. Treasuries, stands near a four-month high.
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Another Friday chat with Tarric Brooker, complete with charts on the housing market. We look at what is really driving the disequilibrium in the sector, and what the consequences are for people trying to access the market.
You can follow the charts here: https://avidcom.substack.com/p/dfa-chart-pack-20th-october-2023
And read Tarric’s article on housing here: https://avidcom.substack.com/p/in-australia-housing-is-the-economy
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Digital Finance Analytics (DFA) Blog
The Great Property Paperchase... With Tarric Brooker
One stunning chart which I keep coming back to is the change in income and home prices overtime. It shows simply that housing is becoming more and more unaffordable. We also know that more households have bigger mortgages and so are heavily exposed to higher rates, and that many will still have mortgages well into retirement. Our debt ratios are some of the most extreme across the world, as I have been reporting for years. Great for banks, as they reap interest payments, bad for society. In fact, I believe we are at the point where the drawbridge is being pulled up making it harder than ever to get on to the property ladder or stay there.
Few policies are more harmful to young Australians seeking a place to live than forcing them to compete for housing with hundreds of thousands of new migrants each year.
Future Australians will have to make do with cramped shoebox homes owned by corporations and landlords.
Essentially, the property ownership drawbridge is being progressively raised – but this is by design, not accident. I hope post the voice, Albo and Co will get serious about correcting their mistakes, but frankly I am not holding my breath.
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Today’s post is brought to you by Ribbon Property Consultants.
This is an edited version of a live discussion with Cameron who republished his book from 2017 Game of Mates: How favours bleed the nation as Rigged “How Networks Of Powerful Mates Rip Off Everyday Australians”.
This book will open your eyes to how Australia really works. It’s not good news, but you need to know it.’ – Ross Gittins
‘You’ll be shocked at how far the Mates have their hand in your pocket.’ – Nicholas Gruen
Australia has become one of the most unequal societies in the Western world, when just a generation ago it was one of the most equal. This is the story of how networks of Mates have come to dominate business and government, robbing ordinary Australians.
Every hour you work, thirty minutes of it goes to line the Mates’ pockets rather than your own. Mates in big corporations, industry groups, government departments, the halls of parliament and the media skew the system to suit each other. Corporations dodge taxes, so you pay more. You pay more for your house and higher interest rates on your mortgage, more for your medicines and transport, and more for your children’s education and insurance, because the Mates take a cut.
Rigged uncovers the pattern of political favours, grey gifts and information-sharing that has been allowed to build up over two decades. Drawing on extensive economic research, it exposes the Game of Mates as nothing less than cronyism on a grand scale across Australia and how we have fallen behind other countries in combating it.
We also discuss housing policy and economics in general.
Dr Cameron K. Murray was a Research Fellow in the Henry Halloran Trust at the University of Sydney and an economist specialising in property and urban development, environmental economics, rent-seeking and corruption. Professor Paul Frijters teaches at the London School of Economics and was previously Professor of Health Economics at the University of Queensland. He is now an independent economist.
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Digital Finance Analytics (DFA) Blog
DFA Live Q&A HD Replay: Cameron Murray: Mates, Power, Politics & Economics
The latest edition with our property insider Edwin Almeida. We look at the latest “plans” to boost housing, celebrate a 60th anniversary, dissect the latest numbers, and explore why investor property is not working for so many investors as they chose to sell.
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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.
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Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.
Edwin understands your needs. So why not engage a licensed professional to stand alongside you. With RPC you know you have: experience, knowledge, and master negotiators, looking after your best interest.
