HOUSING STRESS

Aug 24, 2017
Michael Matusik

To round off this week’s posts……Earlier this year, many were speaking about inflation coming back and big time, what with the Trumpet’s win and the US economy set to ignite; and China’s malaise being just a hiccup rather than a trend.

But it doesn’t appear to be playing out as forecast.  Inflation, here and abroad, is again falling back to earth.

The Fed will almost certainly miss its 2% inflation target for the sixth year in a row, and down under core inflation remains well below the RBA’s target of 2-3%, hitting just 0.5% in the June quarter.

In the last couple of decades, Australia – and almost everywhere else – has gone from too much inflation to nowhere near enough.

That means local interest rates are likely to be on hold for a while, which is great news for those engaged in the nation’s leading sports activity – residential property speculation.

Yep, new episodes of The Block now rival major televised sporting events.

Yet, late last month, Digital Finance Analytics unveiled its modelling of mortgage stress to the end of July.  Their work suggests that across the nation, more than 820,000 households are estimated to be now in mortgage stress.  This equates to a quarter of Australian households!

They also have estimated that nearly 53,000 households risk default in the next twelve months.

Wow!

The main drivers of stress are rising investor mortgage rates and living costs, whilst real incomes continue to fall and underemployment is on the rise.

Looking forward, RBA data shows that the household debt-to-income ratio hit an all-time high of 190% last month.

The conclusion is somewhat obvious:  since the GFC, property investors and homeowners have used record low rates to leverage up to their eyeballs.

As we recently quipped, many seem to be sleepwalking into a terrible crisis.  High debt is like flying with only one engine.  You can bring it home, but you don’t want to run into any further problems.  Even mild turbulence can be ‘touch and go’.

For more about Digital Finance Analytics go here.  And to revisit our other relevant posts, go here, here and here.

Keen to hear your thoughts.

Until next time,

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Michael Matusik

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