What Housing Bubble? Most Australians Couldn't Afford $100 Mortgage-Payment Hike

Tyler Durden's picture

Authored by Mike Shedlock via MishTalk.com

A new study shows 57% of Australia mortgage holders could not handle a $100 increase in their loan repayment.

Stress has turned up in even the wealthiest cities.

But who is truly wealthy? Paper profits on homes with enormous mortgages does not constitute wealth.

Please consider $100 Tipping Point for 57% of Mortgage Holders.

A staggering 57% of mortgage holders could not handle a $100 increase in their loan repayments, according to new research by Finder.com.au.

 

This additional $100 is equivalent to an interest rate rise of just 0.45% based on the national average mortgage of $360,600. This means the average standard variable rate of 4.83% would only have to rise to 5.28% to put more than half of mortgage holders in stress.

 

“The typical mortgage holder will begin to struggle once interest rates reach around 5.28% – that’s a pretty small window before borrowing costs start to hurt,” she said.

 

With the research also showing that 39% of all mortgages are interest-only, this highlights why the Reserve Bank of Australia (RBA) and the Australian Prudential Regulation Authority (APRA) have shown some concern, she added.

 

Comparing genders, 63% of women and 50% of men would struggle to repay their mortgages with an increase of less than $100 per month.

 

Across the states, South Australian borrowers were the worst placed with 70% saying they could not handle an increase of less than $100 per month. This figure was lower in New South Wales, Tasmania and Western Australia at 59% and further dropped to 51% in Victoria.

Stress in Wealthiest Areas

Also consider Severe mortgage stress is cropping up in some of Australia’s richest suburbs.

Severe mortgage stress is cropping up in some of Australia’s richest suburbs, revealing that wealthy Australians have been guzzling at the debt fountain. Thousands of households in suburbs like Mosman, Brighton and Nedlands are in mortgage stress, with some at risk of mortgage default in the next 12 months, according to new data from Digital Financial Analytics.

 

Wealth is impossible to see if the person doesn’t want to flaunt it, and easy enough to fake. You can mortgage yourself to buy a grand home and the car to match, and have the trappings of wealth while actually being so far in debt you’re in financial hell.

 

Looking rich and being rich are not the same thing at all, but when times are good, it’s difficult to tell the difference. As the saying goes, ‘When the tide goes out, you see who’s not wearing any swimmers’.

Financial Hell Coming

When top finally blows off the Australian housing bubble, the results will be devastating.

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Federalist Papers's picture
Federalist Papers (not verified) Oct 1, 2017 9:04 AM

Good aticle. It will be harder for upper middle class Americans over the next four years as the economy crashes to the ground.  Lots of cheap properties coming.

thunderchief's picture

It's not what Australians can finance,  its what everyone else can buy (Chinese)..

 

JRobby's picture

Not many see this for what it is. Californian's (and other left coasters) coming to your town soon! Brace yourselves.

ThirdWorldNut's picture

Rate hikes? yeah, right.

philipat's picture

I just returned home from both London and Sydney. In all of these hyper-inflated RE Cities, all people talk about is how wealthy they are because of the value of their shitty little property that "is valued at millions" despite representing a very poor lifestyle and having little cash to really enjoy life. So I completely agree with Mish on this piece. Wealth is not represented by an over-leveraged "home" and an underwhelming lifestyle. When the crunch comes, millions of people will suddenly come to realise that you can't eat property?

Atomizer's picture

This is because, central planners are selling the same shit during 2007. Your house is a ATM. 

Stupid fucking cunts are broke in the banking sector. Start hanging them from a lamp post. Lying scum buckets. That will change things. 

losses mount's picture

This also means a hundred dollar increase in the monthly food bill will have the same effect, or property taxes, or water rates, or an aggregate. The game is very nearly over it seems.

Imagine if oil went over a hundred a barrel.

shovelhead's picture

Millionaires living on beans and toast.

philipat's picture

Yes, pretty much but perhaps not quite so extreme. Yet. But when the next financial collapse comes, very shortly. these people who are completely dependent on "income" will not have any. That's when the fun will start. And the Central Banks have pretty much run out of juice? IMHO

karenm's picture

Like Canada, where the central bank has now kicked the chair from under them while hanging from a rope. Over a million Canadians are right now twisting in the air using their line of credit to pay their mortgage every month.

 

/sustainable

Endgame Napoleon's picture

In America, they are often just renting out the show houses, turning residential neighborhoods into pseudo -- but expensive -- apartment complexes and/or hotels. They built too many palaces for dual, high-earner parents who must have every trapping of wealth: a massive home, an excused babyvacation to Europe every couple of months for the busy-working parents, all kids in private schools, two high-paying jobs hung onto through the protracted absenteeism of multiple pregnancies and a high volume of absenteeism for kids' activities during work hours that would get any non-parent fired ASAP and after a fraction of the absenteeism. American productivity rates are very low. Wonder why? Far more people were middle class when the wealth from salaried jobs was spread out over more households because of stay-at-home parents who raised their own kids, but the standard for a middle-class lifestyle was lower before the advent of assortative mating. The assortative mates drove it up far beyond the means of most. What do the massive palaces in the bubble states/countries cost when a ranch house costs a million?

El Oregonian's picture

"The Rise of the Townhouse Tarps and Cardboard Condominiums."

 

Arnold's picture

Comprehensive Chinese Construction, LLC.

philipat's picture

Actually, Mother Yellen admitted that last week (After the over-hyped FOMC the week before) but, of course, the MSM forgot to mention that..The way the Fed plays these games is so obvious that it is (literally) unbelievable that any intelligent observer could take it seriously. Unfortunately, the Fed and its shareholders (The TBTF's) control over 80% of all trading in "the markets" so it doesn't matter. Until it does..

Son of Loki's picture

Wang Fu and Du Feng Yu are buying all their houses with the Billions of China's QE that flooded their markets.

it's true all over the world from NZ to Australia to vancouver to malaysia.

philipat's picture

Yes, and most of it can accurately be described as "money laundering". It's interesting isn't it that all these self-righteous Western Governments with hyperinflated RE markets (US, UK, Australia, Canada) are actively engaged in terrorising their own citizens and busy eliminating cash when at the same time they seem to welcome foreign laundered money to continue to infalte their "financialised" economies?

I live in Indonesia, where foreigners are prohibited from owning landed property, in what may perhaps be in part post-colonial xenophobia after 350 years living under the Dutch. But at the same time, it does keep property prices in line with the local economy and it means that local people are not priced out of the property market in their own country.

On both of these above issues, I can't really find fault with such a policy?

Dutti's picture

I mostly agree with you. However, if many comparatively wealthy foreigners come to live where you are, why do rents not rise so much as to price out the local renters?

philipat's picture

Um, because Rents are largely a reflection of local property values? They are inextricably entwined? And foreign "Money Launders" don't Rent, they Buy because that is how they launder their money? And if they can't buy, they don't buy and instead go to places where they can..

Dutti's picture

Maybe you have a point.

Like you, I live in a country and area with a significant expat community. Here foreigners can own real estate. However, the price level for real estate, rents and food has risen more than the local wages over the past 12 years because of the influx of expats. 

Xena fobe's picture

Maybe some day the locals will get upset about the price inflation crowding them out. 

Dutti's picture

Maybe. However thanks to the foreigners, more locals now can find jobs and support their families.

philipat's picture

I'm actually not an "expat" but the point remains the same. And it remains the case that "Globalisation" has a lesser effect in countries which are less "Globalised" and, wherein, the Rothschild Banking system has less penetration ("Debt Money")

But as you say, the impact of foreign money on local economies, if not controlled, will indeed "inflate" prices of everything, including Real Estate. That is clear. So why do our Western Governments continue to allow property purchases by foreigners, which can only continue to hurt the local people? The usual explanation is the BS answer that "It is the sanctity of the Contract and the Right of private property ownership in a free society" Yeah right??

Dutti's picture

"So why do our Western Governments continue to allow property purchases by foreigners, which can only continue to hurt the local people?"

An important real reason is the "growth" meme. More people will produce more growth, consumption and taxes to keep the ponzi going.

It's even true for a while in places like Germany, where even less productive migrants will help grow the economy because they, among other things, need housing. The construction industry will create more jobs and pay more taxes. It works until it doesn't - kicking the can down the road.

philipat's picture

In fact, in all property markets, there is a LOCAL equation as to the breakeven point for a Rental against a Purchase. So the lower the purcahse price, the lower the rental cost.

Dutti's picture

Yes, correct. However the more desirable locations will appreciate more in regards to purchase and rental prices. Where I am, money laundering is not such a big factor.

philipat's picture

That's because Real Estate is always about "Location, Location and Location"? But that is always a LOCAL market phenomenon whcih has little to do with outside influences; unless, of course, such outside influences are allowed to operate?

Son of Loki's picture

I agree with philipat that the majority can be considered a style of money laundering out of their communist dictatorship regime.

TheGardener's picture

"So the lower the purcahse price, the lower the rental cost."

Not so in Brazil where I lived as a permanent resident. Rents in Rio where sky high (up to 10K US /month for a decent size flat with good views, local paper had three pages worth of listings at this price range )

but purchase price was rather low at about 11 times annual rent. People had short time preferences on the memory of inflated away currencies.

Very odd valuation considering rental agreements were for a minimum of 5 years only , you almost half bought the place with yout signature on the contract but were just a guest on someone elses premises.

When I bought property in Australia I had to apply to a so called Foreign Investment Rewiev Board, wonder why the did not keep this up.

Maybe it got killed and shot dead upon sight together with the keep Australia white policy crowd of old.

 

 

philipat's picture

That's most unusual, however and probably because of a lack of supply of "Western Standard" property at the hight end, where perhaps there was little or no "Local" demand? And in such a market, why not just buy the property? Even if only using it for a few years, you would get your moany back quickly by leasing it out for a few years?

TheGardener's picture

Don`t buy into this "money laundering" hate speech if just describing capital flight for the most part.

Illicit gains might have to get laundered, but that`s what the derivative financial instruments are for

and why the size of this market is so huge to dilute and make impossible any trace. Big league makes offsetting

bets all over the globe and as such free to decide where profits might occur and capital resurfaces.

 

Hiding money from your government , usually after tax money should be considered a basic human right if there are any

worthy of consideration.

 

 

Toxicosis's picture

I agree rate hikes are not in the cards for many reasons.  However, a rise in property taxes can easily offset the damage done by lack of rate hikes.  Money out will still be more than money coming in.  So property tax increases could easily be the hidden rate hike most people are not expecting.

philipat's picture

Which again raises the question, in our "Western NeoLiberal Democracies" who actually "OWNS" a property? If you stop paying your property taxes, you will quickly find that you have very little "Ownership" rights.

techpriest's picture

I've noticed that some counties are starting to change this policy. Once you've paid for a certain number of years, or after you reach a certain age, you fill in some paperwork and you can own your primary homestead free and clear. It is not universal, however.

Speaking of this, I need to seriously look into getting onto one of my city/county boards, and find out what the policy is here. It would be nice at some point to create a map of towns/counties/states where you own your home free and clear.

BandGap's picture

Rate hikes will not be voluntary or driven by the state, they will happen due to market forces (like defaults).

Inevitable.

 

Nomad Trader's picture

Totally agree with you on this. These days everyone likes to talk about govt and CB manipulation of markets and money as if that's all there is, as if its easy, obvious, and fully deterministic. But that is not what crises are about. Crises are when the powers that be lose control. And eventually even fiat will seek out it's natural rate of return ie. higher rates. And the PTB will be powerless to stop it.

Xena fobe's picture

Yep.  When selling, please consider the effect your buyer will have on your descendants future.  Because millions more just like that buyer will be arriving after him. 

Zero Point's picture

When the Chinese economy collapses, Australians will buy it all back on the cheap. Just like they did after the Japanese bought up the place in the eighties.

Four20's picture

When the Chinese economy crashes the Australian economy crashes with it.

mrtoad's picture

Chinese arent the only foreign buyers but the TV propaganda want us to think that.

chestergimli's picture

I wonder how many people are depending on high stock dividends to pay their mortgages.

HalinCA's picture

No news ... just more evidence of the coming new feudal debt slave era ...

peterk's picture

Yes i keep hearing these stories of  too much  DEBT  here in AUSTRALIA.

But they are just that..stories.

 

As an old timer said to me once... if you cant pay the mortgage for the  house, its ok, they will give you a  bigger loan

 

Seems the old fella was right.

The last  real property slump here was in 1992 and prior to that 1980....... all else was entertainment.

I dont think it can happen here..... it just  doesnt happen in Austrlaia

RozKo's picture

If you are debt free then you have nothing to worry about, you will rise to the top as others sink when things fall (and they are slowly falling now).

Omen IV's picture

The higher person's income the banks lend more -regardless of the valuation since thy expect the value to increase - when the game changes and inevitably - it will -  those high income  that have a huge exposure as both jobs disappear / income support declines / valuations decline / interest rates increase - they go to the bottom of the deck

the constant ratcheting of the system that enables this everywhere will be undone

 

 

 

 

 

techpriest's picture

If you are debt free then you have nothing to worry about, you will rise to the top as others sink when things fall (and they are slowly falling now).

This is true. I'm learning now that I am saving aggressively and paying double principal on a 10 year mortgage. Once you get out of every debt, you take the payments and start piling up cash/PMs/BTC/whatever. Then, when the next crash happens, you can buy up what were once $400k houses, for $80k each, and after things stabilize you sell them for $150-200k. I know a guy who made a killing in Iowa doing this, though the numbers were $100-120k bubble, $25k post-bubble, $15k to fix up, and sold for $80k.

Wealth is like mass. It is not destroyed in a depression, it merely changes hands. You want to be the guy with the cash buying everything at 90% off when TSHTF, not the guy selling at 90% off to eat. We need more liberty-minded guys to build up some wealth so we have some resources to do more than post on ZH comment boards - In ten years I'm hoping that we can organize some sort of PAC that focuses super hard on reclaiming some towns/counties, or perhaps giving more support to the Free State Project.

FixItAgainTony's picture

Reclamation is a good objective.

Son of Loki's picture

peterk, i think you are right. As long as CBs bankroll the ponzi everything will be fine.

 

If that stops (which i don't see) then these house owners will be in trouble. At least the underwater Australian ones.

TheGardener's picture

What is an old timer these days ? Does 1987 count for Australian first real estate experience ?

People bought 60,000 aussie dolllar homes in thes suburbs with almost no money down maybe 3000 overdrafted somewhere else.

The block of land was worth 10 K after subdivision and 1 K before, but they paid 20K to the developers

fully financed and the builder would get 20 K for erecting that shack that in other times and parts of the world would be

considered makeshift housing.

All the rest was pure profit for the initiators and mortgage rates were well into the double digits, you would get 10% plus on your savings book

so go figure mortgage rates.

Now the same shack is starting at 600 K, excluding mining rights so what can go wrong ?

Four20's picture

Yes I keep hearing stories that I'll die one day but they are just that, stories.

I'm eighty five now and I'm fine, I don't think it can happen here.

RozKo's picture

Can't imagine its much different in the US or other parts of the world, everyones up to their eyeballs in debt. The banks have been lending out money like candy for all kinds of debt purchases and of course the people are going to take it if it means they can have the nice house and new truck. If the people think they will get a break from their debt obligations once everything goes south they are going to be in for a big surprise. They will become debt slaves because the bankers will NEVER let them go from what they owe.