Can you remember all the warnings and scare mongering around a so-called “mortgage cliff” that would see so many Australians with mortgages find themselves so financially stretched by all the interest rate rises that they’d have to sell their homes and there’d be a flood of properties hitting the market and prices would come crashing…
Can you remember all the warnings and scare mongering around a so-called “mortgage cliff” that would see so many Australians with mortgages find themselves so financially stretched by all the interest rate rises that they’d have to sell their homes and there’d be a flood of properties hitting the market and prices would come crashing down.
Every time this mortgage cliff was mentioned, we responded with “yeah, we don’t see it happening”. Now that the end of the year draws near, we thought we’d review the data to show just how far away we are from reaching that mortgage cliff others had predicted.
While there has been a lot of commentary suggesting that Australia is over leveraged against housing, we find it very interesting to note that the LVR across the country is just 14%. (LVR is the loan to value ratio, and when we look at all the property loans and all the property values across Australia the rate is very low.) We as a country are certainly not over leveraged.
We looked into the available data around mortgage stress to see how many people may default on their loans, and once again the numbers are lower than the scare-mongering suggested. Across the country there are just 8,000 to 9,000 properties in default of their loan 30-90 days. This is just 0.54% of all mortgage holders in the country. It’s certainly not a flood of properties; it’s barely even a drop in the context of the demand in property markets across Australia right now.
If you’re wondering what the mortgage default rate was prior to these interest rate rises and housing crisis – great question! Would you believe, it’s about the same. While we don’t deny that rising interest rates puts pressure on most households, the dramatic repercussions to the property market have not eventuated.
However, when we predicted in September 2022 that property values would continue to rise in late 2023, despite popular opinion at the time (which wouldn’t change for more than six months), we can now see our correct prediction proven every day.
In more good news, we continue to support our long term view that interest rates will be under pressure to reduce in 2024. Inflation has fallen from 8.4 to 4.9% pa over the last 10 months and we believe the RBA should not have pulled the lever in November to raise the rates again. Consensus view amongst the banks is that in early 2025 the cash rate will be around 2% below what it is now. We see a strong case for rates to start dropping from mid 2024, certainly in the latter part of the year.
So, there’s some property positivity for you heading into the holiday season. While many may discuss property markets and economic factors, there are few who understand and dissect the real data and relevant conditions. We know that dramatic headlines get the clicks, but real insight brings informed decisions and real opportunities for wealth creation.
It’s always important to get the facts and we take great pride in being able to provide you with the information that matters and that has proven to change the lives of those who partner with us to use that insight for great investment decisions.