A staggering 57% of mortgage holders could not handle a $100 increase in their loan repayments, according to new research by Finder.com.au.
This additional $100 is equivalent to an interest rate rise of just 0.45% based on the national average mortgage of $360,600. This means the average standard variable rate of 4.83% would only have to rise to 5.28% to put more than half of mortgage holders in stress.
With increasing interest rates, some borrowers have little breathing room, said Bessie Hassan, money expert at Finder.com.au.
“The typical mortgage holder will begin to struggle once interest rates reach around 5.28% – that’s a pretty small window before borrowing costs start to hurt,” she said.
“The reality is borrowers have over-extended themselves if it only takes a $100 leap in repayments for more than half of homeowners to reach their tipping point.”
Hassan expressed concern about mortgage holders and their exposure to mortgage stress, especially with rising rates forcing borrowers to use a greater percentage of income on their loans.
Looking at higher rate rises, the research found 18% of borrowers could handle a monthly repayment increase of $250 while just 14% could manage $1,000 or more.
There is a $209 monthly difference between the cheapest fixed interest rate (3.59%) and the most expensive (4.59%), Hassan said, meaning borrowers could be “throwing away thousands of dollars” per year.
With the research also showing that 39% of all mortgages are interest-only, this highlights why the Reserve Bank of Australia (RBA) and the Australian Prudential Regulation Authority (APRA) have shown some concern, she added.
Comparing genders, 63% of women and 50% of men would struggle to repay their mortgages with an increase of less than $100 per month.
Across the states, South Australian borrowers were the worst placed with 70% saying they could not handle an increase of less than $100 per month. This figure was lower in New South Wales, Tasmania and Western Australia at 59% and further dropped to 51% in Victoria.
As the RBA said recently:
While the financial position of households has been fairly resilient, vulnerabilities persist for some highly indebted households, especially those located in the resource-rich states.
Household indebtedness (as measured by the ratio of debt to disposable income) has increased further, primarily due to rising levels of housing debt, although weak income growth is also contributing. Rising indebtedness can make households more vulnerable to potential income declines and higher interest rates. This is of most concern for households that have very high levels of debt.
Low interest rates are helping to offset the cost of servicing larger amounts of debt and hence total mortgage servicing costs remain around their recent lows (Graph 2.5). In this regard, lenders have tightened mortgage serviceability assessments in recent years to include larger interest rate buffers, which should provide some protection against the potential effects of higher interest rates.
Prepayments on mortgages increase the resilience of household balance sheets. Aggregate mortgage buffers – balances in offset accounts and redraw facilities – are high, at around 17 per cent of outstanding loan balances or around 2½ years of scheduled repayments at current interest rates. However, these aggregate figures mask significant variation across borrowers, with available data suggesting that around one-third of borrowers have either no accrued buffer or a buffer of less than one month’s repayments. Those with minimal buffers tend to have newer mortgages, or to be lower-income or lower-wealth households.
Nonsense, there’s latent working capacity in the 2 children per household!
SaCo
It would not be Strayan to put them to work. Sell the kids to the nearest work house and you can pay your mortgage and get a new boat too.
Torchwood1979
Indeed. Tie a cart to the little bastards and get them hauling iron ore from Gina’s mines for $4 a day. If the kids do this for 7 days a week and the parents followed Costello’s advice to have three kids that would give them an extra $84 a week, so maybe Mum or Dad could give blow jobs to make up the extra $16.
This housing ponzi greedy rent seeking horse crap country really has driven me to despair.
Barry
+1000. Brilliantly said.
Peachy
Good. But more Australian would be to legalise it for the kiddies to give blowjobs – we could then get$3/hour more from the kids and harvest the rich revenue windfall from pedophile/pederast tourism.
And mum & dad could kick back in the media room.
On second thoughts, don’t even need to legalise prostitution for minors. Just assign to FIRB the responsibility for enforcing the rules about child sex offences.
ErmingtonPlumbingMEMBER
Apparently Pedophiles pay top dollar for the little ones.
AngryMan
Surely it would be more cost effective to sell their organs to wealthy Chinese home owners.
Peachy
“This additional $100 is equivalent to an interest rate rise of just 0.45% based on the national average mortgage of $360,600”
The average mortgage for recent buyers is much much more than $360k, as you can’t buy anything for less than $600k in the major capitals.
evilsync
How is it only $360k?! I don’t get it.
BankWatcherMEMBER
That’s an average outstanding mortgage figure, so includes loans taken out many years ago which will be close to being repaid, as well as the monster mortgages taken out more recently. Also, it’s a whole of country figure which includes houses in all locations and sizes, from cheap as chips sheds in defunct mining towns to the big cities.
OMG
I have to call BS on this article
The last loan I took out was in 2011, at the time interest rates were 7.10% and my repayments were around $2850, of which $2300 was interest, now I pay half that amount a month in interest.
I highly doubt 57% would struggle, gobblegook
SaCo
You forget to mention what happened to your grocery, electricity, fuel bills etc over the same period.
Cornflakes
It is a self-assessed measure. People tend to overstate their inability to cope with adversity. The true figure is unlikely to be as high as 57% but the mind set of the population is that they won’t cope. Any rise in rates will given consumer confidence a swift kick in the pants.
Djenka
Indeed.
“I’ll have to take my food to work every day and have a Moccona instead of latte” kind if a stress…
jimbo
+many. I’ll be damned if I’m forced to give up the five $4 coffees every day, the foxtel, latest iPhone, MacBook, tri-annual Bali holidays, shellack for my nails, the sleeve tatts, new audi every time the old one needs new tyres and so on and so forth. And that’s before they’ve even started living.
travis
think of the upside, it might make a dent in the country’s obesity problem
Kevin
“think of the upside, it might make a dent in the country’s obesity problem”
Unlikely, fake chicken McNuggets will be in their price range, whereas kale, quinoa & avocado salad will be too expensive
The Patrician
They are mortgage brokers spinning for a next Tuesday rate cut, of course it’s BS.
I find these stats hard to believe (70% of South Australians couldn’t afford a $23/week increase in mortgage repayments). I emailed Bessie @ Finder for the survey size and question asked.
AnonNL
Fair call, interested to hear what they come back with.
That said, I do think you underestimate the level of poverty in SA.
No reply via email or Twitter, probably safe to say their stats are full of shit.
Know IdeaMEMBER
Maybe the term “could not handle” in the statement “South Australian borrowers were the worst placed with 70% saying they could not handle an increase of less than $100 per month” should read “would prefer not to handle”. As in: if you keep interest rates lower I will vote for you.
Would be interested to know how robust the research it. Just sounds like a way for them to promote their site.
The Patrician
….and lobby for a “business building” rate cut next Tuesday
VirusMEMBER
I suspect its more like..”we need to find people on the verge of mortgage stress and poll them”. My co-workers on 80K (gross) income with a investment property and staying at home don’t even bat an eyelid when the banks raise interest rates They say “banks have got to do what they have to do, and we have to do what we have got to do…”. I think stress is only for people like me who are paranoid of the entire money-markets!
Rational RadicalMEMBER
And the scaredy bears think prices can just keep on going up indefinitely. LOL. Government will save us! Nope.
The Patrician
It’s the First Tuesday scaredy bears (mortgage brokers) that are peddling this unsubstantiated crashnik nonsense.
jimbo
Pat’s right. And don’t forget even if there is a skerric of truth in this and people are tight, the way to break the poverty trap I’m reliably informed these days is to buy more investment properties. No shit. A good mortgage broker can make all your dreams come true.
Rational RadicalMEMBER
Yeah right, judging by your comments, I rest my case. Scaredy bears actually think Australia is different. And they are more bullish than our own financial regulators. The universe has truly been turned on its axis in this fair land of speculation.
As much as I love to take complete and utter stock in anecdotal MB commenters, I’m much more inclined to believe the likes of Martin North, who has been nothing but circumspect over the years, and is now making it VERY clear how concerning the issue of mortgage stress is. With the secular trend in mortgage rates having about faced, good luck with your rosy “grey-sky thinking”.
If being more bullish than the RBA is now your chosen investment strategy, good luck to you sirs!
paulF
What are you basing that ‘Nope’ on? Neither history nor reality are on your side with this one!
Rational RadicalMEMBER
You seem to have fallen for that old “past performance is guarantee of future gains” rubbish. Who’s reality is it that needs checking? Have you not followed the news over the last month or two? I covered this at length in my recent article (cross-posted here: http://www.macrobusiness.com.au/2017/04/the-great-housing-bubble-arse-covering-begins), but to reiterate using a comment from another thread:
“Seems logical on past performance, but completely anecdotal on current evidence. I for one am in the “inevitable” NOT “imminent” camp, but as I wrote about at length recently, even the bears are trapped in a “grey/blue” sky thinking, where they have come to majorly underestimate changing regulatory, political and international credit pressures. The terminal imbalances in our economy and financial system do not warrant another 2 / 5 / 7 years of 4x wage price rises – cuz if it does continue for even a short time in that way, rate hikes will rain down, blowing this shit-stack sky high anyway.
I’m of course deeply cynical about our leaders and regulators, but if you’ve at all been aggregating and parsing the news of the last few months, then you will know they have reached an uncle point, and must now at the very least cover ass. That cover-ass move is evidence of panic, given the historically proven track record of ignoring risk.
I don’t know what the trigger is (or when), but it is likely in my view to be any/all of souring apartment settlements, interest-only sub-primers realising some losses, superannuants cashing out etc. All that is really needed to get a self-fulfilling crash started is for the medium term prospects for capital gains to vanish. This is unlike previous such episodes, because the message is being sold by regulators, acted on by banks and further macro tightening, a (questionable) slowing of foreign capital inflows, mounting political/fiscal pressures on housing lurks, and most importantly utterly terminal affordability and debt constraints.
If you see a way through all that for continued ‘fingers-in-the-ears LALALALA’ prices always go up bubble psychology, then you are likely misreading the long history of Minsky Moments, and ironically are probably now more bullish on house prices than the Reserve Bank of Australia.
Says it all if you ask me ?”
Rational RadicalMEMBER
P.S. For a great unfolding example of how the genuine bubble top might look, go no further than Toronto / Vancouver, and the eminently wise words of Garth Turner. Check out those headlines in Toronto. The sheeple are too ignorant to be able to suffer those for long. Which is why irrational exuberance / greed on the way up is always matched by irrational panic / fear on the way down. I watch CA with much interest, as well as the other participants in the “Great Former British Colony Real-Estate Bubble”:
I read your comments from before and i also read the article on your own site which was a great read by the way.
I have followed the news and have been following this bubble for way too many years and bought a PPOR in 2014 when MB was preaching the mother of all crashes like now. Guess what, no crash so far. That does’t mean things can’t or won’t go south but my comment about history not being on your side is in regards to what the government and the RBA will do if they feel that things are starting to go south.
RBA can cut the rates, Government can spend on infrastructure to keep the economy moving and can regulate to keep this shit going for many more years to come. I prefer to take advantage of this than sit on the sides and only read the doom and gloom side of things.
I completely agree that we have a bubble that is not sustainable but i don’t agree that every time a regulator or someone makes some noise and doesn’t take action or waves a lettuce leaf, that property will come crashing down.
Also,the scenario of people rushing to the exit is very unlikely.As long as people have their jobs and they can still service their loans, no one will be jumping ship. Also, negative gearing is still around so that will help offset losses from bank rate rises too helping investors hold on to their IP’s for longer.
Another thing to keep in mind is the amount of properties that the average investor owns and almost 80% of investors own only 1IP and around 10% own 2 IPs (you can get exact figures from the ATO’s tax statistics). So for the “Herd” to rush to the exit, you would need the majority to be too mortgaged to the hilt and not being able to service their loans for this scenario to happen. Unlikely based on the RBA and ABS latest numbers(employment, offset buffers…)
Rational RadicalMEMBER
Well that’s where you and I will have to part ways on opinion. There are way too many absolutes in your response there to be taken very seriously, despite having “history on your side” as you say.
Eg: “As long as people have their jobs and they can still service their loans, no one will be jumping ship.”… Sorry, but how exactly did that work in every other housing bubble crash in Australia’s history and in comparable nations in recent history?
And: “So for the “Herd” to rush to the exit, you would need the majority to be too mortgaged to the hilt and not being able to service their loans for this scenario to happen”. Umm no you don’t, as per infallible bubble history, all you need is for people to change their minds about prospects for capital gains. No amount of government / regulatory intervention is gonna stop that penny from eventually dropping. Greed = Fear = Panic. If you agree that it’s a bubble, then you will also agree that irrational exuberance is interchangeable with irrational revulsion / terror when reality finally rears it’s head. That’s what so many former-bears around this site seem to keep ignoring, even our fearless authors.
I specifically point out to folks time and again the difference between inevitability and imminence, but at this stage, none of the anecdotal “government / RBA will X, Y, Z…, capital floodgates will be opened…. more immigrants… blah blah blah” is actually rooted in reality based on recent changing political and regulatory pressures.
Such hopeful “analysis” is rooted in make believe and scepticism, not the terminal build up of vectors moving against further endless price appreciation. Whatever your individual limited opinions of recent official moves and changing bubble psychology may be, my own view is far more based in reality – when considering the VERY long history of debt-fuelled bubbles, and attempts by officials to keep the party going at all costs (which always ultimately fail in real speculative bubbles – which you profess to believe in).
So if you want to make the bet that history is on YOUR side, and bet against the RBA, ratings agencies, offshore lenders, out-of-cycle rate hikes, capital controls in China, apartment oversupply, terminal affordability and mortgage stress, pending construction and manufacturing employment bust, pending terms of trade reversion, record low wage growth, record low rental yields etc etc etc, then I’ll take that bet.
If “history”, in it’s fulness, is actually going to be our true guide, then it will most likely be on the side of the person who decided that property in 2005 was overvalued, even if it takes a decade to get there. But I feel your pain, so you know, whatever helps you sleep at night!
alterbrainMEMBER
@Rational Rad. Really appreciate your perspective. Quantifying the exact quantum of stress is tricky. We can see renters are struggling. We can see retail struggling, and it’s not all Amazon. Are the claimed percentages exactly right? No, it’s an estimate, but it’s also an indicator.
Many home owners have stretched for investment property. So even if the PPOR is healthy, the overall picture may not be. My concern was the Irish property market. The problem was the high proportion of investors. When the prospect of capital gains disappeared, with just two quarters of negative growth, the rush for the exit began. Looking at the changing drivers, particularly the changing immigration sentiment, there is structural change occurring. Slow to be sure, but changing. I see the first stages being orderly, but a high chance of a dramatic change after that.
Robert
Quantifying the exact quantum of stress is tricky
Yes, you need a way to quantify how stressed people feel.
I’d suggest the number of alcohol units or the daily dose of Xanax required to reduce the stress to a manageable level as a possible measure.
armchair economist
MB now peddling fake news? What garbage is this? Where is the data, where is the supporting evidence? ..SHAME SHAME SHAME….why would anyone give their money to propagandists to manage?
reusachtigeMEMBER
Rubbish!
Djenka
Indeed.
Here’s a correction: “$100 $50 separates Australia from a housing crash, apparently”
logan
too right
Cornflakes
There must be a risk that other cost shock to household budgets will likely add to the pressure. For example, power bills are set to rise with the Gas crisis, so households could easily see additional pressure (say $25 a month) before interest rates are considered. Likewise a fall in the AUD will send up petrol prices which is likely to impact many households.
Andrew
Exactly right, with wage growth say 2%, the cost of living increases from utilities, petrol, health and education look genuinely daunting. Household budgets are on a knife’s edge. Tick, tock…
LabrynthMEMBER
Thank god for Deliveroo, Uber and airbnb. All three combined must add a total of $400 per week to household income after finishing their normal full time work. They can then further stretch it by starting to Ebay/gumtree their belongings for those really tight weeks. That means we have plenty of time before people are absolutely stretched. Isn’t there the saying that people will do whatever necessary to keep the family house, something something….
Joel
Yes, I am suplementing my income by becoming a deliveroo deliverer for my own takeaway. So I order my food and take the gig to go and pick it up and driver it to myself!
Cornflakes
I go so far as to cook my own food, deliver it to myself and that way I only have to pay the commission to the delivery service. 🙂
Joel
Genius! You should take an Uber to do so, for the maximum economic activity.
Jobs and growth!
Cornflakes
I would but my car is too old to be registered as an Uber! 🙂
Joel
How about your extend a peer-to-peer loan to yourself to buy a new car and become an über driver chauferting yourself around?
Where’s the entrepreneurial spirit?
UptownFunk
Hope you report the income to Centrelink … otherwise could get a Robo Debt Notice …don”t want that to happen.
marked64
You’re forgetting seeking arrangement.
Maybe Reus can comment if there’s been an uptick in ladies offering their services in exchange for some property investment “mentoring”
Mr Walker
Reus wouldn’t notice. He’s a property investor, remember. They’re all incredibly attractive, and have all the members of the opposite sex throwing themselves at them constantly. 😀
What has crashed other markets on this planet including north west Australia was not higher interest rates but lack of idiots (buyers) who ran out desire to speculate and banksters getting ever more jittery. This situation is sure as hell on the way to the “mad” markets of Sydney and Melbourne as well. Debt driven speculation relies wholly on the belief that there will always be a bigger fool and the ever accelerating availability of credit. The rest of common knowledge.
Djenka
” lack of idiots (buyers) who ran out desire to speculate ”
that could be well correlated to the interest rates mate,
if projected gains are not sufficient to offset projected losses… exodus
Yo Logan, just a minor technicality, isn’t it? Interest only loans are similar to the U.S. teaser loans that would reset to higher rates in future months or years. It obviously means those loans will have to be refinanced as principal and interest at a time lenders start getting panicky about the values of their collaterals. I am certainly not envious of the predicament property specufestors are in!
paulF
APRA has and hence macro prudential 2.0… although too late for the party…
coolnik
RBA rate review meeting must be around the corner!
The Patrician
Bingo. Look at the source.
Andrew
I think the source has its own interests at the forefront of the “findings” rather than the RBA.
proofreadersMEMBER
There’s always the continuing solution to this – the RBA drops the cash rate, and the banks drop their lending rates and then yet again drop deposit rates to continue raping depositors over and over.
logan
LAWL! they can’t… that’s why… only monthly increases little froggy…
VirusMEMBER
Genuine question. New financial year is just around the corner. In the new financial year, what is stopping banks from dropping the interest rate to 2.99% for investors/OO for one or two months to lap up the market, reach the 10% APRA cap and shut the door again for the rest of the year! Once the herd is in, it is easier to milk.
paulF
Basil 4 requirements would halt that trajectory. They need more capital and raising rates is the only way of doing that. Also, keep in mind that if the Fed raises, they will follow which is the most likely scenario so far.
travis
agreed and it’s practically guaranteed they will have to follow suit. At the margin that incremental dollar about to be invested into debt markets will instead go to US Treasuries (risk adjusted) if the likes of CBA/ANZ/NAB/WBC don’t raise their rates
logan
LAWL! they can’t… that’s why… only monthly increases little froggy…
ErmingtonPlumbingMEMBER
My greater concern is for Baristas, those poor bastards are fu#ked if interest rates go up $100 per week.
Thats about how much of my money goes to soy chi lattes per week.
hamish
As much as you say that in jest, it’s true that discretionary spending would take a hit with any rate rise as it would act like an income tax increase on a large percentage of the population.
Owen
Hundred bucks less and they might have to downgrade to a Toyota or even a Hyundai. The horror!
FeknameMEMBER
I wouldn’t put much stock in this. I know that if asked I would totally lie about my spending capacity. If you were to walk into Coles and there was a survey “Would you be willing to pay $2 more for the exact same thing you’re getting right now?” I would definitely lie. There is no gain to me telling the world I have wiggle room.
Just because a third party asks doesn’t mean I suddenly forget that their results can be sold to either government or corporation.
Do ya think Joes gona sell any of that “Art” of his?
Depressing clip brother.
logan
so 2 more months hey? I don’t see anything but 25-30bps monthly raises for next 3 years. There will be no more cuts… sell – you dumb c–ts…
p.s. it seems most of MB members are perma-bulls?!?
Jason
Isn’t finder.com.au a comparison site? As part of the $100 a month scare tactic, the mention of the the range in rates of between 3.59% and 4.59% is invitation to visit their site to make sure you are as far away from the $100 a month as possible.
Nonsense, there’s latent working capacity in the 2 children per household!
It would not be Strayan to put them to work. Sell the kids to the nearest work house and you can pay your mortgage and get a new boat too.
Indeed. Tie a cart to the little bastards and get them hauling iron ore from Gina’s mines for $4 a day. If the kids do this for 7 days a week and the parents followed Costello’s advice to have three kids that would give them an extra $84 a week, so maybe Mum or Dad could give blow jobs to make up the extra $16.
This housing ponzi greedy rent seeking horse crap country really has driven me to despair.
+1000. Brilliantly said.
Good. But more Australian would be to legalise it for the kiddies to give blowjobs – we could then get$3/hour more from the kids and harvest the rich revenue windfall from pedophile/pederast tourism.
And mum & dad could kick back in the media room.
On second thoughts, don’t even need to legalise prostitution for minors. Just assign to FIRB the responsibility for enforcing the rules about child sex offences.
Apparently Pedophiles pay top dollar for the little ones.
Surely it would be more cost effective to sell their organs to wealthy Chinese home owners.
“This additional $100 is equivalent to an interest rate rise of just 0.45% based on the national average mortgage of $360,600”
The average mortgage for recent buyers is much much more than $360k, as you can’t buy anything for less than $600k in the major capitals.
How is it only $360k?! I don’t get it.
That’s an average outstanding mortgage figure, so includes loans taken out many years ago which will be close to being repaid, as well as the monster mortgages taken out more recently. Also, it’s a whole of country figure which includes houses in all locations and sizes, from cheap as chips sheds in defunct mining towns to the big cities.
I have to call BS on this article
The last loan I took out was in 2011, at the time interest rates were 7.10% and my repayments were around $2850, of which $2300 was interest, now I pay half that amount a month in interest.
I highly doubt 57% would struggle, gobblegook
You forget to mention what happened to your grocery, electricity, fuel bills etc over the same period.
It is a self-assessed measure. People tend to overstate their inability to cope with adversity. The true figure is unlikely to be as high as 57% but the mind set of the population is that they won’t cope. Any rise in rates will given consumer confidence a swift kick in the pants.
Indeed.
“I’ll have to take my food to work every day and have a Moccona instead of latte” kind if a stress…
+many. I’ll be damned if I’m forced to give up the five $4 coffees every day, the foxtel, latest iPhone, MacBook, tri-annual Bali holidays, shellack for my nails, the sleeve tatts, new audi every time the old one needs new tyres and so on and so forth. And that’s before they’ve even started living.
think of the upside, it might make a dent in the country’s obesity problem
“think of the upside, it might make a dent in the country’s obesity problem”
Unlikely, fake chicken McNuggets will be in their price range, whereas kale, quinoa & avocado salad will be too expensive
They are mortgage brokers spinning for a next Tuesday rate cut, of course it’s BS.
I find these stats hard to believe (70% of South Australians couldn’t afford a $23/week increase in mortgage repayments). I emailed Bessie @ Finder for the survey size and question asked.
Fair call, interested to hear what they come back with.
That said, I do think you underestimate the level of poverty in SA.
No reply via email or Twitter, probably safe to say their stats are full of shit.
Maybe the term “could not handle” in the statement “South Australian borrowers were the worst placed with 70% saying they could not handle an increase of less than $100 per month” should read “would prefer not to handle”. As in: if you keep interest rates lower I will vote for you.
“would prefer not to handle”, if that were the case, please include me in the 70% 😉
I presumed it was $433.33 a month = $100/wk
That I could understand people struggling with, but nope… “It would take less than a $100 rise in monthly repayments before…”
There is no use of the word “monthly” in such sentence and in any relation to $100 bucks per loan payment in above text.
But you are likely right…
That text is from the original article on Finder.
Would be interested to know how robust the research it. Just sounds like a way for them to promote their site.
….and lobby for a “business building” rate cut next Tuesday
I suspect its more like..”we need to find people on the verge of mortgage stress and poll them”. My co-workers on 80K (gross) income with a investment property and staying at home don’t even bat an eyelid when the banks raise interest rates They say “banks have got to do what they have to do, and we have to do what we have got to do…”. I think stress is only for people like me who are paranoid of the entire money-markets!
And the scaredy bears think prices can just keep on going up indefinitely. LOL. Government will save us! Nope.
It’s the First Tuesday scaredy bears (mortgage brokers) that are peddling this unsubstantiated crashnik nonsense.
Pat’s right. And don’t forget even if there is a skerric of truth in this and people are tight, the way to break the poverty trap I’m reliably informed these days is to buy more investment properties. No shit. A good mortgage broker can make all your dreams come true.
Yeah right, judging by your comments, I rest my case. Scaredy bears actually think Australia is different. And they are more bullish than our own financial regulators. The universe has truly been turned on its axis in this fair land of speculation.
As much as I love to take complete and utter stock in anecdotal MB commenters, I’m much more inclined to believe the likes of Martin North, who has been nothing but circumspect over the years, and is now making it VERY clear how concerning the issue of mortgage stress is. With the secular trend in mortgage rates having about faced, good luck with your rosy “grey-sky thinking”.
If being more bullish than the RBA is now your chosen investment strategy, good luck to you sirs!
What are you basing that ‘Nope’ on? Neither history nor reality are on your side with this one!
You seem to have fallen for that old “past performance is guarantee of future gains” rubbish. Who’s reality is it that needs checking? Have you not followed the news over the last month or two? I covered this at length in my recent article (cross-posted here: http://www.macrobusiness.com.au/2017/04/the-great-housing-bubble-arse-covering-begins), but to reiterate using a comment from another thread:
“Seems logical on past performance, but completely anecdotal on current evidence. I for one am in the “inevitable” NOT “imminent” camp, but as I wrote about at length recently, even the bears are trapped in a “grey/blue” sky thinking, where they have come to majorly underestimate changing regulatory, political and international credit pressures. The terminal imbalances in our economy and financial system do not warrant another 2 / 5 / 7 years of 4x wage price rises – cuz if it does continue for even a short time in that way, rate hikes will rain down, blowing this shit-stack sky high anyway.
I’m of course deeply cynical about our leaders and regulators, but if you’ve at all been aggregating and parsing the news of the last few months, then you will know they have reached an uncle point, and must now at the very least cover ass. That cover-ass move is evidence of panic, given the historically proven track record of ignoring risk.
I don’t know what the trigger is (or when), but it is likely in my view to be any/all of souring apartment settlements, interest-only sub-primers realising some losses, superannuants cashing out etc. All that is really needed to get a self-fulfilling crash started is for the medium term prospects for capital gains to vanish. This is unlike previous such episodes, because the message is being sold by regulators, acted on by banks and further macro tightening, a (questionable) slowing of foreign capital inflows, mounting political/fiscal pressures on housing lurks, and most importantly utterly terminal affordability and debt constraints.
If you see a way through all that for continued ‘fingers-in-the-ears LALALALA’ prices always go up bubble psychology, then you are likely misreading the long history of Minsky Moments, and ironically are probably now more bullish on house prices than the Reserve Bank of Australia.
Says it all if you ask me ?”
P.S. For a great unfolding example of how the genuine bubble top might look, go no further than Toronto / Vancouver, and the eminently wise words of Garth Turner. Check out those headlines in Toronto. The sheeple are too ignorant to be able to suffer those for long. Which is why irrational exuberance / greed on the way up is always matched by irrational panic / fear on the way down. I watch CA with much interest, as well as the other participants in the “Great Former British Colony Real-Estate Bubble”:
http://www.greaterfool.ca/2017/04/17/oops-2/
I read your comments from before and i also read the article on your own site which was a great read by the way.
I have followed the news and have been following this bubble for way too many years and bought a PPOR in 2014 when MB was preaching the mother of all crashes like now. Guess what, no crash so far. That does’t mean things can’t or won’t go south but my comment about history not being on your side is in regards to what the government and the RBA will do if they feel that things are starting to go south.
RBA can cut the rates, Government can spend on infrastructure to keep the economy moving and can regulate to keep this shit going for many more years to come. I prefer to take advantage of this than sit on the sides and only read the doom and gloom side of things.
I completely agree that we have a bubble that is not sustainable but i don’t agree that every time a regulator or someone makes some noise and doesn’t take action or waves a lettuce leaf, that property will come crashing down.
Also,the scenario of people rushing to the exit is very unlikely.As long as people have their jobs and they can still service their loans, no one will be jumping ship. Also, negative gearing is still around so that will help offset losses from bank rate rises too helping investors hold on to their IP’s for longer.
Another thing to keep in mind is the amount of properties that the average investor owns and almost 80% of investors own only 1IP and around 10% own 2 IPs (you can get exact figures from the ATO’s tax statistics). So for the “Herd” to rush to the exit, you would need the majority to be too mortgaged to the hilt and not being able to service their loans for this scenario to happen. Unlikely based on the RBA and ABS latest numbers(employment, offset buffers…)
Well that’s where you and I will have to part ways on opinion. There are way too many absolutes in your response there to be taken very seriously, despite having “history on your side” as you say.
Eg: “As long as people have their jobs and they can still service their loans, no one will be jumping ship.”… Sorry, but how exactly did that work in every other housing bubble crash in Australia’s history and in comparable nations in recent history?
And: “So for the “Herd” to rush to the exit, you would need the majority to be too mortgaged to the hilt and not being able to service their loans for this scenario to happen”. Umm no you don’t, as per infallible bubble history, all you need is for people to change their minds about prospects for capital gains. No amount of government / regulatory intervention is gonna stop that penny from eventually dropping. Greed = Fear = Panic. If you agree that it’s a bubble, then you will also agree that irrational exuberance is interchangeable with irrational revulsion / terror when reality finally rears it’s head. That’s what so many former-bears around this site seem to keep ignoring, even our fearless authors.
I specifically point out to folks time and again the difference between inevitability and imminence, but at this stage, none of the anecdotal “government / RBA will X, Y, Z…, capital floodgates will be opened…. more immigrants… blah blah blah” is actually rooted in reality based on recent changing political and regulatory pressures.
Such hopeful “analysis” is rooted in make believe and scepticism, not the terminal build up of vectors moving against further endless price appreciation. Whatever your individual limited opinions of recent official moves and changing bubble psychology may be, my own view is far more based in reality – when considering the VERY long history of debt-fuelled bubbles, and attempts by officials to keep the party going at all costs (which always ultimately fail in real speculative bubbles – which you profess to believe in).
So if you want to make the bet that history is on YOUR side, and bet against the RBA, ratings agencies, offshore lenders, out-of-cycle rate hikes, capital controls in China, apartment oversupply, terminal affordability and mortgage stress, pending construction and manufacturing employment bust, pending terms of trade reversion, record low wage growth, record low rental yields etc etc etc, then I’ll take that bet.
If “history”, in it’s fulness, is actually going to be our true guide, then it will most likely be on the side of the person who decided that property in 2005 was overvalued, even if it takes a decade to get there. But I feel your pain, so you know, whatever helps you sleep at night!
@Rational Rad. Really appreciate your perspective. Quantifying the exact quantum of stress is tricky. We can see renters are struggling. We can see retail struggling, and it’s not all Amazon. Are the claimed percentages exactly right? No, it’s an estimate, but it’s also an indicator.
Many home owners have stretched for investment property. So even if the PPOR is healthy, the overall picture may not be. My concern was the Irish property market. The problem was the high proportion of investors. When the prospect of capital gains disappeared, with just two quarters of negative growth, the rush for the exit began. Looking at the changing drivers, particularly the changing immigration sentiment, there is structural change occurring. Slow to be sure, but changing. I see the first stages being orderly, but a high chance of a dramatic change after that.
Quantifying the exact quantum of stress is tricky
Yes, you need a way to quantify how stressed people feel.
I’d suggest the number of alcohol units or the daily dose of Xanax required to reduce the stress to a manageable level as a possible measure.
MB now peddling fake news? What garbage is this? Where is the data, where is the supporting evidence? ..SHAME SHAME SHAME….why would anyone give their money to propagandists to manage?
Rubbish!
Indeed.
Here’s a correction:
“
$100$50 separates Australia from a housing crash, apparently”too right
There must be a risk that other cost shock to household budgets will likely add to the pressure. For example, power bills are set to rise with the Gas crisis, so households could easily see additional pressure (say $25 a month) before interest rates are considered. Likewise a fall in the AUD will send up petrol prices which is likely to impact many households.
Exactly right, with wage growth say 2%, the cost of living increases from utilities, petrol, health and education look genuinely daunting. Household budgets are on a knife’s edge. Tick, tock…
Thank god for Deliveroo, Uber and airbnb. All three combined must add a total of $400 per week to household income after finishing their normal full time work. They can then further stretch it by starting to Ebay/gumtree their belongings for those really tight weeks. That means we have plenty of time before people are absolutely stretched. Isn’t there the saying that people will do whatever necessary to keep the family house, something something….
Yes, I am suplementing my income by becoming a deliveroo deliverer for my own takeaway. So I order my food and take the gig to go and pick it up and driver it to myself!
I go so far as to cook my own food, deliver it to myself and that way I only have to pay the commission to the delivery service. 🙂
Genius! You should take an Uber to do so, for the maximum economic activity.
Jobs and growth!
I would but my car is too old to be registered as an Uber! 🙂
How about your extend a peer-to-peer loan to yourself to buy a new car and become an über driver chauferting yourself around?
Where’s the entrepreneurial spirit?
Hope you report the income to Centrelink … otherwise could get a Robo Debt Notice …don”t want that to happen.
You’re forgetting seeking arrangement.
Maybe Reus can comment if there’s been an uptick in ladies offering their services in exchange for some property investment “mentoring”
Reus wouldn’t notice. He’s a property investor, remember. They’re all incredibly attractive, and have all the members of the opposite sex throwing themselves at them constantly. 😀
What has crashed other markets on this planet including north west Australia was not higher interest rates but lack of idiots (buyers) who ran out desire to speculate and banksters getting ever more jittery. This situation is sure as hell on the way to the “mad” markets of Sydney and Melbourne as well. Debt driven speculation relies wholly on the belief that there will always be a bigger fool and the ever accelerating availability of credit. The rest of common knowledge.
” lack of idiots (buyers) who ran out desire to speculate ”
that could be well correlated to the interest rates mate,
if projected gains are not sufficient to offset projected losses… exodus
absolutely… why hasn’t anyone questioned the ~40% overall IO loans…. that’s f*&king totally INSANE!!!111!!!!11!!!
Yo Logan, just a minor technicality, isn’t it? Interest only loans are similar to the U.S. teaser loans that would reset to higher rates in future months or years. It obviously means those loans will have to be refinanced as principal and interest at a time lenders start getting panicky about the values of their collaterals. I am certainly not envious of the predicament property specufestors are in!
APRA has and hence macro prudential 2.0… although too late for the party…
RBA rate review meeting must be around the corner!
Bingo. Look at the source.
I think the source has its own interests at the forefront of the “findings” rather than the RBA.
There’s always the continuing solution to this – the RBA drops the cash rate, and the banks drop their lending rates and then yet again drop deposit rates to continue raping depositors over and over.
LAWL! they can’t… that’s why… only monthly increases little froggy…
Genuine question. New financial year is just around the corner. In the new financial year, what is stopping banks from dropping the interest rate to 2.99% for investors/OO for one or two months to lap up the market, reach the 10% APRA cap and shut the door again for the rest of the year! Once the herd is in, it is easier to milk.
Basil 4 requirements would halt that trajectory. They need more capital and raising rates is the only way of doing that. Also, keep in mind that if the Fed raises, they will follow which is the most likely scenario so far.
agreed and it’s practically guaranteed they will have to follow suit. At the margin that incremental dollar about to be invested into debt markets will instead go to US Treasuries (risk adjusted) if the likes of CBA/ANZ/NAB/WBC don’t raise their rates
LAWL! they can’t… that’s why… only monthly increases little froggy…
My greater concern is for Baristas, those poor bastards are fu#ked if interest rates go up $100 per week.
Thats about how much of my money goes to soy chi lattes per week.
As much as you say that in jest, it’s true that discretionary spending would take a hit with any rate rise as it would act like an income tax increase on a large percentage of the population.
Hundred bucks less and they might have to downgrade to a Toyota or even a Hyundai. The horror!
I wouldn’t put much stock in this. I know that if asked I would totally lie about my spending capacity. If you were to walk into Coles and there was a survey “Would you be willing to pay $2 more for the exact same thing you’re getting right now?” I would definitely lie. There is no gain to me telling the world I have wiggle room.
Just because a third party asks doesn’t mean I suddenly forget that their results can be sold to either government or corporation.
Wanna see where ex housing speculators now live in the U.S.?
https://www.youtube.com/watch?v=cKKevvSQ2s4
Do ya think Joes gona sell any of that “Art” of his?
Depressing clip brother.
so 2 more months hey? I don’t see anything but 25-30bps monthly raises for next 3 years. There will be no more cuts… sell – you dumb c–ts…
p.s. it seems most of MB members are perma-bulls?!?
Isn’t finder.com.au a comparison site? As part of the $100 a month scare tactic, the mention of the the range in rates of between 3.59% and 4.59% is invitation to visit their site to make sure you are as far away from the $100 a month as possible.
Oh year, WA was yet another place that could not ever fall because of blah blah blah blah blah blah;
http://www.abc.net.au/news/2017-04-26/perth-housing-slump-a-lesson-for-sydney-and-melbourne/8473174