Today we walk through the latest and troubling results from our surveys and analysis. Unfortunately, we see a further rise in cash flow stress (something confirmed by other analysts using different methods).
Next week we will be running a live show on the analysis, but today’s show walks through the main highlights.
Given the latest RBA rate hike, we expect more households to get caught out as rate grind higher.
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Go to the Walk The World Universe at https://walktheworld.com.au/
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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Go to the Walk The World Universe at https://walktheworld.com.au/
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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Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
The Great Property Paperchase... With Tarric Brooker
Today I want to dissect some the latest data from New Zealand. In summary, inflation and costs of living continue to bite, more households are in financial distress, inward migration is at a record high, but the property market remains in the doldrums. Worth thinking about ahead of the general election at the weekend.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
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.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
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.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
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.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
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.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
Digital Finance Analytics (DFA) Blog
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.”
