Every now and then there would be news about the potential for property market crash. It’s therefore important to always note all the potential signs for that to happen and then to be wary about them at all times. Today, we look at what yourmortgage.com.au has highlighted for the Australian property market. As per similarweb.com, yourmortgage.com.au has over 232k visits per month. This means it is a very popular property related site in Australia. According to the article, in reference to Markets and Money, 4 factors were identified as potential causes. First one is due to increasing interest rates. Take a look at the typical home loan rates in Australia today. Actually not that big difference from the rates we get in Malaysia yeah. Perhaps 0.5 percent lower and since there is a chance for Bank Negara to adjust the rates upwards, then the difference may be between 0.5 percent to 0.75 percent?
Why is increasing interest rate a cause for concern? The reason why a higher interest rate is a worry is because the ratio of household debts to disposable income is currently at 193.7 percent in June 2017 versus 98.6 percent way back in March 1997. It says, “The problem is, the increase in house prices has not only multiplied debt but is also causing something called ‘wealth effect’. It basically means that, as households perceive the value of their assets increasing, it makes them feel like they are sitting on a lot of money…so they spend more.” The report concluded by saying that this is however sustainable as long as interest rates are kept low. The home loan rates for Malaysia based on a search via imoney.my reveals that we are not that far away, where rates are concerned. imoney.my is Malaysia’s no.1 comparison site and has 1.85 Million visits per month. There is a potential for rates to increase in 2018 though. With regards to the household debt vs disposable income, do note that Australia’s numbers has always been higher than every other nation since 2002 and not just recently.
A comparison with other nations as per the image from Edgeprop.my The second reason for a potential property market crash as per Markets and Money is slow wage growth. Wage stands for salary. It says that many households had massive property value gains but 77 percent says they do not have enough cash to cover a quarter of their debts. It said, “The truth is that low wage growth, paired with higher living costs and even larger mortgages, is taking its toll. And the RBA may be keeping rates on hold, but commercial banks are slowly raising rates. People are spending much of their income on paying off debt.” The household debts of Malaysians vs GDP is quite high, at around 84.6 percent. One latest article in themalaysianinsight here. In essence, what is important is for wage to grow faster than the homeloan rates and it should still be okay. Do take a look at the potential increment in the new year as a comparison yeah.
The next threat contributing to property market crash is unemployment. The unemployment rate in Australia is considered low currently, at around 5.4 percent. However, there is a record high of ‘UNDEREMPLOYMENT’ In other words, there are people who has jobs but are not paid enough and thus suffering from mortgage stress. Last but not least would be the overexposure of banks to the mortgage market. A report on the Sydney Morning Herald said over 60% of Australia’s banking system loan book is on residential property, translating to $1.51 trillion in mortgages. (I could not find any recent numbers for the home loan to total loan for banks in Malaysia. However, based on the Non-Performing-Loan (NPL) numbers for Malaysian banks, the number is still very healthy. It’s around 1.6 percent. Here’s a recent report quoting S&P published in TheEdge Financial Daily.) Happy understanding.
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written on 27 Dec 2017
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