Australian Housing Affordability Discussion

[Jeffrey O'Neill]

i'm sure this wont cause any problems going forward

UBS has released a new survey of 1,228 Australians who have recently taken out a mortgage and found that 28% of mortgagors stated their application was not factually accurate, with broker-originated mortgages the most dodgy:


The most significant findings of the survey were (1) Only 72% of respondents stated their application was “completely factual and accurate”. 21% stated they were “mostly factual and accurate”, 5% stated they were “partially factual and accurate” while 2% “would rather not say”; (2) 32% of respondents who secured a mortgage via a broker stated they misrepresented some element of their application, compared to 22% who secured a mortgage via bank distribution; (3) More concerning, 41% of respondents who used a broker in 2016 and misrepresented elements of their application stated they did so based on their broker’s suggestion (vs 13% for bank channel equivalent)…


Unfortunately survey results suggest misrepresentation is systemic with findings similar across the 2015 and 2016 Vintages, price to income levels, LVR, owner occupiers and investors. However, there was a correlation between borrowers who misrepresented their application and: those whose expenditure was broadly equal to their income; stated they are under financial stress; or have missed a debt payment…


Interestingly customers who come from NSW were more likely to misrepresent their mortgage applications. Notably this continues to be the most buoyant housing market in Australia. Customers from Queensland are more likely to be factually accurate.


We believe these results are disturbing given: the recent housing market reacceleration; elevated household leverage (186% debt to income); and mortgages accounting for 62% of bank loans.

i laugh we i hear the govt debt problem



but we're taking gold in the debt Olympics. the below chart shows just tapped out borrowers are. not sure how many more baiting interest rate cuts the RBA has left to try and lure specufestors into the housing market. with ZIRP long gone in some countries, and years of NIRP in places like Germany and Japan, it may be possible at the end of the financial repression war that we get 0% short term interest rates in Australia. I'd hate to see the global economy if that was the case.



our foreign debt is really a mortgage debt boom



some of the world's largest houses, largest debts, least competitive economy. something is going to have to change.

 

[whatmeworry]

Predications the Sydney market will not increase for the next 3 years due to clamping down on investors.

Sydney's housing boom is coming to an end as restrictions on loans to property investors and a raft of new property developments combine to depress prices, insurance giant QBE says.
After surging 56 per cent in the past four years, the median house price in Sydney will remain broadly flat in the next three years, QBE said in its annual housing outlook released on Thursday. Sydney apartment prices are seen falling 6.8 per cent by June 2019, as slowing growth in rents and unit prices damps investor appetite.

Sydney housing boom has peaked after crackdown on investor loans, QBE says

 

[cove]

If the big 4 banks change the deposit required to a higher percentage the markets in Sydney and Melbourne would stabilize.

 

[whatmeworry]

Well many borrowers are avoiding the big 4 for borrowing.

A leading financial services expert has described the rise in interest-only mortgages among first home buyers as “disturbing” and likely to trigger higher loan defaults in the future.
Data published by the Australian Prudential Regulation Authority shows that more first home buyers are resorting to interest-only loans to get a foothold in the property market.
The official statistics show that the total value of interest-only loans made by Australian banks rose by $10 billion to $481 billion in the June quarter.
The fuse has been lit for new property owners to reach equity with their loans. Historically, interest-only loans have been popular among investment borrowers, but the latest data shows that owner-occupiers now account for a larger proportion of interest-only mortgages compared to June 2015

First homebuyers are flocking to risky interest-only mortgages

 

[TomVexille]

If the big 4 banks change the deposit required to a higher percentage the markets in Sydney and Melbourne would stabilize.

Sounds like what happened in NZ. Government mandated 20% deposit for owner occupiers and now investors will need 40%.

 

[cove]

Competition for loans for housing can get pretty ferocious. If your current mortgage has an interest rate around 4.0% APR or less you are paying attention which many folks ignore.

 

[cove]

It will be good to see if the changes in New Zealand and Vancouver work because Melbourne and Sydney house prices cannot be justified by the rental returns.
I believe Victoria will raise land tax on multiple property holders as fast as they can when stamp duty on sales start to ebb.

 

[ComeFlyWithMe]

Well many borrowers are avoiding the big 4 for borrowing.



First homebuyers are flocking to risky interest-only mortgages

Interest only loans with offset can actually be a prudent investment strategy, as capital isn't tied up and can be used for the next investment without the need for refinancing. The effect is the paying down of capital in a flexible way. It would be idiotic to just pay the interest, but still a capital gain can be achieved.

Probably too strategic for first home buyers but YMMV.

 

[whatmeworry]

Deloitte Access warning that property to be the worst investment for the next couple of decades to come.

Property looks set to become the "worst investment" over coming decades because of a looming bust in apartment prices and the reality that official interest rates won't stay low forever, says a leading economist.
Describing the nation's economy as trapped in a "Faustian bargain" with low borrowing costs and resurgent commodity prices, Deloitte Access Economics economist Chris Richardson warns that future risks of a shakeout are mounting.

He said this was creating perverse incentives for developers.
"If you are building apartments now you want to sprint, absolutely get across that finish line and flog yours as fast as you can, leaving problems for those coming down the track," he said.

Deloitte Access tips property to be the 'worst investment' | afr.com

 

[pauly7]

Deloitte Access warning that property to be the worst investment for the next couple of decades to come.





Deloitte Access tips property to be the 'worst investment' | afr.com

Ground breaking..... the apartment story has been done to death hasn't it? The real question is what is going to happen to houses...

 

[RAM]

Ground breaking..... the apartment story has been done to death hasn't it? The real question is what is going to happen to houses...

Called the contagion effect.

People who were thinking of buying penthouse apartments or $Xmn house...
People thinking of $2-5m apartment or house

Banks taking bath on loans to developers (or home builders as one senator has found out...)

In 1989 NOBODY bar a few people at one funds manager who created the first database of CBD office space thought that prime brand new CBD office space would fall in value by 40% plus.

In fact we were mocked by all three major consulting groups.

I cut direct property exposure on my funds (under my control) from 15% (had been a bonanza post Oct 1987) to zero in 9/89.

All property groups said "Rents will never fall" - still got some of their reports in my garage for mementos.

Perth was worst hit saw vacancy rate exceed 40%.

Melbourne saw brand new Collins St Prime Office tower sold for less than 50% of construction cost and ZERO land value as developed on spec with no pre-leasing.

Dominoes start toppling and the repercussions spread rapidly. Saw 5 foreign banks cut their balance sheets in Australia (due to write-offs) by up to 75%. Several closed up shop by 1991.

Can't happen again? Want to buy a used car as well...

Strange how Fed Govts of any colour say and do next to nothing about the major source of illegal arrivals - by plane that is. Majority flying Qantas (as a report some years ago pointed out) with return tickets that do not get used. Very simple for airlines to supply a listing for cross-referencing or to take it from customs for example. Wonder why they do not?

Estimated 1.5m currently in Australia (2009 estimate I think it was). They cannot buy units but need to rent them or houses. Amazing how census details do not match (nor come within a factor) noted car ownership in many locations across Australia for example (compare registrations by postcode to census figures...).

5 of top 10 donors to both parties (historically) alleged to have been Leightons (& subs), Lend Lease (&subs), Meriton (& subs), Mirvac (& you guessed it subs), as well as Westfield.


1 + 1 = 2.

 

[Rigs]

Absolutely no interest in buying property in Sydney at the moment. Just too expensive and returns are not worth the risk. Even though I can afford it I am not giving some boomer a windfall for their retirement that will cost me 15 years to pay off. Happy to rent in Sydney (200m from where I work) and invest in property in other cities like Canberra where the returns are just as good and the price of entry isn't silly.

 

[Denali]

.......................

 

[whatmeworry]

Interesting stat showing how bad the apartment glut, is there is now more construction cranes on the Australia East Coast then in the major cities of North America.

The biannual crane count survey by global property and construction consultants Rider Levett Bucknall (RLB) found there were a record 528 cranes working above apartment blocks in Sydney, Melbourne and Brisbane in the September quarter.
The RLB survey tallied 419 cranes plying their trade in the residential construction game across major North American cities including New York, Boston, Chicago, San Francisco, Los Angeles, Toronto and up to Calgary.
Over the past three years, the number of cranes in use for residential construction has grown an extraordinary 313 per cent.

Apartment glut warning: More cranes on Australian east coast than in North America - ABC News (Australian Broadcasting Corporation)


Meanwhile Treasurer Scot Morrison is blaming the states for not releasing enough land for development yet has not done anything about negative gearing, capital gains tax, stupidly low interest rates, making new categories of student/parent visas allowing investment in Australia.

In a lunch-time address to the Urban Development Institute of Australia in Sydney on Monday, Mr Morrison will also dismiss suggestions that cheap credit is causing an investor-driven housing bubble in Australia as "simplistic".

Scott Morrison puts states on notice over house prices


And in latest News, the treasurer has scrapped/"let lapse" an enquiry into housing affordability.

The government is sitting on hundreds of pages of evidence and scores of submissions about housing affordability it is unable to use because it let its inquiry into the subject lapse.
News of the quashed inquiry emerged as Treasurer Scott Morrison delivered a speech in which he declared housing affordability to be an "important policy focus" of the Turnbull government in the new parliamentary term.

Coalition's housing affordability inquiry scrapped amid growing market fears

 

[RAM]

These graphs put the 'housing so unaffordable' myth to death.

Most claimants use figures or a graph that goes back less than ten years, often only 5 to 6 years.

Have a look at this combination:



The clearest graph for dismissing this myth is the graph in the top right. It shows that the amount required for a monthly repayment on a new mortgage taken out in 1990/91 was close to 50% greater as a proportion of household disposable income in 1990/91 than it is today.

Now even this in itself is an under-statement (or over-statement depending on glass half full/empty). Why?

Because household disposable income is an after-tax figure. Since the marginal tax rates were significantly higher (both in absolute and relative sense) than the rates today - the ratio of pre-tax household earnings required to service a mortgage in 1990/91 vs today was closer to 80% more vs the around 50% in after-tax terms.

Curiously enough though - still no politician will raise the issue of the impact on house/unit prices from the illegal immigration due to arrivals by plane...

Officially the Fed Govt says this number is under 100,000 people but unofficially it is talked of as between 1 million and 1.5 million. Certain suburbs census results vary from say Water Board connections/billing figures (Census under) by up to 20-25% in Sydney. These figures do not include the sex slave trade nor illegal worker import trade btw aka not the organised crime ones.

 

[andye]

These graphs put the 'housing so unaffordable' myth to death.

Most claimants use figures or a graph that goes back less than ten years, often only 5 to 6 years.

Have a look at this combination:

View attachment 82429

The clearest graph for dismissing this myth is the graph in the top right. It shows that the amount required for a monthly repayment on a new mortgage taken out in 1990/91 was close to 50% greater as a proportion of household disposable income in 1990/91 than it is today.

Now even this in itself is an under-statement (or over-statement depending on glass half full/empty). Why?

Because household disposable income is an after-tax figure. Since the marginal tax rates were significantly higher (both in absolute and relative sense) than the rates today - the ratio of pre-tax household earnings required to service a mortgage in 1990/91 vs today was closer to 80% more vs the around 50% in after-tax terms.

Curiously enough though - still no politician will raise the issue of the impact on house/unit prices from the illegal immigration due to arrivals by plane...

Officially the Fed Govt says this number is under 100,000 people but unofficially it is talked of as between 1 million and 1.5 million. Certain suburbs census results vary from say Water Board connections/billing figures (Census under) by up to 20-25% in Sydney. These figures do not include the sex slave trade nor illegal worker import trade btw aka not the organised crime ones.

Low interest rates are helpful but the big barrier to entering the housing market for first-home buyers is the deposit. The risk that interest rates will increase & low inflation and wage growth meaning that the debt doesn't become much more affordable with time (mortgage tilt) are also considerations.
Worth remembering that household incomes of yesteryear would frequently consist of one wage-earner but now more normally two. There is thus less slack in the system

PS: as said previously, the idea that your first home should be median-priced house could well put many people off the whole idea as being unachievable

 

[RAM]

Low interest rates are helpful but the big barrier to entering the housing market for first-home buyers is the deposit. The risk that interest rates will increase & low inflation and wage growth meaning that the debt doesn't become much more affordable with time (mortgage tilt) are also considerations.
Worth remembering that household incomes of yesteryear would frequently consist of one wage-earner but now more normally two. There is thus less slack in the system

PS: as said previously, the idea that your first home should be median-priced house could well put many people off the whole idea as being unachievable

Is it the deposit or the almost 'entitlement' belief that everyone's first house should indeed be a free-standing house within Xkm of CBD?

Most people I know/knew started towards the bottom rung of the ladder and bought a unit, upgraded to a better located unit and often it was the third purchase before they owned a dwelling with land.

Given the median (not avg) household wage (not to be confused with median income which dilutes the figure by including households solely reliant on generally tax-free welfare of some sort) is north of $80,000 pa. Perhaps being taught at an early age that you do not need to have the latest smartphone and a $100/month contract, pay TV, new car, go on a holiday (overseas?) each year as well as have a 50" OLED TV - may just advance the saving for the deposit.

Similarly, cutting the 'purchased' coffee/tea habit back somewhat could also aid the 'deposit-building'.

Doesn't it come back to:

• taking responsibility for your decisions (or lack thereof)
• making a plan for the future and enacting it
• learning to live within your means and put aside short term consumerism in the interest of purchasing your own dwelling

Through doing some jobs while at school, vote counting, vacation employment while paying my own way through university and renting, keeping my car for 21 years (rust never sleeps unfortunately) - a large deposit was not a problem. 17% mortgage rates and the recession we had to have on the other hand....

 

[andye]

Mortgage tilt would have helped lots as long as you could weather the storm of the ultrahigh interest rates

 

[whatmeworry]

After the "smashed avo" kerfuffle, their was an article that showed Gen xer's and younger spend less on things like food, entertainment etc and more on housing compared to baby boomers when they were young.

 

[JohnK]

PS: as said previously, the idea that your first home should be median-priced house could well put many people off the whole idea as being unachievable

And also your first home may not necessarily be your dream home. That could come much later in life.

Buying property should be a means to saving otherwise you could be throwing away money every year on once in a lifetime trips.

But what would I know. I should have listened to my parents when I started in IT when I was 23/24. All good now but could have been much better and I would be eating a much larger cake now. Not that I need to eat a larger cake.

Work hard for your retirement and you'll enjoy life. It's no fun still working at 70 to pay the rent.