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Opinion

Experts warn of ‘debt bomb’ as housing downturn worsens

debt bomb
AUSTRALIA is facing a “debt crisis” — and the property market and our entire economy are at risk as a result.

That’s according to the sobering 60 Minutes segment Bricks and Slaughter which aired last night, revealing the country’s property downturn was just the tip of the iceberg.

According to reporter Tom Steinfort, the current slump is actually “more like falling off a cliff”, with a number of real estate and finance experts claiming houses could plummet in value by up to 40 per cent in the next 12 months.

If that happens, it would also cause an economic “catastrophe”.

Mr Steinfort spoke with data scientist Martin North from Digital Finance Analytics, who said Australia was uniquely vulnerable when it came to an economic crash tied to a property downturn.

“At the worst end of the spectrum, if everything turns against us we could see property prices 40-45 per cent down from their peaks, which is a huge deal,” he said.

“There’s $1.7 trillion held by the banks in mortgages for owner-occupies and investors. And that’s about 65 per cent of their total lending.

“That’s higher than any other country in the Western world by a long way.

“There’s probably no country in the world more susceptible to the ramifications of a housing crash than Australia. We are uniquely exposed at the moment.”

Mr North said Australia was now in the same position as the US was back in 2006 and 2007 — a position which triggered an economic collapse.

“As a society, and as a government, and as a regulatory system, we’re all banking on the home price engine that just goes on giving and giving and giving. It’s not going to,” he said.

“We’ve got a debt bomb, we’ve got a debt crisis and at some point it’s going to explode in our face.”

debt bomb

Melbourne homeowner Mohammed Souid told 60 Minutes his family was experiencing mortgage stress. Picture: 60 MinutesSource:Supplied

It’s a sentiment shared by Laing and Simmons real estate agent Peter Younan, who said the median house price in his patch in Granville in Sydney’s west had dropped from $1.2 million to $1 million in just one year — a shocking $200,000 plummet.

He said foreclosures had also risen by 600 per cent in the region.

“The mortgage stress is definitely being felt especially in this area,” he said.

60 Minutes also spoke with several Aussie homeowners who gave harrowing details of the stress they faced trying to pay off their mortgages, including having their power turned off and being “hounded’ by their banks.

What does a million dollars buy in Aussie capital cities?

debt bomb

Market analyst Louis Christopher of SQM Research said the market had been “clearly overvalued”, labelling the downturn as the “correction we had to have” — at least in Sydney and Melbourne.

“On our numbers, Sydney was effectively over 40 per cent overvalued. And Melbourne was overvalued by about the same amount,” he said.

But property investor Bushy Martin said the blame lay squarely at the feet of buyers who “mortgaged themselves up to their eyeballs” in a bid to snap up dream homes before being able to afford them.

debt bomb

Property investor Bushy Martin says homeowners are to blame for the crisis. Picture: 60 MinutesSource:Supplied

However, the segment has also sparked backlash online, with some claiming the situation had been exaggerated.

One Reddit user branded the report as an example of “alarmist journalism and scare tactics”, while another said it was “dramatic and cringe-worthy”.

Others also criticised the segment for making it seem like all homeowners would be affected, when the downturn was actually mainly focused in the NSW and Victorian capitals.

And some said it was unfair to blame the banks for the situation, and that homeowners needed to take responsibility for their own decisions.

That was in response to comments made by one homeowner on the program, who said the bank had “suddenly switched the mortgage to interest and principal”, raising his repayments by 57 per cent.

“The interest only part annoyed me the most. The bank didn’t ‘suddenly change’ your repayment from (interest only) to (Principal and interest) your IO term expired. You a) knew this would happen and b) assumed the bank would renew it when it expired. I hope this speculator gets burnt first,” one Reddit user said.

Source: news.com.au

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Opinion

My best 12 tips and tricks for first-home buyers

first-home buyers

Aussie home values rose 18.4 per cent over the past year. No, that’s not a typo.

One of the more devastating economic side effects of COVID-19 for aspiring first-home buyers has been how the steep fall in interest rates has inflated home values.

I’m more agnostic than most about the virtues of homeownership, versus renting and investing your savings.

The tax breaks on housing are generous but beware the hidden costs, such as stamp duty, which can add up if you move too often.

The choice to buy is a personal one, often driven by desire for stability and security. That was certainly a big factor for me in buying my first home almost two years ago.

So, if you have decided your goal is to own a home, here are my top tricks and tips to help you. It won’t get everyone a home, but I hope it provides you some food for thought during what can be a stressful experience.

It’s harder for you than your parents

Baby boomers will recall their days of having to scrimp and save for a home deposit. And that may have been true for their experience.

However, it didn’t take – as it does today – an average of 11 years for a worker on the median full-time salary (about $80,000) to save a 20 per cent deposit on the median home value ($666,000), assuming a savings rate of 15 per cent of gross income. It just didn’t.

Don’t give up

Yes, it’s a bitter pill to swallow that the home you want could have, on average, cost about 20 per cent less this time a year ago. But it is what it is. And barring a property crash, which almost nobody is predicting, it’s only going to get worse.

Adjust your expectations

While you’ve been faithfully sticking to your idea of what property should be worth, everyone else has been out there hocking themselves to their eyeballs in debt and pushing up prices.

I’m not saying it’s right. I’m just saying your one-person protest at the inequity of it all is not doing much to change things.

Lower rates work in your favour

While they make it harder to save a deposit, lower interest rates increase the amount financial institutions are willing to lend you. Why? Because when interest costs fall, you have more space in your budget to meet the repayments on a bigger loan. You might be surprised how much the banks are willing to lend you.

Talk with lenders early

When I got serious about getting a home loan, I literally walked into three bank branches on my high street and spent a couple of hours chatting to their loan staff. They’ll ask for an estimate of your income and living expenses and usually give you a rough idea of what size loan you could service.

Many home-loan specialists are also doing zoom sessions during lockdown. Just make sure it’s only a preliminary conversation, and you’re not formally applying for credit because this can show up on your credit history.

Track your spending

If you do speak to a lender or broker, the first thing they’ll do is pepper you with questions to which you don’t know the answers. How much do you spend on electricity? Haircuts? Entertainment? Food? Eating out? Get ahead of the game by figuring this out in advance. And cut where you can.You can download and use the spending tracker I designed here.

Investigate the FHSSS

Stashing your savings in the bank doesn’t get you much these days. It is tempting to look at shares, but volatility can make things tricky.

One alternative is the First Home Super Saver Scheme, whereby you can put money into your superannuation at the low tax rate of 15 per cent, then later withdraw up to $50,000 for your first home. Eligibility and withdrawal conditions apply but, if I was starting again, I’d check it out.

Re-think your deposit

It would be nice to put down a full 20 per cent deposit on your first home, but it is not necessary. I put down about 15 per cent. It is not uncommon for major banks to accept deposits of 10 per cent – often less with smaller players.

Just be aware you’ll be up for paying Lenders Mortgage Insurance (LMI) if you don’t have the full 20 per cent, which can cost upwards of $10,000. You can have the cost added to your loan amount.

If your income is below a certain threshold, you can investigate accessing the government’s First Home Loan Deposit Scheme. Places are limited and not all lenders can offer it, but it covers the cost of your LMI on loans with deposits as small as 5 per cent.

There is a separate scheme for single parents with deposits of just 2 per cent.

Access ‘bank of mum and dad’

Swallow your pride and ask for help – if you’re lucky enough to have it. Parents can go guarantor on a loan to help you avoid paying LMI. They can also just give you cash for your deposit. It’s so unfair but it’s true.

Reconsider location

Think about whether you could live at least a suburb or two further out. The rise of working from home has opened up new opportunities for living further afield, where prices are generally lower.

Local property markets vary

Property prices rarely rise across the board. Talk to real estate agents about which suburbs may be undervalued. Take it all with a pinch of salt, but it can’t hurt to ask, right?

Re-imagine your dream home

It’s hard, but chances are you can live in something smaller. Unit prices have not risen as fast as free-standing homes. Many people are now raising young families in units or apartments. Nab a ground floor one if you can – they can feel quite house-like and give you direct access to communal space.

Good luck out there, I’ll be thinking of you.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions. 

 

Article Source: www.brisbanetimes.com.au

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Opinion

More Sales Than Listings in Residential Market

Residential Market

Dwelling sales continue to surge across Australia against low listings levels. In the three months to July, Corelogic estimates there were around 171,100 sales.

This was 53.4 per cent higher than what has typically been seen this time of year for the previous five years.In the same period, there were just 121,200 newly advertised properties for sale in the three months to July.

This has taken the sales to new listings ratio to recent highs nationally, at 1.4 over the three months to July.

The sales to new listings ratio is calculated by dividing the number of sales that have taken place over a given period by the number of new listings added to the market over the same time.

For the past decade, the ratio has averaged 0.9, suggesting for each listing added to market there was just under one transaction that took place.

When the ratio is 1, it implies buyer demand and advertised supply is balanced.

A sales to new listings ratio of 1.4 suggests strong selling conditions, as there is more than one transaction taking place for every new unit of supply in the same period.

The sales to new listings ratio has averaged above 1 since June, 2020.

Dwelling sales to new listings ratio, national 

Residential Market

^Source: Corelogic, rolling 3-month average excluding December due to excess volatility 

Each of the capital city markets currently has a sales to new listings ratio of greater than 1, ranging from 2 in Adelaide, to 1.1 in Darwin.

Capital cities with imposed lockdown restrictions through July saw a particularly strong uplift in the ratio, which may be a result of a disproportionate number of vendors postponing the start of a selling campaign amid lockdowns.

Multiple factors can explain the surge in sales relative to low listings levels from mid-2020.

On the demand side, these factors include:

Low mortgage rates

Increased buyer demand has stemmed from continuously falling mortgage rates.

Despite concerns of an earlier-than-foreshadowed lift in mortgage rates, RBA data shows average new home loan rates for owner-occupiers fell 12 basis points through the first half of 2021 and 18 basis points for investors.

Mortgage rates are one of the most important determinants of housing demand and in the current climate, where GDP is once again expected to decline, the RBA will likely facilitate a low rate environment for longer.

A savings windfall

As social consumption declined through lockdowns, and household financial support was increased, household savings peaked at 22 per cent of household income in the June quarter of 2020, which was above the-then decade average of 7 per cent.

Combined with a range of incentives for home purchases introduced through 2020, increased savings levels may have bolstered borrower deposit levels, triggering additional sales since the onset of Covid-19.

Savings rates remained elevated at 11.6 per cent through the March quarter of 2021, which have supported sales volumes through the first half of this year.

Incentives for first home buyers

Last year saw the introduction of multiple first home buyer incentives, from the first home loan deposit scheme before the pandemic, to various state-based grants and concessions, along with incentives for the purchase or construction of new or off the plan property.

Dwelling sales to new listings ratio, capital cities 

Residential Market

^Source: CoreLogic data is rolling 3-month average, excluding December due to excessive volatility 

First home buyer purchases would go a long way in explaining the current supply and demand dynamic.

This is because owner-occupier purchasers who already own property would presumably list their existing home around the time they are purchasing a new one.

First home buyer activity, on the other hand, creates additional housing demand without adding new advertised stock to the market.

The chart below shows the volume of secured home loans for first home buyers, which shows an extreme uplift in first home buyer activity.

First home buyer loans recently peaked at 16,260 in January 2021, which is almost double the series average of monthly first home buyer loans secured (8731).

Though first home buyer loan commitments have since trended lower, they remained 58.8 per cent above the series average through June.

In the same way that first home buyer purchases increase demand without adding to supply, investor purchasing activity has also trended higher since mid-2020.

Unlike first home buyer activity, investor purchases are not slowing down.

Through June, there were 18,625 secured home loans for investor property purchases, which is a 74.8 per cent increase on commitments in the same month of 2020.

Number of FHB owner occupier loans secured monthly 

Residential Market

^Source: ABS 

On the supply side, new listings stock was persistently low through 2020, as a lack of mobility and extended lockdowns across Victoria saw fewer Australians list their home for sale.

Through 2021, new stock added to the market has actually hit levels that are on par with previous years.

In the four weeks ending July 4, Corelogic counted around 38,000 new listings added to the market nationally, which is actually higher than the five year average level.

However, recent lockdown conditions have seen new listing counts slip back below the historic average, with Sydney in particular recording a -17.3 per cent drop in new advertised stock during the past four weeks.

Part of the reason listings have remained low through lockdown conditions is the assistance offered to home owners seeing hardship through Covid-19.

Mortgage repayment deferrals and household income support have kept distressed sales from hitting the market, and have more broadly been a factor in keeping housing market conditions stable.

However, it has also contributed to a persistent seller’s market, which is reflected in the high sales to new listings ratio.

The ratio may ease in the coming months as advertised supply moves through the normal seasonal spring uplift and buyer demand is limited by extended lockdowns, and affordability constraints.

 

Article Source: www.theurbandeveloper.com

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Gold Coast

Why Sherpa’s Scaling Up on Gold Coast

Gold Coast

What’s in a name? Plenty for Gold Coast-based Sherpa Property Group, according to chief executive Christie Leet.

Sherpa is ramping up its development pipeline with the acquisition of two new sites, in Biggera Waters and Burleigh Heads.

The two deals build upon recent sales success and extend the group’s workbook on the Gold Coast to $250 million.

In this TUD+ Briefing, Leet explains how the company approaches projects and its philosophy, why the Gold Coast is it’s home ground and the significance of that name.

Leet said not long before moving to the Gold Coast from the Whitsundays, he had been to the Mt Everest base camp, and saw similarities between the work Sherpas do and the role of developers.

He said that like the Sherpas of the Himalayas, his company aims to do the heavy lifting for the end user.

Leet said the Gold Coast had underlying factors that made it a strong market, including high employment, strong migration, and an availability of sites for projects.

“We’ve established what we want and what we do, and when you do that, projects come to you,” he said.

“That’s what happened in both cases with the Biggera Waters and Burleigh Heads projects—they came to us.”

Leet said looking beyond the coastal strip had paid off for Sherpa, and that by working up a model for development away from the coast, they’d been able to make the most of these two opportunities.

He said there were locations on the Gold Coast of value and interest away from the beach.

“The northern Gold Coast, along the Broadwater, is exceptional,” he said.

Article Source: www.theurbandeveloper.com
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