Digital Finance Analytics (DFA) Blog – Page 46 – Digital Finance Analytics (DFA) Blog

Higher-for-Longer Interest Rate Environment is Squeezing More Borrowers

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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Digital Finance Analytics (DFA) Blog

Higher-for-Longer Interest Rate Environment is Squeezing More Borrowers

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DFA Live Q&A HD Replay: Household Finances And Mortgage Stress Update

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!!

Digital Finance Analytics (DFA) Blog

DFA Live Q&A HD Replay: Household Finances And Mortgage Stress Update

00:00 / 01:29:15

Bond Market To RBA: Put Rates Higher!

A surge in long-term bond yields has driven both the Australian dollar and the local sharemarket to an 11-month low earlier in the week, and may force Reserve Bank of Australia governor Michele Bullock to deliver further cash rate rises, economists say.

Adding to expectations that the RBA may deliver one further interest rate rise is an increase in long-dated yields, both locally and abroad.

Long-term US bond yields have galloped higher since July alongside strong economic data and an unexpected increase in planned bond issuance to finance the US government’s yawning budget deficit, which Fitch expects to be 6.3 per cent of GDP this year.

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Digital Finance Analytics (DFA) Blog

Bond Market To RBA: Put Rates Higher!

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The Mortgage Stress Default Disconnect

According to the AFR, Australia’s red-hot jobs market is preventing the country’s most indebted borrowers from falling behind on their home loan, as internal Reserve Bank research reveals nearly one in five borrowers may be in mortgage stress.

While unemployment nationally was 3.7 per cent in August, unemployment among homeowners was likely “almost non-existent”.

But markets ascribe a three-in-five chance the RBA board will deliver one more rate rise by the end of the year, amid concerns about persistently high inflation in the services sector and a stubbornly strong jobs market.

Strong employment growth and nominal wage increases have insulated borrowers from some of the financial pain caused by high interest rates.
About 18 per cent of loans across the country have a high repayment burden, defined as spending more than 30 per cent of household income on paying down a mortgage, according to internal RBA research released under Freedom of Information laws.

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Digital Finance Analytics (DFA) Blog

The Mortgage Stress Default Disconnect

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Risks Build As Bonds Shoot For The Moon…

This has been another crazy week on the markets, as the truth of higher rates for longer has started to permeate not only bond markets, but equity markets too.

And after a stunningly strong U.S. jobs report bolstered the case for more tightening from the Federal Reserve, the U.S. Treasury yield surge that has shaken markets in recent weeks may have further to run.

As I discussed in my last show, US Jobs growth for September nearly doubled expectations as nonfarm payrolls increased by 336,000 for the month, strengthening views that policymakers will need to keep interest rates elevated to cool inflation.

That’s bad news for investors who were looking for a respite from a rise in Treasury yields that has wreaked havoc throughout markets over the past month, bruising stocks, supercharging the dollar and pushing mortgage rates to their highest levels in more than two decades. Treasury yields of course move inversely to bond prices.

The interplay between bearish fractals and potential bullish triggers continues to shape the unpredictable landscape. But we need to watch the unrealized losses among holders of bonds, because at some point the truth will out. And meantime, equities are still priced for a goldilocks soft landing, which is probably unlikely.

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Digital Finance Analytics (DFA) Blog

Risks Build As Bonds Shoot For The Moon...

00:00 / 00:17:20

The Good News Is Bad News Problem…

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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Digital Finance Analytics (DFA) Blog

The Good News Is Bad News Problem...

00:00 / 00:04:10

Crash Alert: Households Are Running Out Of Runway!

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.

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

Digital Finance Analytics (DFA) Blog

Crash Alert: Households Are Running Out Of Runway!

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Its Edwin’s Wednesday [Monday] Evening Property Rant!

A belated edition of our Monday evening rant with Edwin Almeida, our property insider. This week we explore the political shenanigans & follies, the latest numbers and some tips on beating the auction.

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

Digital Finance Analytics (DFA) Blog

Its Edwin's Wednesday [Monday] Evening Property Rant!

00:00 / 01:05:02