Table of contents:
Sydney’s Property Market: Leveraging Mortgages For Financial Gain – As a result of the RBA’s extraordinary decision to hit unsuspecting households with a staggering 125 basis point rise in mortgage rates in just two months (ie from early May to early July), this is likely to rising to an unprecedented increase of 175 basis points. Going into the next meeting, Sydney house prices are now falling at an unprecedented rate of another 20% a year.
Using daily Hedonic Index data published by CoreLogic, the RBA’s preferred residential benchmark, we find that the 30-day change in Sydney house values fell sharply from +2.83% in August 2021 to 2.21% on 11 July. . This means that residential property values in Sydney are now falling by 20% every year.
Sydney’s Property Market: Leveraging Mortgages For Financial Gain
While this housing crash seems to have shocked many analysts and economists, the RBA has ruthlessly advised millions of households in 2020 and 2021 to borrow and spend as much as possible because interest rates do not rise until 2024. r. At first, it was an unfortunate fiasco, consistent with the big case we described late last year.
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Sydney house values fell 1.6% in June. In the first 11 days of July, they fell even faster, another 0.7%. Melbourne housing values closely follow Sydney prices, albeit lagging behind. In June, Melbourne house values fell 1.1% and in the first 1-2 weeks of July they lost another 0.4%.
The first chart below shows the 30-day change in house values in Sydney and Melbourne. The second chart shows changes in house price indices published by CoreLogic in Sydney and Melbourne.
Unfortunately, this only confirms our gloomy October 2021 forecast that Australian house prices will correct by 15-25% after the first RBA hike of 100 basis points, damaging consumer and business confidence and negatively impacting consumption across the economy.
This has slowly become a consensus view among economists, although some real estate enthusiasts argue that housing prices will continue to rise exponentially because they are unaffected by higher interest rates.
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It should also be noted that we are not supernatural bears when it comes to Australian housing. Quite the opposite: we were the most optimistic (and accurate) forecasters for Australian housing in early 2020, all expecting prices to fall by 10-20%.
While the RBA plans to raise interest rates by another 50 basis points in August in response to delayed inflation data, which is largely influenced by temporary supply side shocks, we expect a record drop in the value of the most important asset for Australians , housing. , which will ultimately lead to a cap in the series. To what extent can the RBA continue to raise interest rates? Due to excessive nest egg policy, it is very likely that the RBA will have to cut interest rates at some point in 2023.
Embarrassing policy mistakes by the RBA before and after the pandemic have been attributed to false forecasts. History is unfortunately repeating itself as the RBA once again embarks on ultra-aggressive policy changes based on completely unreliable future projections…
With Australia’s largest portfolio of fixed income investment companies and over $7 billion in FUM, Coolaba Capital Investments publishes unique information and research on markets and macroeconomics worldwide, leveraging 14 analysts and 5 portfolio managers.
Sydney Property Prices Seeing Signs Of A Downturn
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Chris co-founded Coolbah in 2011, which now manages over $8 billion with a team of 40 managers focused on generating credit alpha from mispricing in fixed income markets. In 2019, Chris was named one of FE FundInfo’s Top 10 “Alpha Managers” based on career risk-adjusted performance. He previously worked for Goldman Sachs in London and Sydney, the Reserve Bank of Australia and founded an award-winning research and investment group. He regularly advises governments to develop different policy proposals. Chris graduated from the University of Sydney with a University Medal (Economics and Finance). In 2002/03 he studied in a PhD program at Cambridge University, starting a fund business.
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Australia’s Economy Is A House Of Cards
Chris co-founded Coolbah in 2011, which now manages over $8 billion with a team of 40 managers focused on generating credit alpha from mispricing in fixed income markets. In 2019, Chris was named one of FE FundInfo’s Top 10 ‘Alpha’… Much has been said about mortgage stress and default risk, but recent research has found that default risk is twice as high in some outlying neighborhoods.
Homeowners in Sydney’s south-west, Perth’s north-west and Melbourne’s north-west suburbs are in the most vulnerable financial position in the country, with the highest number of homes at risk of mortgage arrears, according to a new report from S&P Global Ratings.
Suburbs in these areas are twice as likely to be more than a month behind on their mortgage payments, the data show.
The data shows mortgage rates more than 30 days late are highest in Sydney’s south-west, where loan rates are 2.5% higher, north-west Perth, north-west Melbourne and the Blue Mountains in New South Wales.
Suburbs Struggling The Most Amid Rba’s Interest Rate Hikes Revealed
High-risk areas are also areas where property prices and incomes are lower, meaning they tend to have a high concentration of highly leveraged first home buyers.
And the areas with the lowest mortgage arrears are suburbs with higher incomes and house prices, such as the affluent suburbs of eastern Sydney.
According to the AFR, the Reserve Bank has already warned that the pressure on lending is “unevenly distributed”, and banks have already set lending limits in some neighborhoods.
S&P analyst Erin Kitson explained that banks are required to analyze data when setting lending policies, such as requiring larger deposits to buy properties in certain high-risk areas.
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“Even though unemployment is low and total arrears are still below pandemic levels, when we look at capital, we see the gap where borrowers are behind in their repayments.”
However, Fitch Ratings analyst Jack Doe said that the quality of the loan is more important than its location,
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