Property investor confidence craters

Via Martin North:

Following on from our mortgage stress report for December 2018, which we released yesterday, we complete our monthly data series with the release of the December Household Financial Confidence Index, our gauge of how households are feeling about their financial situation.

The overall index fell again in December to an all-time low of 87.3 (which is strange given the Government’s assertion the economy is in fine fettle!

The DFA index can be segmented a number of different ways, to home in on which households are most concerned about the state of their finances. A significant factor is whether households are property owning, and whether they are mortgaged. Households who hold property, but no mortgage are the most confident and above the 100 neutral setting, although confidence in this group is falling. Those with a mortgage are well below the neutral measure, and confidence for this group continues to fall. Those in the rental sector, or living with friends or family are less confident, though recent wage rises and falling rents have had a slightly positive impact this month.

 

Within the property holding segment, we can also separate property investors from owner occupied households. Significantly property investors have gone very negative now, thanks to falling property prices, rising mortgage costs and income:

Within the property holding segment, we can also separate property investors from owner occupied households. Significantly property investors have gone very negative now, thanks to falling property prices, rising mortgage costs and issues with mortgage refinancing. The threats to negative gearing are also in play. Concerns about rising mortgage rates are building (Bank of Queensland moved yesterday!). Owner occupied property holders are more positive, those with mortgages and those mortgage free are both within this segment. Property inactive households – those with no exposure to property – are slightly more confident than property investors.

We can also examine the data across the main states. When we do that we find a “bunching” of scores, as NSW and VIC come off their highs (the main centres in which property prices are falling).

South Australian households have remained more positive, while Victorian households have taken something of a dive -as prices are moving south at a faster clip. And we can also look at the age band data.

Here, younger households remain the least confident, and the general slide continues across the age bands, other than those aged 50-60 – who are less likely to hold mortgages, so more likely to reside in the “Free Affluent” segment.

We can then look at the data drivers for the index.

Job security shows a spike in those feeling less secure, up 3% – and workers in the construction and real estate sectors have become more concerned. There was a fall of 1.7% in those feeling more secure than a year ago, at 11%. 53% of households reported no change than a year ago, down 2%.

Savings are taking a beating, with more households tapping to savings to sustain their budgets, and also being hit by falls in interest rates on deposits and falls/volatility in the share markets. 2% only, are more comfortable than a year ago, 46% less comfortable, and 51% about the same.

Debt remains a major source of concern for many households. Whilst overall personal credit (other than for mortgages) is falling there are credit hot spots where households under pressure are putting more on credit cards, using staged repayment products like Afterpay, or even Payday loans. Many households are finding their large mortgages more difficult to handle (as reflected in our stress reports). Around 1.5% of households are feeling more comfortable than a year ago, 46% less comfortable and 51% about the same.

Household income remains under pressure, with many reporting no increase in real incomes in the past 5 years. Many households are working multiple jobs, and are still underemployed. In addition, the interest on deposits held with the banks have fallen significantly, as they trim their interest rates to protect their margins. 4% said their income in real terms had risen, 53% said it had fallen and 43% said there was no change.

Households reported continued rising living costs in December with and additional 1.5%, or a total of 86% saying costs, in real terms had risen. 5% said they had fallen and 8% said there was no change. As well as the usual suspects – higher electricity costs, health care, child care and some food costs, a number of households reported rises in land tax as a concern. Once again the official CPI seems disconnected from the true experiences of many households, costs continue to rise and fast!

Finally, we look at Net Worth – Assets less loans owning. We see a rise in those reporting a fall, directly associated with the fall in home prices, 34% said their net worth had dropped in the past year, 33% said it had improved, and 29% said it was about the same. So whilst for some the “wealth effect” is intact, one third are feeling the effects of a reduction in wealth on paper, and as a result they are more cautious on their planned spending. This is sufficient to slow consumption ahead, and may well impact GDP as a result.

In summary then, we continue to see the same forces in play, in that as home prices slide and costs rise, household finances are under pressure. But the effects are not uniform, those with mortgages, and younger are most impacted. But the recent stock market ructions and lower returns on deposits are also biting.

Comments

    • Someone who would rescue property investors again. Someone like Krudd with his tripling of FHOG, and opening up the borders to foreign investors. Given the chance again, I am sure Krudd could do something even more innovative like excluding rent as taxable income, double counting NG tax deductions, or automatic PR for anyone who buys a property.

      • Well Bowen is going to be treasurer and Bowen was the guy who opened existing Australian housing to foreigners when he was Assistant Treasurer in 2008.

  1. Interesting. I was having a pre-Christmas drink with the sibling of a senior RBA committee member and this person was telling me that they were looking to pick up a bargain (in Sydney) having sold up some time ago. I presumed that they’d originally sold on advice of their more learned sibling but starting the hunt right now seems a little premature (to me).

    The question remains: do the gurus at the RBA actually understand what’s really going on or are they truly wedded to their infamous ‘models’ as many suggest? Rate cuts on deck soon, perhaps?

  2. Jumping jack flash

    “Many households are finding their large mortgages more difficult to handle (as reflected in our stress reports). Around 1.5% of households are feeling more comfortable than a year ago, 46% less comfortable and 51% about the same.”

    Mortgage fatigue is setting in for a lot of people. It takes about 5 to 7 years after taking out a mega mortgage and “doing without” to service it before it gets tiresome. One can only eat so much 2-minute noodles before they throw the bowl of curly death across the faux granite benchtop onto the white glossy tiled kitchen floor and scream “no more!”

    A climb up to the next “rung” on the “ladder” was usually enough to reset it. Just pile on more debt, feel the warm wealth spray all over you, and bask in the afterglow for another 5 years.

    But those heady days of easy cheap debt are pretty much over unless your’re a glorious borrower (who ironically, doesn’t have any debt to begin with).

    If you’re carrying around a huge wad of debt its time to sit back and be happy with the situation, because if the banks get their wish, things are going to stay this way for a looong time.
    Or try to get out if you can of course.

  3. Well, this is interesting. State government owns $6M worth of apartments in Opal tower….

    https://outline.com/n8VNbj

    My god, out government is up to it’s neck in dodgy developing deals, mining deals, banking shennanigins, dodgy Chinese deals…. The list just keeps growing and they keep thinking that they can hide it.

      • Ah, missed that bit.
        “The Daily Telegraph can reveal 11 units in the tower are owned by the Sydney Olympic Park Authority, a statutory government body, which secured them as part of a deal when it sold the site to developer Ecove in 2014.”

        Still got screwed.

      • They are very smart the state govt, they have not any money on them…got them for free worth the same amount!

      • ” They are very smart the state govt, they have not any money on them…got them for free worth the same amount!”sry meant to say they have not LOST any money on them…mum came down the basement stairs…..

    • Mining BoganMEMBER

      Every. Bloody. Thing. Is. Confidential.

      So what’s the story here…gubmint give land away for next to nothing to dodgy developer in return for some free apartments that in turn will one day be sold cheaply to a Liberal Party donor? I’ve seen that happen before.

      Hey, that developer that disappeared because he was stressed. I take it the authorities have had the foresight to grab his passport? Nah, just joshin’…

      • Apparently they were for affordable housing. But I wonder who got them? It was the Sydney Olympic Park Authority not NSW Housing administering them. Reeks of special dodgy deals going on.

    • “As part of the Sydney Olympic Park Master Plan 2030 (2018 Review) Sydney Olympic Park Authority requires developers to provide 5 per cent of apartments in new residential projects within the Park as affordable housing properties, which are owned by the Authority,”
      My calculator says 5% is 20 apartments (based on 396) not 11 that is said they own.

      • Maybe its based of square footage or bedrooms? 3 x 3 bedroom apartments as opposed to 9 one bedroom apartments?

        (more likely they got screwed on the deal but thats an alternative thought)

    • Mining BoganMEMBER

      There’s a clown on page two who says he won’t listen to anyone who hasn’t held property for twenty years.

      Obviously no-one on that board held property between 1890 and 1910. Perhaps we could get someone from that era to post a reply.

      • mild colonialMEMBER

        I’m still completely blown away by that comment here one day, pretty sure it’s here not Twitter, that explained how the entire 60 year long 1890s Melbourne bust was always, from its inception, downplayed and whitewashed out of history. Shows you how cynical you always have to be.

    • According to the Buyer’s Agent:

      “Without being too clever, 10%+ down is a good entry point for the relatively stable Sydney market. That’s all I’m saying.”

      Stable is not a word you would ever associate with Sydney over the past 10 years

      • because the “average” person can afford a $900k loan as opposed to a $1 million dollar loan.

        Lol!

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