Mortgage Cliff?

[Smurf1976]

refinancing might be a BIG problem ( and not just higher interest rates , many incomes are NOT keeping pace with inflation , even if job stability holds firm )

I just see a lot that doesn't add up.

On one hand it's inflation, soaring cost of everything from food to utilities to housing, interest rates going up is supposedly bad, it's real wages not keeping up and so on. That's the narrative.

On the other hand, what I see is new cars, full shops and restaurants, airlines booked out and so on. Consumers are spending big.

Doesn't add up.

 

[Sean K]

I just see a lot that doesn't add up.

On one hand it's inflation, soaring cost of everything from food to utilities to housing, interest rates going up is supposedly bad, it's real wages not keeping up and so on. That's the narrative.

On the other hand, what I see is new cars, full shops and restaurants, airlines booked out and so on. Consumers are spending big.

Doesn't add up.

Yep, a lot of cash on the sidelines waiting to be deployed I think. Just need some confidence to open the wallet. There's quite a few here on ASF sitting on 50% cash from what I have seen and assumed, including me.

But, yes, inflation etc....

Just need to be on the right side of that equation.

 

[Value Collector]

Agree, a lot of people would be way ahead in their repayments.

Is CBA going to hide any issues with their loan book somehow? No way.

I have been watching the cba presentations for a long time, they are generally pretty open and honest about their loan books.

When it comes to the presentations, watch the webcast version of it that has the discussion of each slide and the analyst question time. It’s well worth it especially around times when you think things might be getting hairy.

 

[Value Collector]

I just see a lot that doesn't add up.

On one hand it's inflation, soaring cost of everything from food to utilities to housing, interest rates going up is supposedly bad, it's real wages not keeping up and so on. That's the narrative.

On the other hand, what I see is new cars, full shops and restaurants, airlines booked out and so on. Consumers are spending big.

Doesn't add up.

The economy running a bit hot is a cause of inflation, so when you see lots of spending that’s what the interest rate rises are trying to quell.

But, as Sean pointed out the major impact has not been felt yet in a lot of cases, it takes time for the pain to be felt when the population has a decent buffer.

 

[farmerge]

I just see a lot that doesn't add up.

On one hand it's inflation, soaring cost of everything from food to utilities to housing, interest rates going up is supposedly bad, it's real wages not keeping up and so on. That's the narrative.

On the other hand, what I see is new cars, full shops and restaurants, airlines booked out and so on. Consumers are spending big.

Doesn't add up.

Smurf1976 totally agree with you. Perhaps 10-15% of the peasants are the ones suffering while the rest are cashed up and not really hurting or in danger of hurting. Or perhaps is it that having a multitude of credit cards gives the feeling of having an endless supply of moolah. The debt has to be repaid or is bankruptcy an answer for some.

 

[divs4ever]

Agree, a lot of people would be way ahead in their repayments.

Is CBA going to hide any issues with their loan book somehow? No way.

ahead ? yes some but for how long

those repayments are likely to rise a little more ( at least in the short term ) how many of those who tried to repay early had extra budget cuts left in the budget ( so they can tighten a little more if needed )

have they a back-up strategy so that property can help with the cash-flows , anything from a vegie garden to a home workshop or office .

as for the big banks and loan book transparency , i guess we will have to see ( this time )

the US love to bundle up mortgages and monetize them in various ways , is that happening in Australia as well ?

 

[divs4ever]

I just see a lot that doesn't add up.

On one hand it's inflation, soaring cost of everything from food to utilities to housing, interest rates going up is supposedly bad, it's real wages not keeping up and so on. That's the narrative.

On the other hand, what I see is new cars, full shops and restaurants, airlines booked out and so on. Consumers are spending big.

Doesn't add up.

well the narrative is, this will only be temporary ( say three years ) , i don't believe that , but many do

i just hope they are spending wisely ( while the currency still has some value )

from memory in the '80s , the inflation v. wage rise spiral , was broken by compulsory super i guess we will see how that worked out real soon ( for the folks 10-15 years younger than me )

remember 2 + 2 = 5 in the new narrative ( and maybe 8 by the year's end ) maths ain't their strong suit

 

[Dona Ferentes]

Is this a cliff?



Source: Jarden, Company reports

[There is an ] ever escalating game of ‘whack a mole’ being played by governments in trying to control the ever increasing divergence between taxation and spending. Continuing to rely on taxing the earnings of a dwindling working age population to fund outlays to the growing population outside this category who also own most of the country’s net assets is seemingly a recipe for disaster. The cost of living issues which have precipitated action on energy prices across the world are symptomatic of far deeper issues. The reliance on the working age population is deep. In addition to providing most of the tax revenue, they form the new businesses in the economy, they are the incremental borrowers in the housing market and the incremental consumers as families grow. Lowering interest rates has papered over growing cracks for many years. We’d expect higher interest rates will see the cracks widen quickly. Expiring fixed interest rate housing loans will extract significant purchasing power from a demographic cohort already shouldering more than their fair share. We’d expect businesses, particularly those reliant on consumer spending will prove far more sensitive than is envisaged in many current forecasts.

- Martin Conlon

 

[Sean K]

Is this a cliff?

View attachment 151774

Source: Jarden, Company reports

[There is an ] ever escalating game of ‘whack a mole’ being played by governments in trying to control the ever increasing divergence between taxation and spending. Continuing to rely on taxing the earnings of a dwindling working age population to fund outlays to the growing population outside this category who also own most of the country’s net assets is seemingly a recipe for disaster. The cost of living issues which have precipitated action on energy prices across the world are symptomatic of far deeper issues. The reliance on the working age population is deep. In addition to providing most of the tax revenue, they form the new businesses in the economy, they are the incremental borrowers in the housing market and the incremental consumers as families grow. Lowering interest rates has papered over growing cracks for many years. We’d expect higher interest rates will see the cracks widen quickly. Expiring fixed interest rate housing loans will extract significant purchasing power from a demographic cohort already shouldering more than their fair share. We’d expect businesses, particularly those reliant on consumer spending will prove far more sensitive than is envisaged in many current forecasts.

- Martin Conlon

It might depend what interest rates are when those fixed terms expire. How much can people absorb?

Another factor might be that a lot of people bought these fixed loans when property was peaking. It’s come off quite a bit since the top in a lot of regions. Will people be forced to sell for a loss?

 

[divs4ever]

It might depend what interest rates are when those fixed terms expire. How much can people absorb?

Another factor might be that a lot of people bought these fixed loans when property was peaking. It’s come off quite a bit since the top in a lot of regions. Will people be forced to sell for a loss?

View attachment 152757

USUALLY refinancing depends on the lender being willing to lend against the collateral offered

the Christopher Skase saga was a brilliant example where lenders were sold a dream ( not a crystallize-able asset )

homes/blocks of units are not that hard to value , so lenders will get nervous early on anything approaching negative equity

the extra twist can be when job cuts flow through the economy

 

[farmerge]

I think that some of these current borrowers and the banks in particular have either been under a rock or had their heads buried in a sand dune. Surely they didn't think virtually 0% interest rates would be with us for an extended time.

 

[qldfrog]

I think that some of these current borrowers and the banks in particular have either been under a rock or had their heads buried in a sand dune. Surely they didn't think virtually 0% interest rates would be with us for an extended time.

But did the banks cared?
They got mortgages insurances...
See it that way, you can buy a widget and resell it on 20y to someone, anyone who is actually paying to ensure you will be paid back,moreover you can choose to increase your return rates more or less at will as long as the government is not too angry and your 3 other mates do not give you unfair competition...
Hum..ohhhh and you can also print the money to buy that widget.
Seen that way, isn't banking a great business....

 

[divs4ever]

I think that some of these current borrowers and the banks in particular have either been under a rock or had their heads buried in a sand dune. Surely they didn't think virtually 0% interest rates would be with us for an extended time.

well i remember one official promising NO interest rate hikes until 2024

so it seems that my calendar is broken and i have woken up in 2025 or is it 2026 ??

 

[SirRumpole]

I think that some of these current borrowers and the banks in particular have either been under a rock or had their heads buried in a sand dune. Surely they didn't think virtually 0% interest rates would be with us for an extended time.

As a saver I'm glad that rates are going up, however I sympathise with home buyers.

I had to pay Keating's 18%, but home prices are higher these days.

 

[cynic]

But did the banks cared?
They got mortgages insurances...
See it that way, you can buy a widget and resell it on 20y to someone, anyone who is actually paying to ensure you will be paid back,moreover you can choose to increase your return rates more or less at will as long as the government is not too angry and your 3 other mates do not give you unfair competition...
Hum..ohhhh and you can also print the money to buy that widget.
Seen that way, isn't banking a great business....

And look how well that strategy worked, in the USA , during the prelude to the GFC:

https://www.investopedia.com/articles/economics/09/american-investment-group-aig-bailout.asp

 

[sptrawler]

So I guess the question is, does the RBA just leave interest rates at 0.5% and hope that prices stop going up?

If that is the case, put me down for 10 houses, i'll have a piece of that. ?

The reason I don't have 10 houses, is I have never borrowed more than I can afford to fund, in a worst case scenario.
I'm never going to be rich, but I also should never lose what I've accumulated.
So is the issue the RBA, or people taking on risk?

 

[Sean K]

Another rise. Is 800,000 mortgages to be imminently reset to much higher rates enough to cause a problem? I think the wealthy end of town might be OK, but the average punter? Sure they've saved over Covid and may have excess equity in their new homes, maybe.

 

[Telamelo]

Another rise. Is 800,000 mortgages to be imminently reset to much higher rates enough to cause a problem? I think the wealthy end of town might be OK, but the average punter? Sure they've saved over Covid and may have excess equity in their new homes, maybe.

bang

Yeah RBA boss Philip Lowe keen to "go out on a high".

P.S. He'll retire soon "happy ever after" life scenario as it won't affect/impact him whatsoever

 

[farmerge]

Yeah RBA boss Philip Lowe keen to "go out on a high".

P.S. He'll retire soon "happy ever after" life scenario as it won't affect/impact him whatsoever

He will certainly leave on a high. Just how many mortgage fire sales will be coming up due to his incompetant statements of earlier..

 

[tech/a]

If your in mortgage stress you have options particularly when you’ve been with a bank for an extended period.
if you can demonstrate sever hardship you can ask to cap your interest rate at what you can afford and add the extra to the back end
As one example
the bank doesn’t want to foreclose people for a couple of % over a few years.
if you can’t negotiate have a professional act on your behalf.
My wife did this in 87 and banks were way tougher then!