Investors see rising mortgage risks

Cross-posted from MARQ Services

Morgij Analytics has this morning released a survey of institutional investors and other financial market participants taken in the latter part of 2014 to gauge respondent’s views of the drivers for Australian housing and mortgage markets for 2015 and beyond.

Survey participants were asked to rate 20 drivers of Australian housing and mortgage markets and the overall index showed a mild negative bias coming in at -1.

A level below 0 reflects the likelihood of increased risks in Australian housing.


Graham Andersen, Chairman and Founder of Morgij Analytics, said:

“What’s clear from the survey is that in a status quo world Australia is at risk but should do okay.

But 2015 is not status quo with unprecedented central bank volatility, slowing global growth, and in the two months since the survey the fears of respondents about a rout in iron ore and LNG prices and the associated impact on growth are already coming true.

Risk in the Australian housing and financial system is growing – it’s just not yet apparent.”

Key takeaways from the survey are :

  • At +1.66 respondents are putting a lot of stock in immigration providing assured increases in population and as a consequence housing demand. Thereby keeping prices up and reducing risk.
  • At +1 respondents agree with Luci Ellis, the RBA’s Head of the Financial Stability Department, that it is Australia’s urbanization that drives more people to want to live in the big cities and so protects prices and reducing risk of a house price crash.
  • -2.24 was the most negative response to any question in the survey and shows respondents were very concerned about the aftermath of the mining/gas investment boom and fall in prices and the impact this is going to have on government revenue, the budget deficit and unemployment. Since the survey iron ore and LNG prices have crashed and MYEFO has recast the deficit. We’d hypothesise that if the survey was taken again today this would be more deeply negative.
  • Australia may have relatively low government debt but respondents were concerned about Australian household mortgage debt with -2.14 the response to the question on the vulnerability for the system arising from this debt needing to be continually passed down to new buyers and home owners.

Noting this fear Graham Andersen said:

“The absence of first home owners and owner occupiers relative to the growth in and over concentration of investors as the drivers of Australian house prices should be viewed as the canary in the coal mine for the sustainability of prices over the long run.”

For Reference: Respondents were asked to rate 20 drivers of the housing and mortgage markets on them having a positive (+1 to +5) or negative (-1 to -5) effect. All drivers and the survey can be accessed at It’s still not too late to provide your views. We intend to leave the survey open through out 2015.

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  1. The number of first time home buyers is pretty much unchanged, it’s just that as a reaction to the loss of the FHOG they are now buying as investors.

    If they remain with their parents it’s probably the safest segment in the banks loan books.

      • Well why don’t you quickly calculate the odds of losing their job, and then the odds of not being able to get another job, and then the odds of being turfed out by their parents, and then the odds of losing their tenant at the same time.

        Oh hell why not throw in an Ebola virus as well.

      • You really just need to look at trends in long-term unemployed, up until recently at long term lows.

        When it starts ticking up, the chances that tenants and landlords alike lose their jobs and can’t find a new job quickly are going up. Even the stay-with-parents crowd have an issue paying their mortgage if they lose their job and they’re negatively geared- their rental income will prevent them getting a job allowance, so they won’t be able to pay the difference.

      • Those risks apply equally across all segments, my statement that this is the safer segment still stands because they have family financial support..

        If you personally wish to avoid all risks at all times, then buying an asset requiring leverage is not for you. That’s your decision to make.

      • “when things start ticking up”, that’s why you have to ” quickly calculate”.

        character homes ( in character suburbs) to the moon.

      • They are ‘safe’ because poor old mum and dad have lodged their homes as security.

        Banks take possession of both homes and sell if the kids can’t make the nut and the kids ‘speculation, sorry, investment creates negative equity.

        Safe as (two) houses – Go Australia

      • I bet you they don’t apply equally.
        Homework for weekend: Compare default rate of young homeowners (say under 35) in 5 random OECD countries between 2008 and 2014 vs all homeowners.

      • Those risks apply equally across all segments, my statement that this is the safer segment still stands because they have family financial support..


        The risks are correlated – different risk categories are affected similarly by the external dynamics (“risks apply equally across all segments”). The inability of credit risk models to deal with the correlation means you can’t assess the risk effectively and neither can anyone else.

        EDIT: There is no safer segment in that scenario.

      • I love it when everyone assumes that the purchase is assisted by a family guarantee and the buyer has zero equity and a low IQ.

        Keep massaging your bias guys.

      • the safer segment still stands because they have family financial support..

        I love it when everyone assumes that the purchase is assisted by a family guarantee


        You told us to assume the existence of a family guarantee…

      • @ stat

        No I made no mention of a family guarantee, only that they continued to live with parents. This is the new class of investor (for a few years actually)

        Well paid, surplus savings, and looking for an investment while remaining at home.

        They have a deposit, a good income, job security, and ongoing family support.

      • if they have a deposit, why did the removal of the FHOG matter?

        I think it was FOMO that drove them to sign up for that interest only loan that they can still only afford whilst living at home with emergency low interest rates

      • Fair enough I misconstrued support. But it doesn’t make much difference when the premise of the discussion is they lost their job, and the prevailing rate of long term unemployment is about 1 in 4 unemployed and likely to rise if unemployment rises.

      • No worries, perhaps my explanation was lacking detail – we move on.

        You made an earlier point that the risk of losing employment may be higher in the youth segment, and I think that has merit, however for the well high earners living at home I’m not aware of any greatly higher risk but if you have data I’d love to see it.

      • flyingfoxMEMBER

        Well paid, surplus savings, and looking for an investment while remaining at home.

        They have a deposit, a good income, job security, and ongoing family support.

        While we fall squarely into that bracket, Oz housing as an investment is the last place I would put my money.

        P.S We don’t live with the parentals…

      • I didn’t say the thing about youth.

        Having thought about it I’m saying two things:
        You only need a couple of the bad things on your list to happen for default to occur.
        Also if these well paid guys are losing their jobs,it’s because there is a widespread problem in the labour market- unemployment has jumped past 7% at least- in which case they won’t find another job and they stand a much higher than usual chance of losing their tenant.

      • @ stat

        But clearly others take a different view and are OK with that risk.

        There is no such thing as zero risk in life, indeed doing nothing has it’s own set of risks.

        I have an application in front of me now for exactly this scenario except he is buying his second investment property and still living at home gratis.

        That’s the present day reality.


      • flyingfoxMEMBER

        But clearly others take a different view and are OK with that risk.

        Having come across some of those. I think they severely underestimate the risks….

      • There are times when it’s an advantage to not fully appreciate the risk. Just ask at the next BBQ and you will get many examples.

      • I love reading the calm way Peter works through his point of view ( everyone has one), and it cant be easy on this site. And just when i thought the message of mortgage, mortgage, mortgage was losing its lustre ( no specific opinion on property choices), or that cracks might be appearing ( ebola !), he throws in the ” second investment property” scenario ( so why don’t you have at least one!).

        Careful Flyingfox, he might have you on his trophy wall yet!.

      • It was a nice touch wasn’t it.

        The Bubonic Plague is so 14th Century and Bird Flu has lost it’s mystique, but Ebola still has panache as well as punch.

        Try it at your next cocktail outing.

        Have a nice weekend all.

      • LOL – only one?

        It’s like virginity, it can be cured.

        Drop around and I’ll whip up a Strawberry Margarita for you.

        Cheers, have to go.

      • Had the chance to buy two small apartments , but strata is a killer. Chose one beautiful character house in good suburb Figure they should hold up well.

        All i want is for Peter to say i did good!, and now hes gone again!.

      • I calculate risk for a living. It’s in a different domain but it’s hard to switch off and unfortunately it disqualifies me from being one if the others.

      • Statsailor, would love to hear how you see it , from a ” calculate risk” point of view.. The fact its in a different industry probably helps to some degree.

        i do wonder what the new BBQ conversation will be.

      • In accurately because the premise of the discussion means the risks are correlated and previous attempts to deal with correlation (David x li and his copula) worked pretty badly. The risks are mostly intrinsically uncorrelated in my area.

      • metezcan111
        Ya did good, we are proud of you.

        I’ll post that Margarita to you.

        stat – my father was in business for most of his adult life and he did very well. He always said that if he knew what he was doing at the time he wouldn’t have.

        Sometimes knowing stuff is a drag on potential.

      • I will sleep well tonight now, i wonder what 2 bed apartments are going for ?, might check around in the morning!.

      • flyingfoxMEMBER

        Sometimes knowing stuff is a drag on potential.

        I should try and repeatedly concuss myself then … how many do I need to get to the average house horny level?

      • Flyingfox, im certainly not saying anyone should buy right now, and if your on the eastern coast anywhere it probably is depressing. But waiting for a 30% correction (?) wont mean much if you end up in the wrong property, whereas a 15% reduction on the house of your dreams might be just around the corner (again might mean nothing in Sydney & Melbourne), point is you have to be looking for what you want, and keep telling yourself that people aren’t going to stop wanting to live here!.

      • @peter_fraser

        Believe me when I say it gives me absolutely no pleasure to say you are totally correct.

    • ‘I can’t afford this, but I’m going to buy it anyway’

      How can someone with no deposit, who relies on negative gearing, and their parents for support, possibly be the safest segment in the banks loan book?

      In the small print of your loan documentation, is there a section that protects child investors who live at home from any financial responsibility?

      Even you must see what’s on the horizon now?

      There are entire rows of houses for sale in my Brisbane Suburb. My landlord has just removed our house from the market as the only offer he received was $45k less than he paid for it 6 years ago, a one off you reckon?

      Its not that Australia is out of fools, they’re stood in front of every for sale sign in the Country, dribbling. Something else is squeezing the market, Credit? Pay cuts? Unemployment? The Gravy Train reaching its final destination?

      Whatever it is, Something’s up in Wonderland, and whilst the crowds have lined up for ride after ride, and gorged themselves on fairy floss and liquid euphoria, I have been preparing to enjoy the amusement park all by myself when they go home with stomach cramps, nausea and empty wallets

      2015 is going to be a belter of a year for JayBone

      • “Wonderland”, absolutely , best description I’ve heard for this casino in yonks., have a great weekend

      • The market ‘was’ quite strong in Wynnum.

        People must have realised that wooden shacks on 1/8th acre in a low socioeconomic area with high crime arent worth an entire lifetime of earnings.

      • Yeah – an hour from the city and yielding 4.9% before costs.

        Half a million to live at Wynnum. That blows me away.

        That said, the agent doesn’t even contemplate anyone actually buying it to live in – 100% aimed an ‘investor’.

        “Investor Opportunity – Long term tenants
        Just buy it then sit back and collect the rent from this lovely well cared-for lowset brick…”

      • flyingfoxMEMBER

        Yeah never did understand Wynnum. Have some friends that bought into one of the newer estates around there a few years back.

        Edit: I suspect Wynnum, Manly etc were popular among the FIFO types being close to the beach and redland etc.

      • Have a client who just bought in Wynnum and looking to buy another. His advice is that people are paying above asking price.

        I never go there myself so I don’t know.

        Redcliffe – similar in a different direction isn’t like that although it’s gaining strength.

        Hard to say what 2015 will be like just yet.

      • flyingfoxMEMBER


        There are always pockets … and stupid people. This friend I was talking about also bought an old house on a large piece of land as a family investment in Wynnum. Paid 850K about 3-5 yrs back. Planning on building townhouses. Dunno how much they have sunk into it thus far but I don’t see them making money out of it in the near future. Told them that flat out back then. And his Mrs is an accountant.

      • FF

        There is money just in getting a DA if the usage is high enough. I don’t know the specific case of course, but it can work.

        A friend was offered $1.7 for a knockdown in Taringa – different area I know.

        Keep your eye on it and see what the end result is.

      • flyingfoxMEMBER


        Not disputing that. Accept they probably overpaid and have probably missed the top of the market…

        Taringa has a lot more higher density being allowed, in demand and going up. You wouldn’t build a few townhouses on it however with few exceptions,

      • Yes high density and demand in Taringa. Close to UQ and shoppingtown.

        I confess that I don’t know the Wynnum market well so you may well be correct, but not much surprises me anymore in property – both up and down.

      • flyingfoxMEMBER


        Yeah. Now that St Lucia is outta space essentially and toowong is becoming pretty expensive, Taringa is a logical hot spot.

        It was under rated for a long time as well.

        In any case, the numbers have to stack up.

  2. The Wynnum property could be worse – it could be in Perth, located right near the coast 15 km from CBD or an hour up/ down the freeway from it. In either case, for the same house add at least $100,000 to the asking price (probably $150,000 would be closer) and maybe $50-$70 a week to the rental. The latter estimate subject to change, weekly, and in a downward trend..

    Crime rates most likely equal, so no differentiator there either.

  3. Income dictates the prices that can be paid (over time). Demand is a red herring.

    If demand were the primary factor, long term, then India should be at the top having the greatest unmet demand for shelter (guess) but that is of course not the case, because the income and inequity cannot support such nonsense.

    Of course there may be localized accept ions.