We discuss the latest Independent Reserve household survey on crypto, which highlights the momentum in Australia with the CEO, Adrian Przelozny.
CONTENTS
0:00 Start 1:42 Awareness 2:31 Adoption 4:20 State Variations 5:30 Age Distribution and Profit 7:30 Amount Invested 10:00 Trust And Confidence 11:15 Future Price Expectations 13:15 COVID Impact 14:20 Gender Divide 16:16 Superannuation and Crypto 18:45 Bitcoin V Ethereum 22:00 CDBC and Crypto 25:38 Close
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Today we continue the discussion of the latest findings from our rolling household surveys. Yesterday we over-viewed the segments, and trends, and looked at relative demand. Today we go deeper. The accompanying video explains our findings in more detail.
Want To Buy.
The 1.6 million Want To Buys are not able to progress because finance is not available (37%). This is been a growing issue in recent times, though has eased back, as pressure from cost of living (25%) and high home prices (25%) bite. Many therefore remain in rental property or in other living arrangements.
First Time Buyers.
There have been some changes in the drivers of purchase by the 350,000 first time buyers. Needing a place to live is high on the agenda (29%), but the expectations of future capital growth have dropped to 15%, while greater security remains around 15%. There is a rise in the use of First Owner incentives (13%).
However, availability of finance remains a significant barrier (39%) – though it dropped a little in response to lower rates and changed underwriting standards, along with high home prices (26%) and costs of living (24%). Fear of unemployment is on the rise (5%).
There has been a reduction in demand for units relative to houses, partly in response of the coverage of poor quality high-rise construction. We expect this to continue.
Refinancers.
There is a significant demand from those seeking to refinance an existing loan. The main aim is to reduce monthly repayments (48%), a factor which have become more important as financial pressures and mortgage stress build, helped by lower rates (18%). Around 18% are seeking to withdraw capital to repay other debts or improve their finances. Fixed rates are becoming less attractive (9%). Poor lender service is not a significant factor; price is.
Up-Traders.
Households looking to buy a larger property are driven by the desire for more space (41%), job move (16%), life-style change (20%), or property investment (22%), the latter dropping from recent highs of 43%.
Down Traders.
Those seeking to down size are mainly driven by the need to release capital, often for retirement, or supporting the “Bank of Mum and Dad” (50%). Around 30% are driven by increased convenience – either by changing location or to a more manageable property. A switch to an investment property has faded to 5% from a peak of 22% in 2017.
Property Investors.
Tax efficiency remains the strongest driver for investors (45%), while appreciating property values have dropped from more than 30% down to 15% now. Low finance rates have risen to 12% thanks to the recent changes and better returns than bank deposits registered at 25%. So investors believe the tax breaks make investing a reasonable proposition (though many would find in net cash flow terms they are underwater, without significant capital gains).
The main barriers are difficulty in obtaining finance (40%), have already bought (30%), and changes to regulation (15% – and falling now). Fears of interest rate rises have dropped from 11% in March 2019 to 1% now and the local and international economic scene has changed.
In the accompanying video we look in more detail at the differences between Solo Investor, Portfolio Investor and Super Investor motivations.
Finally, its worth noting that across the segments, when choosing a mortgage, price remains the main driver, though some segments rate other features a little more significant than others.
Prospective use of mortgage brokers also varies across the segments, with refinancers and first time buyers the most likely to use an adviser.
So, in summary, households are reacting to the changing market and economic conditions. However there is little here to suggest a significant upswing in demand.
Digital Finance Analytics will be releasing the results from our rolling household surveys over the next few days. This is the first in the series.
These are the results from our 52,000 households looking at property buying propensity, price expectations and a range of other factors.
We use a segmented approach to the market for this analysis, and in our surveys place households in one of a number of potential segments.
Want To Buys: households who would like to buy, but have no immediate path to to purchase. There are more than 1.5 million households currently in this group.
First Timers: first time buyers with active plans to purchase. There are around 350,000 households in this segment.
Up-Traders: households with plans to buy a larger property (and sell their current one to facilitate the up-sizing. There are around 1 million households in this group.
Down Traders: households wishing to sell and down size, sometimes buying a smaller property at the same time. There are around 1.2 million households in this group.
Some of these households will hold investment property as well. We categorise investors into one of two groups.
Solo Investors: households with one or two investment properties. There are about 940,000 of these.
Portfolio Investors: households with more than two investment properties. There are around 170,000 of these.
Finally we also identify those who are planning in refinance existing loans, but are not intending to buy or sell property – flagged as Refinancers, and those with no plans to buy, sell or refinance – flagged as Holders.
It is the interplay of all these segments which drives the property market and demand for mortgages.
Around 72% of households are property active – meaning they want to buy, sell, or own property. More than 28% are property inactive, meaning they rent, live with parents or in other arrangements. Our surveys track all household cohorts. A greater proportion are falling into the inactive category.
Intention To Transact Is Rising (From A Low Base)
We ask about households intentions to transact in the next 12 months, and whether they will be buy-led (seeking to purchase a property first) or sell-led (seeking to sell a property first). (Click on Image To See Full Size).
Property investors are still coy (hardly surprising given the fall in capital values, the switch to P&I loans and receding rentals. But Down Traders, First Time Buyers and Refinancers are showing more intent.
We will look at the drivers by segment in a later post.
But the Buy Side and Sell Side Analysis is telling
Those seeking to buy are being led by First Time Buyers and Down Traders.
Those looking to sell are being led by the Down Traders, and Property Investors. In fact this suggests we will see a spike in listings as we move into spring.
Our equilibrium model suggests that currently supply is not meeting demand (adjusted for property types and locations) in a number of prime Sydney and Melbourne locations, within 30 minutes of the CBD. But beyond that demand is below current supply, and more is coming.
On this basis, we expect to see some local price uplifts, but not a return to the rises a couple of years back. What is clear, is that the property investment sector continues to slumber, and Down Traders are getting more desperate to sell.
Finally, today demand for more credit is coming from Up-Traders, First Time Buyers and Refinancers. Not Investors.
And price expectations seem to be on the improve, driven by investors. But it is still lower than a couple of years ago.
Next time we will dive into the segment specific drivers.
Analysis released today by Digital Finance Analytics reveals that in the coming 12 months around 124,000 interest only loans will need to be switched to principal and interest loans. This is drawing data from our rolling household surveys. This translates to an estimated value of $47 billion, and represents a significant proportion of all IO loans coming up for review. Of these 97.5% are for investment properties.
The reason why households are converting varies, with around 27% deciding to switch, while 67% were persuaded by their lender. There are state variations. NSW and WA had the highest proportion of “forced” moves.
The average repayments will rise by 25.6%, with the highest in NSW at 31.6%.
We then asked about what steps owners would take to cover the extra costs. On average 11.5% said they could cover form other income, from higher rents 4.5%, from selling other property 26.7%, and the remaining will require extra employment, either by way of extra hours, or from additional jobs. Again there are state differences.
In terms of extra jobs, on average 53% of the extra work will be taken by the primary worker, while 47% will be taken by a second family member (often the spouse). It varies across the states.
This of course is all predicated on more work being available. Perhaps this is one reason why mortgage delinquencies are rising?