Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
The RBA released their Financial Stability Report today and provided a worrying insight into household finances. Rate rises and large mortgages are having an impact, plus pressure on builders is rising.
We look at some of their analysis.
Go to the Walk The World Universe at https://walktheworld.com.au/
The RBA released their Financial Stability Report today and provided a worrying insight into household finances. Rate rises and large mortgages are having an impact, plus pressure on builders is rising. We look at some of their analysis. Go to the Walk The World Universe at https://walktheworld.com.au/
I discuss the latest rate moves with Steve from Canstar.
Steve Mickenbecker is in Canstar’s Group Executive Team, bringing more than 30 years of experience in the Australian financial services industry. As a financial commentator for Canstar, Steve enjoys sharing his expertise across topics such as home loans, superannuation, insurance, mortgages, banking, credit cards, investment, budgeting, money management and more.
https://www.canstar.com.au/team-members/steve-mickenbecker/
Go to the Walk The World Universe at https://walktheworld.com.au/
Join me for a live discussion about the current state of the property market, and household financial stress in the light of the RBA’s 25 basis point hike. We will have our post code engine on line.
You can ask a question live.
Links to upcoming events:
Petition Branch Closures: https://www.aph.gov.au/e-petitions/petition/EN4244 (ends 6th October)
Meet the Managers Forum Wednesday 19/10/22 6:30-8pm:
https://www.eventbrite.com/e/meet-the-managers-tickets-410294761677?aff=wtw to register.
World Renegade Summit: https://gokogroup.com/mne 9th October 2022
Go to the Walk The World Universe at https://walktheworld.com.au/
RBA Deputy Governor Michele Bullock spoke today about the review of the bond purchase program (BPP) during the pandemic; and the Bank’s financial statements for 2021/22. The two issues are related because, while the bond purchase program was a policy response to extraordinary economic circumstances, it has had big implications for the Bank’s balance sheet, profits and capital.
The Bond Purchase Program was implemented by the Bank as part of a package of measures designed to provide insurance against very bad economic outcomes as a result of the pandemic. The Bank’s internal review of the program suggests that it broadly achieved its aims.
But one outcome of the bond purchases and other policy measures has been that the Bank will report a substantial accounting loss in its 2021/22 annual accounts, resulting in the Bank being in a position of negative equity. If any commercial entity had negative equity, assets would be insufficient to meet liabilities and therefore the company would not be a going concern.
While the Bank will report a large valuation loss in 2021/22, the government’s debt issuer – the Australian Office of Financial Management (AOFM) – will report a significant valuation gain. For the whole of government, therefore, the Bank’s loss on this part of its portfolio will net off against the AOFM’s gain.
This is a Numberwang like no other!
Go to the Walk The World Universe at https://walktheworld.com.au/
The logic I hear all the time is the RBA won’t let home prices fall too far because of the financial stability risk consequences. But that view might be plain wrong.
First the RBA has lifted rates by 2.25 percentage points since May, and markets expect the cash rate to reach 3.3 per cent by the end of the year, before peaking at 3.9 per cent in April next year. RBA governor Philip Lowe said last week there was a “narrow path to a soft landing” for the Australian economy, which would be difficult to stay on if global economic conditions deteriorated.
And reflect on this. Within a 24-hour period this week, there will be 16 central bank decisions including the US, UK, Japan, Switzerland, Norway and Taiwan. Cumulatively, we could see over 500 bps in rate hikes across the globe this week.
In addition, Westpac came out yesterday with a revised forecast for the RBA Cash Rate, saying “We now expect the Reserve Bank Board to raise the cash rate by 50 basis points in October for a terminal rate of 3.6% by February (revised up from 3.35%)”. It seems the RBA is giving the green light to home price falls. Because if prices fall you would need a smaller mortgage (even if the interest rates were higher). Let that sink in.
Those who are arguing the RBA won’t be prepared to let home prices fall very far, take note!
Go to the Walk The World Universe at https://walktheworld.com.au/ Today’s post is brought to you by Ribbon Property Consultants.
The logic I hear all the time is the RBA won’t let home prices fall too far because of the financial stability risk consequences. But that view might be plain wrong.
First the RBA has lifted rates by 2.25 percentage points since May, and markets expect the cash rate to reach 3.3 per cent by the end of the year, before peaking at 3.9 per cent in April next year. RBA governor Philip Lowe said last week there was a “narrow path to a soft landing” for the Australian economy, which would be difficult to stay on if global economic conditions deteriorated.
And reflect on this. Within a 24-hour period this week, there will be 16 central bank decisions including the US, UK, Japan, Switzerland, Norway and Taiwan. Cumulatively, we could see over 500 bps in rate hikes across the globe this week.
In addition, Westpac came out yesterday with a revised forecast for the RBA Cash Rate, saying “We now expect the Reserve Bank Board to raise the cash rate by 50 basis points in October for a terminal rate of 3.6% by February (revised up from 3.35%)”.
It seems the RBA is giving the green light to home price falls. Because if prices fall you would need a smaller mortgage (even if the interest rates were higher). Let that sink in. Those who are arguing the RBA won’t be prepared to let home prices fall very far, take note!
Go to the Walk The World Universe at https://walktheworld.com.au/ 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. Buying property, is both challenging and adversarial. The vendor has a professional on their side. 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. Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.
Whilst the rate of interest rates rises is likely to ease ahead, eventually, as the RBA’s Jonathan Kearns, Head of Domestic Markets said today in a speech titled Interest Rates and the Property Market that there are important connections between property prices and interest.
https://www.rba.gov.au/speeches/2022/sp-so-2022-09-19.html
He said interest rates both affect, and are influenced by the economic effects from, both residential and commercial property prices. We can be confident about some aspects of the impact of interest rates on property prices, but there is considerable uncertainty about other aspects.
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 alongside you. Buying property, is both challenging and adversarial. The vendor has a professional on their side. 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. Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.
The RBA was interrogated by Parliament today regarding its monetary policy stance and interest rates. But it was all a bit pointless as really the Federal Reserve sets interest rates in the US, but effectively also for the entire world, given the fact that the US dollar behaves as the reserve currency.
Persistently high inflation in the United States and elsewhere has forced the Federal Reserve to aggressively raise interest rates, giving the dollar a significant yield advantage that has triggered a rampaging rally against its major global peers. That will put pressure on the RBA.
Eventually, the Fed’s actions will come back to bite it and the US. By then all the many trillions of dollars of stimulus work done during the pandemic will have been unwound. What a phenomenal waste of time, money and effort.
The fallout on the FED’s myopia will be felt more in other countries, including Australia, which means we are on the end of the see-saw driven by the US. This is soft power at its worse, transmitted to a monetary system which is built to favour one nation over the rest.
The question is of course whether this will change. Without major reform it will not, not least in recognition of fact that many international institutions such as the IMF, WEF and BIS are strongly aligned to the interests of the US. So The Monetary Arms Race Is Here.
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
My latest Friday afternoon chat with Journalist Tarric Brooker. We look at the latest data and discuss the implications.
His charts are at: https://avidcom.substack.com/p/charts-that-matter-16th-september
Go to the Walk The World Universe at https://walktheworld.com.au/
