Census describes increased mortgage stress

This morning Banking Day has delivered a snap shot of some key household metrics for mortgages and income from the first batch of Census data. I will address the Census over the next week but for the time being this is a good wrap of some headline results:

Four things stand out from the 2011 census, released by the Australian Bureau of Statistics yesterday:

— Average monthly home-loan repayments have increased 40 per cent over the five years since 2006, rising to A$1800 from $1300.

— Median weekly household income increased 20 per cent to $1234 from $1027.

— The average home loan increased 15 per cent to $299,200 from $261,100.

— The percentage of households with a home loan increased a little over the census cycle, to 34.9 per cent from 34.1 per cent.

The first three trends are consistent with the conventional story of deleveraging by households, though the last one may be a surprise.

There are signs of greater stress among the mortgage-paying population.

For 9.9 per cent of households, their mortgage repayment was more than 30 per cent of their income in 2011, up from 8.4 per cent in 2006, the Australian Bureau of Statistics said.

The underlying story of more conservative financial management by households remains true.

The Reserve Bank of Australia published an article in its quarterly Bulletin yesterday that surveyed data on this topic.

The RBA estimated net outflows from households’ direct holdings of equities at around $67 billion between 2008 and 2011.

Over the same period, holdings of deposits increased by around $225 billion. Household deposits have increased by $90 billion over the three years from 2005 to 2008.

Unconventional Economist
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Comments

  1. The median household income may have gone up by 20% over the last few years, but I’d wager than the increase has been gobbled up(literally!) by the cost of utilities and staples etc. That leaves the 40% increase in mortgage payments to fend for themselves. Capitalisation, anyone?

  2. Is the average home loan repayment of $1,800 over all households? I wonder what the average would be if only averaging across households with home loan only.

    • I can’t believe the ABS would include the millions of zeros in their median calculation for this. It would render it meaningless.

      I am 99.9999% sure it includes only households with a mortgage.

      • thomickersMEMBER

        +1 i think its mortgages with a balance of $1 to infinity (a high number)

        median household is paying a reasonable mortgage for income. Its the most distressed quartile that makes the housing market move…

        Its not unusual to see people paying 50% of household income on mortgage

        • Its not unusual to see people paying 50% of household income on mortgage

          It’s exactly that that moved the Canadian government to institute controls on lending yesterday.

          MB should cover this development in Canada. It has profound implications for us, I think.

          • Australia’s Wayne Swan, when asked for comment as to why Australia has not instituted similar measures, giggled and looked sheepish, saying that “She’ll be right, mate”. (Last sentence is a R2M contribution )

  3. While the percentage of those in mortgage stress may have risen over 5 years, you’d have to say the absolute level is in direct contrast to the Fujitsu JP Morgan claims (mid 2010) of:

    “About 40% of first home owners are currently experiencing some type of mortgage stress, with that number set to rise to 50% by the end of the year, the latest Fujitsu Australia Mortgage Stress Report has revealed.”

    Another one we can drop in the bin?

  4. Yeah, I’m a little confused. They used ‘average’ for the repayment increase, yet ‘median’ for income increase. Which average did they use for repayments, median or mean?

    • Lol.. Good find on your comeback, GB.

      BBG have put the reporter’s and editor’s ..oops.. Shortage denier’s email Ids below the story. I am sure he’ll write a strong complaint email.

      • It sort of paints the NHSC’s measure of underlying demand for what it is: a joke.

        I’d also be interested in how inaccurate their projections for persons per household are, too.

        • Purpose of NHSC is unclear. Is it to identify the public housing needs of the wretchedly poor or is it a taxpayer funded fodder for the housing spurikers?

          It seems it is the latter. So the Bloomberg report is timely.

    • census also torpedoes housing shortage nonsense
      This is typical of the aggression of a shortage denier.
      Abusive haters take sides and then abuse anyone who disputes anything they say.
      The housing shortage is real and no amount of abuse or voodoo statistics will help the victims of the shortage.

      • DrBob127MEMBER

        Claw,

        why don’t you ever explain your position? You seems perfectly happy for others to misrepresent your position and then just start flinging mud at them when they do so (for being a shortage denier)

        From you previous comments, I have understood your position to be that there is a shortage of reasonably priced houses in Australia which is very different from there being just a shortage of houses (which is more houses than households).

        Please correct meif I am wrong.

        • I explain my position frequently.
          Yes there is a shortage of reasonably priced dwellings to buy or rent within a reasonable commute of jobs.
          This is a structural shortage. Govt chokes supply and pokes demand via excessive immigration.
          Shortage-deniers come up with trickly little word games allowing them to claim THERE IS NO SHORTAGE. Yet the high rents persist. The victims continue to suffer.
          I will continue to point out the flaws in the claims made by the shortage-deniers.
          I have been worked-over by the most strenuous deniers on the Internet. It is all old-hat to me.

          • Then the problem lies in that you define ‘shortage’ in a idfferent manner than a majority define ‘shortage’. People will tend to define shortage in a economic sense on the board.

            In it’s truest sense, as far as scarse resources being allocated, there number of dwellings consisting of a number of walls and a roof, to provide the utility of shelter….

            the numbers match.

            If 100% of the dwellings were rationed out to provide the utlity of shelter, in the typically desired fashion of nuclear families, then you would not find that you would have 100% occupancy with people still desiring shelter, but none available.

            That is a shortage, as in not enough resources have been allocated to provide sufficient shelter.

            This does not exist.

            What we do have if people not being able to acquire property under desirable terms of ownership.

            This is a price mismatch, and is symptomatic of market failure.

            High rents persist because of quite predictable behavioural patterns of herding.

            And yes, there are victims. Nothing however that higher interest rates can’t restore.

            But you are not going to have people be persuaded there is a shortage when your definition is different to what most people will assume it means.

          • I agree with TC housing (affordability) is a function of employment and if the location is so remote from the jobs they are as ‘unaffordable’ as the inner suburbs with bigger price tags.

            Cities have outgrown themselves and the economies of scale have gone into reverse.

        • We all agree there was a shortage of available affordable housing. The issue was that the RE industry claimed that there was a actual shortage of structure on a national scale rather than the local shortages and that would prevent prices falling. Us shortage deniers claim that when a downturn comes you see a surge of new housing becoming available due to lots of factors. People sharing, moving back home with parents, moving further from work to save money, foreigners returning home, retirees selling up city house and moving to holiday residence and so on. The question is will the current slow melt result in a recession due to the loss of construction jobs or can the resources boom take up enough slack to save us.

  5. If there are over 934K Unoccupied private dwellings in Australia and the average is now 2.6 people per household. Wouldn’t that be enough to house nearly 2.5 million people? I would not regard this as a housing shortage.

    • The ratio of unoccupied private dwellings to total dwelling is about 10%. This is the same ratio as in 2006, 2001, 1996, 1991 all the way back to 1975.

      • I did not state that is was different to previous census results. I merely indicated that it would seem that there is no shortage. WA (which supposedly has an Acute Shortage) rose by 0.6% and now has nearly one in eight houses unoccupied.

        • I merely indicated that it would seem that there is no shortage.
          Define shortage please.
          Africa has many fat gluttons. Therefore there would appear to be no food shortage in Africa.

          • What a brilliant Retort! I did not factor in African Gluttons. We also seem to have forgotten a possible attempt by Pengiuns to overthrow our current Politburo and run roughshod in the streets!

    • there are over 934K Unoccupied private dwellings in Australia and the average is now 2.6 people per household. Wouldn’t that be enough to house nearly 2.5 million people? I would not regard this as a housing shortage.
      We could easily house 40 million people. All that is needed is a politburo to assign people to houses. Is this what you want?

      • I agree! with an excess of housing we probably could house 40 million people. It sounds like you are in favour of Big Australia.

        • Mining BoganMEMBER

          Big Australians? Go to Dubbo. Thousands of them ther…oh…Big Australia. I see.

          My apologies.

  6. Some additional information which helps clarify the picture a little more

    – Rents up 50% since last census (so much for the oversupply myth)- which is greater than the reported 38% increase in mortgage payments
    http://www.propertyobserver.com.au/landlords/renters-paying-50-more-a-week-in-rent-since-2006-with-increase-in-proportion-of-households-experiencing-rental-stress-abs-census-2011/2012062155220
    – the proportion of households with rent payments greater than 30% of household income – the common definition of rental stress – rose slightly from 9.3% to 10.4% (so renters doing worse than owners)
    – Mortgage payments (up 38%) were measured in August 2011. Adjusting for the recent movments in mortgage rates (SVR 7.79% ro 6.79%) equates to roughly $1570 per month versus the reported $1800 per month. So mortgage payments are now only up 20% since 2006, consistent with income growth.
    http://www.loansense.com.au/historical-rates.html

    • the proportion of households with… rental stress rose slightly from 9.3% to 10.4% (so renters doing worse than owners)

      Depends how you want to spin it & what the numbers are – rental stress rose 1.1%, while mortgage stress rose 1.5%.

    • Isn’t that the proof of the pudding, then? When people pay more to rent than own, either (1)they can’t raise the money to buy, but can fund rent out of cash-flow or (2) just plain see the price of the asset falling and it’s cheaper to ‘lose’ a year or twos worth of an extra $50 or $100 per week than ,say, attract a $50,000 capital loss. Either way, it’s an indicator that all’s not well in the property market. Perhaps we are in for another round of OCR cuts…

      • This is proof that the real diver of house prices is replacement cost.

        As homes become more expensive to build (due to the billions in taxes levied on the housing industry), there are times when the market value of a dwelling falls below replacement cost (like Sydney today).

        Consequently, dwelling construction falls (like we are seeing today), household formation ratios go up (like we are seeing today), and rents climb (like we are seeing today).

        The replacment cost of housing is so high due to poor government policies, the RBA will have no choice but to cut rates again. Timing is the only uncertainty.

        • I’d have to challenge that. The real driver of house prices is historical construction cost, not current replacement value. Sure, new houses cost what new house do, but those who bought in 1975 for $35k can sell at a ‘profit’ for $700k today. Give them an option of downsizing with age etc. and there’s a mass of historically prices property yet to come to market. It’s going to be an ongoing process, as well, as the aging re-take in their young ( saves the young then buying a house of their own) to look after them. Demographics is likely to win this battle.

          • We can cherry pick ages and demographics and come up with all sorts of scenario’s whc house prices may fall.

            But so long as you have a growing population (unlike Japan), you need more houses. So the marginal cost of production is critical.

            The marginal cost of production is an anchor for house prices. So long as existing house prices are lower than the cost of new supply, then supply falls. This increases the population of buyers looking for housing from exiting dwellings. Soon, existing dwelling prices must rise until it exceeds replacement cost, and the construction cycle can begin again.

            Everything we see in the housing market is consistent with this thesis.
            – Rising rents
            – Increased average occupancy per dwellings
            – falling housing starts
            – house prices “melting” rather than falling.
            etc etc

          • What is the biggest component of the marginal cost of production? Wages. Now I happen to think there is going to be significant downward pressure on wages ( yes, I’m a deflationist), and that is likely to answer you points re both marginal cost of housing and a growing population number. (I note that even we Kiwis are being looked at for harsher treatment re immigration etc!)

          • If you beleive wages are going to collapse then you beleive in a deep and awful recession (since wages are sticky). This means the cost of production falls across equities too.

            Under that scenario, real estate will be one of the best placed assets.

          • You may be right b_b, we shall see. You stick to your property ‘investments’ and I shall stick to my cash; even at 0%!. I’d have to agree with you that equities are prone to a fall( that’s whay I don’t have any of those either!); but re wages? they’re not as sticky as you think! Ask someone who doesn’t have a job how important the actual wages is. Any wage is better than no wage….

          • The driver is banks and availability of capital. Bank lending is tightening, money is scarce globally. Anyone who thinks there is a housing shortage simply look at real estate.com. There is a host of rentals. Why? People who cannot sell for the price they want put them on the market. Further those who held off on renting for a quick gain have found there is no gain available.

            Simple way of valuing property is yield. Surely yield should be higher on a growth asset in a flat market than government bonds?

            Basically there is no shortage, rents are definitely not increasing marketedly and the property market will continue to fall over the next few years on the back of a slowing global backdrop. I am out of property now but not into shares rather corporate debt. And before. Anyone mentions the collapse of this area no I am not invested in debt instruments that are going to fail. More so the major banks. Yield is up to 8%.

            Also remember the enormous industry of education. Foreign students certainly help the property market. Unfortunately the number of these students is declining.

            Property is gone. Face it. Buy on yield and if you can get at say 6%pa the market will be fairly valued. This being around 2% above bank bill rates.

            By the way I work for a major bank. I am shorting banks due t the above.

        • Yes, replacement cost was a major factor in Japan due to the price of land, materials, taxes, labour, …….

          Who would have thunk?

        • If only developers can order/buy building materials online,,,,,and are allowed to import foreign workers (ala miners enterprise migration),,,then we may see a reduction on replacement cost 🙂

          The alternative is for them to meet the market but that’s not going to happen until the current economic dislocation reaches terminal speed,,,,

          • They can! A developer mate of ours built 13 speccies back in 2007 (in NZ) and his compete fit-out stuff came in containers from China! He just sent off the plans and the ‘stuff’ arrived; ready to be assembled/installed in the right order. All he provided was the shell to framing level, and the rest (even the windows and the cladding, arrived on the e wharf. Absolutely amazing….

          • Pre-fab homes have always been available in Australia and are way cheaper than traditional Brick ($600 per sqm versus $1200 per sqm). Today, you can get them from Sekisui, and the designs are pretty good.

            They just do not last as long or are as durable as brick, so they actually turn out to be more expensive if you take into account depreciation.

        • Can you produce the data to support your contention that real housing construction costs have increased?

          • I do not have to.

            Check out the half yearly report from Mirvac.

            $388m of revenue, $17m loss. Prices < replacement cost, even before taking into account the cost of equity.

            They have $1.6bn invested in projects across Australia. They would be beterr of puting this capital in the bank and earn interest ($80m per annum).

          • From a chippy I know he talks about H&S changes for example and one he mentioned was scaffolding which he didn’t use before has added cost. He claimed 20k in costs hikes due to compliance; ten year period he was talking about. Inflation hasn’t been a factor so rule that out. If you’re looking historically there was the GST (year introduced?)and that might have added a bit. Labour costs? Overall costs I think UE put down to land cost as being the main cause for prices, and construction costs increases were minor. The UE post was a while back.

          • Land costs have increased because construction costs for land have increased.

            Since the 1990’s land developers have been hit with a huge increase in costs including
            – Infrastructure levies
            – increased zoning charges
            – provisions for schools, law & order etc
            – GST on all development costs including earthworks, roads, power lines, guttering etc
            – other amenities

            These costs add to land development. They are then past on to buyers so land developers can make a return on their capital.

            People who are ignorant in the workings of the develoment industry simply point to rising land prices and say “aha – its all in the land.

            Any decent analysis shows this to be wrong.

    • And it only took what is basically an “emergency” OCR setting to get those mortgage repayments down. If that trend continues, it’s yet another run down to ZIRP. Not something I’d crow about.

      • ZIRP in the true price of money in a fiat currency based economy (since the marginal cost of producing money is zero).

        • That is the true cost of bringing the product to market.. yes.

          However, as it is a costless product, then production is reliant on behaviour alone.

          The counter party to this, the saver, relies on purchasing parity to remain as a reward for saving.

          They demand a price above 0% because they do not rely on the producers of money to look after their interests effectively.

          • The saver does not have a choice. As the monopoly issuer of AUD, the RBA can set the price of money at any level they wish.

            ZIRP is certain since we have a Federal Government intent of running a surplus, and we a ahve a superannuation system forcing households to borrow.

          • The saver does not have a choice. As the monopoly issuer of AUD, the RBA can set the price of money at any level they wish.

            I understand the mechanics, I am favourable to many aspects of MMT. However if the saver has no choice, then you are going to impact on their behaviour.

            To disincentivise savers is a poor outcome.

            Interest rates are about behaviour, and ZIRP is (yet another) signal to move away from the behaviour of saving.

            ZIRP is certain since we have a Federal Government intent of running a surplus, and we a ahve a superannuation system forcing households to borrow.

            A super system that ‘forces’ people to borrow?

            How do you come to that conclusion?

          • If you understand MMT, you will have a full understanding of the sectorial balances.

            We know the private sector can not net save without
            – Current account surplus (external) and / or
            – Net government spending.

            Since 1996-2008 both of these factors were a DRAIN on private savings. Yet over the same timeframe, superannuation balances swelled by about $600bn.

            So, if the private sector did not get any help from the external or Government sector, where did the Super come from?

            Private Debt.

            Exploding private debt in Australia is from our deeply flawed superannuation system. Not from Housing.

          • Your still an MMT debutante.

            You don’t distinguish between wealth and money in the $600 billion super balance that you cite.

            You can’t link sectoral balances and super like this because you can’t define what super is made up of – assets or money.

            Sectoral balances measures the flow of money. Super (by and large) measures the stock of non-monetary wealth.

            This entire argument is horseshit.

            Seriously, this is what I hate about MMT purists. Most of the time you wave the sectoral balances stuff in front of your face like a talisman aimed at a vampire. Just as often you don’t get the subtleties of your own theory and end up jamming your cross into everyone elses eye.

            Stop pontificating, be a man, and go read DE’s Macro 101 series.

          • If you understand MMT, you will have a full understanding of the sectorial balances.
            We know the private sector can not net save without
            – Current account surplus (external) and / or
            – Net government spending.
            Since 1996-2008 both of these factors were a DRAIN on private savings.

            OK, but the ‘drain’ was not forced, it was voluntary behaviour.

            We had a CAD because people over-reached in terms of consumption, be it fickle consumables, or speculating on housing prices.

            You’re conflating wealth with money here.

            The utility offered by a house, shelter did not enhance by the bogan paying more money for it.

            Yet over the same timeframe, superannuation balances swelled by about $600bn.

            So, if the private sector did not get any help from the external or Government sector, where did the Super come from?

            Private Debt.

            It came from enforced quarantining of a segment of wages.

            A proportion of wealth was restricted from being consumed. Whether this 9% came from the back end (super) or the front end (discretionary consumption from china) in a monetary sense doesn’t mean a great deal. It is still part of the remuneration offered to workers.

            You could make the argument to reduce takehome pay by $600 billion by that logic

            Exploding private debt in Australia is from our deeply flawed superannuation system. Not from Housing.

            Absolute rubbish.

            Aggregate prices of housing exploded from 1.8 times GDP to 4 times GDP.

            That’s over $2 trillion in todays terms, and guess what, it was spent on transacting the same product for the most part, at ever higher and higher prices.

            To accomodate that marginal increase in $2 tril, we went abroad to fund $1 tril, thats the foreign debt associated with it.

            The other $1 tril came from the proceeds of our once in a millenium mining boom.

            And all of this was voluntary behaviour.

            9% into super has absolute nothing to do with it.

      • Jumping jack flash

        And that is precisely why ZIRP is necessary to keep things limping along under our mountain of debt, until it, too, becomes ineffective.

        If lowering interest rates 1% has such a good effect on spending and mortgage stress, why not lower them by another 2%? All things being equal, why not indeed.

    • Many people I know who are renting had to move as their existing home went for sale. Could there be a relationship between rental demand and sales clearance rates?

    • No they didn’t – they had very low replacement cost. That is why Japanese companies were all diversified into property development in the 1980’s. The huge profits were impossible to resist.

      Property developers in the USA made huge profits from 200-2006. That is because prices > replacement cost.

      Australia does not have this feature.

      • OK. In a bubble, replacement costs are “low.” So in your mind, The cost of production is unrelated to replacement cost and is more a function of what the market believes about the future. The Japanese construction industry was infamous for inefficiency and corrupt practices. But that’s an aside.

        • No.

          In my mind, a bubble forms when prices greatly exceed the cost of production (replacement cost). That is waht we saw
          – With the internet bubble in the 1990’s
          – Japanese bubble of the 1980’s
          – US real estate bubble in the 2000’s
          – Chinese proeprty bubble today

          We do not see this in Australia today.

          • So how about what I was talking about? Replacement costs are reflected in the cost of production. You made the point that replacement costs are low in a bubble using Japan as an example. Fair enough. I don’t believe it becuase I know that production costs for construction were some of the highest in history.

          • BB
            “a bubble forms when prices greatly exceed the cost of production”.

            Where is this coming from? I need your reasoning here to know if I want to listen to your ideas in the future.

            It looks like you make your own definitions to back up your logic.

            Bubbles need fools and credit tehy cannot be bubbles if they rely on savings.

    • Perhaps because you persist on parroting spruikalicious propaganda in a manner reminiscent of the infamous Doc Ando Wilson or the iconoclastic CJ?

      • I am parroting no-one (who else taks about repalcement cost?). I am simply presenting some facts. I apologise if they make you feel uncomfortable.

          • Let me get this staight.

            Mirvac losses money therefore real house contstruction costs are increasing?

            This is your data?

            Mate, whatever they are paying you, it is way too much.

  7. “Median weekly household income increased 20 per cent to $1234 from $1027.”

    So at 3x income ($74040), $220K is a fair median in Oz? What is it now, about $470K? Only 54% falls to fair value.

    • Mining BoganMEMBER

      Ha! Told one of my fellow bogans that just this morning.

      Called me a nasty name he did.

  8. George Locust

    A question: does anyone know the historical “real” rate of rent increases. I would expect it matches long term income growth.