Property Down Under Newsletter - 6th October 2022
The feature article of the week:
Below is our feature article for this week’s edition of the newsletter.
This is the article we found most interesting to read, and the one we think is a “must read” for all our readers.
Our key takeaways:
Australian debt to income ratios for household and business is high.
Borrowers will find it harder to meet debt payments due to rising inflation and the expected increases in interest rates.
Higher interest rates will increase borrowers' debt payments. Higher inflation will reduce the funds households and businesses have to make those payments
Our Take:
This article is from a few months back but when things are moving quickly, it pays to read previous central bank publications to get an idea of what the central bankers really think.
Generally the central bankers will be a lot more alarmist during the good times and then try to downplay the risks to the economy when we are actually experiencing the things they had warned about in the past.
In the April “Financial Stability Review” the RBA highlights how high inflation coupled with higher interest rates could impact Australian household/business’ ability to cover debt repayments.
The RBA then highlights the issues the Chinese property development sector is facing and the mass bankruptcies occurring in their domestic economy.
A great short summary of what the current environment we are in could mean for the property sector and a must read for people confused about the implications of high inflation and high interest rate.
Other Mainstream media 📰
Falling property values start to take a toll on homeowners (AFR)
First home buyer grants can push up prices: Productivity Commission (AFR)
Remote work drove over 60pc of house-price surge, Fed study finds (AFR)
Rising rates, immigration will tighten rental market further (AFR)
Australian property industry confident despite global and economic challenges (The Property Tribune)
Prestigious Hong Kong flats stand empty as property market slumps (Financial Times)
Australia’s house prices fall, interest rates soar but analysts say there’s no crash yet (CNBC)
How house price drop is impacting your state and the best month to buy (News.com.au)
Why should you care:
The chart above measures inflation expectation responses from consumers.
The green line represents periods of heightened inflation expectations.
Our takeaway:
Inflation expectations seem to peak around times when there are financial crisis’.
The peaks in the green line last occurred before the 2001 tech collapse where global market fell significantly from its peaks and in 2008 when the world went through a fully fledged global financial crisis.
Our expectation:
We think that in financial markets and that includes property, history has a way of repeating itself.
We expect to see heightened inflation expectations to result in a similar style banking crisis.
The tie back to property comes from banks unwillingness to lend for new home purchases in times of crisis.
Ultimately we expect this lack of credit impulse to lead to lower property prices.
Watch this space.