Theresa Worrell: Weekend reads – Must read articles from the last week

There are more interesting articles, commentaries and analyst reports on the Web every week than anyone could read in a month.

Each Saturday morning I like to share some of the ones I’ve read during the week.

The weekend will be over before you know it, so enjoy some weekend reading.

Smaller banks increase loan books by $22.4 billion since royal commission

It would seem that there’s good news for borrowers.

According to an article on Domain.com.au smaller banks are increasing their loan books.

Smaller banks have increased their loan books by $22.4 billion as more Australian shop around for better deals following the banking royal commission began.

As a result, they now claim one-fifth of the home loans market after growing almost 11 per cent in the year ending in April, according to APRA data analysed by Canstar.

Meanwhile, the major banks have increased their loan book — new mortgages and refinance — size by just 3.91 per cent in the same period, and their market share dipped below 80 per cent, dropping about one per cent.

Canstar finance expert Steven Mickenbecker said major banks have been under the microscope since the royal commission, which was being reflected in their market share loss as they tighten up credit.

“The fight for market share has intensified in recent months,” Mr Mickenbecker said. “It takes a lot to move bank lending market share. But over the 12 months to April 2019, the majors are down around 1 per cent, conceded to the other banks and authorised deposit-taking institutions.”

“The growth in the owner-occupied housing loan books of the major banks, at a modest 4 per cent, is less than half of the rest of the sector. The underperformance is even more marked for the January to April period, down to around a quarter,” Mr Mickenbecker said.

Global financial data insights provider RFi Group found almost 90 per cent of borrowers were aware of the baking royal commission.

Between March 2018 and March 2019, borrowers refinancing increased from 7 per cent to 12 per cent.

The level of trust borrowers had in their lender also declined from 54 per cent to 49 per cent in the same period.

In March, borrowers that closely followed the commission were more likely to have considered refinancing, and more than half of these were looking to switch away from their current lender.

RFi Group co-founder Alan Shields said the banking royal commission was having an impact on the mortgage market: “Awareness of the commission is sitting at almost 9 out of 10 borrowers, and instances of refinancing [have risen] significantly over the course of the last 12 months.”

“There is a strong indication,” Mr Shields said, “that second tier lenders could benefit from stronger customer demand, with consideration of regional and digital banks rising at the expense of the majors, non-banks and mutuals.”

Smaller banks have reported an increase in borrowers switching from other lenders, but the exodus is not of the same degree as seen in the super industry since the commission began.

ME’s general manager for home loans Andrew Bartolo said he had noticed a change in sentiment.

“We’ve seen an increase in customers switching to ME, but not the flood of switching that has happened in super,” Mr Bartolo said. “It’s the time and effort involved in switching your banking that’s one of the biggest hurdles.”

ME mobile banker Andrew Wallace said time and cost were the two main barriers to refinancing.

“Some customers want a better deal and consider shopping around, but they put it in the too hard basket because of the perceived effort involved,” Mr Wallace said.

“From application to settlement, the average time to switch from one lender to another is 4 to 5 weeks, with brief moments of admin throughout, such as filling in the application form, sourcing recent bank statements and signing forms.”

An ING spokeswoman said while it was difficult to measure how many borrowers had turned to ING on the back of the royal commission, the bank had registered an uptick.

Read the full article here

Employment on a tear still

Employment numbers are on the rise.

This Blog by Pete Wargen shows the statistics.

Jobs galore

At the headline level, the economy added a thumping +42,300 jobs in May, taking annual employment growth to above +360,000 or a rollicking +2.9 per cent.

Full time employment rose even faster at +3.1 per cent.

New South Wales added +39,000 jobs in May, and a rip-snorting +168,000 over the year.

Read the full article here

Australia’s house price downturn is now the largest on record

Australia’s house price downturn has hit a new record.

This article from Business Insider shows the numbers, indicating we’re at the largest downturn on record.

Australia’s house price downturn is now officially the largest on record.

Following 20 months of consecutive declines, including another 0.4% fall in May, according to CoreLogic data, prices have now fallen a cumulative 8.2%, surpassing the previous record downturn seen in the early 1980s.

This chart from UBS shows that not only is the decline in nominal terms now unprecedented, it’s also one of the longest on record, only beaten by those seen earlier this decade and the early 1990s, before Australia’s last recession hit.

“The peak-to-trough decline in prices is now 8.2%, officially the worst ever on a national basis since at least 1980 and the largest in around 50 years based on city-level REIA data,” said George Tharenou, economist at UBS, in a note released on Monday.

And Tharenou believes the current downturn has longer and further to fall yet, forecasting that prices are likely to fall close to 10% peak-to-trough before eventually bottoming out, most likely at towards the end of this year.

Unlike some other prominent property forecasters who expect a modest rebound in prices in the near-term, Tharenou remains unconvinced given weak economic conditions and the likelihood of higher unemployment ahead.

“Given the real economy keeps getting weaker — which is likely to see unemployment gradually trend up ahead — we still don’t expect a sharp reflation of housing in the near-term,” he said in a note released on Monday.

Nor does he expect the combination of lower mortgage rates and likely easing in lending standards from APRA to offer any significant support to prices.

“There has not yet been any actual change in serviceability and borrowing capacity, so any lift in demand is sentiment,” he said, referring to recent reports of a lift in mortgage applications at lenders.

“There are still headwinds from tight credit dues to higher HEM [Household Expenditure Method] benchmarks and increased verification of living expenses, along with the roll out of Comprehensive Credit Reporting and potential Debt-To-Income limits.”

Read the full article here

5 economic elements impacting property

What’s impacting the property market?

In this article for Switzer, John McGrath looks at 5 economic elements.

The health of our economy has a direct influence on property, with a multitude of elements impacting people’s confidence to buy, sell and invest.

Some elements are always a factor in people’s decision-making – they include interest rates and job security.

Other economic issues only arise from time to time, like credit restrictions on loans.

So, let’s take a look at some of the most significant economic factors influencing our market today.

1. Availability of credit

Credit restrictions have strongly contributed to a -7.2% decline in national home values over the past year, according to latest CoreLogic data.

Credit flow is a crucial economic element because not only does it dictate whether people can buy at all, it also dictates what price level they can buy at.

If buyers can’t get enough finance to achieve their next goal (usually upgrading), then they can’t make offers at a level acceptable to sellers.

This means properties either don’t sell and are withdrawn from the market, or they sell for lower prices.

However, credit conditions are about to change and this will have a beneficial impact on both market activity and property prices.

What’s changed is that APRA has told the banks that instead of using a 7% benchmark interest rate to assess serviceability on all loans, they can now choose their own benchmark or simply add a 2.5% buffer to their advertised mortgage rates.

This means serviceability will be assessed at a more realistic level, enabling more people to get loans, translating to more demand in the market.

The other great aspect of this change is that with every rate cut from the RBA (two expected in total this year), the serviceability test will move lower too.

The banks will be adding 2.5% to progressively lower mortgage rates (if the banks pass RBA cuts on), which means more people will qualify for loans.

2. Employment

People aren’t going to make major financial decisions when they’re worried about job security, however Australia is doing well in this regard with an unemployment rate of 5.1%.

The RBA wants to keep the unemployment rate low or even lower and some recent softening in the labour market is why interest rates are on the chopping block in 2019.

The return of the Liberal government is also good for job security because it’s the side of politics generally considered best for business.

When the business world is confident, companies are more likely to invest and employ more people.

3. Interest rates

Falling interest rates indicate a weakening economy – but buyers and sellers don’t care much because the benefit to them is so significant!

Unless jobs are at risk, lower interest rates will always buoy the property market.

Lower rates (now at a record low) mean people can more easily afford their loans and this is a big determining factor in whether to buy or sell.

With weak income growth right now, interest rate cuts provide a boost for owners and buyers.

4. Tax cuts

No matter who won the election, we were going to get tax cuts because the Federal budget is finally back to black. This is great news for our economy. The first round of tax cuts is due this financial year, with people earning up to $126,000 receiving $1,080 for singles and $2,160 for couples.

5. Confidence

We’ve gone from total exuberance between 2012-2017 in Sydney and Melbourne when prices were rapidly rising to a much more subdued attitude following significant falls of 15% plus.

Falling property prices make people feel less wealthy.

They get nervous and stay put.

They don’t want to sell at a lower price; and they don’t want to buy if prices are going to fall further.

So, they wait; and this means lower listing levels and less homes for sale and less demand in the marketplace.

I think confidence levels are definitely changing.

The return of the Liberals, who are seen as prudent economic managers; no changes to negative gearing or CGT; APRA’s changes to serviceability criteria; and the likelihood of another rate cut by Christmas should all combine to boost sentiment.

It might even be enough to bring the end of this downturn forward.

Read the full article here

International dream listings for buyers with deep pockets

If you had all the money in the world – where would you live?

Take a tour of some beautiful ‘dream homes’ from an article on Realesate.com.au

From an American fairytale dream home, a historic British manor, and a modern family stunner in Tasmania, this week’s top three international dream listings offer something for everyone.

California, US – $10.5 million

If you want to live large, nay, larger than life, America is the place to do it. Just look at this place.

It looks like it’s been ripped straight from a fairytale.

The home, one of the foremost properties in the prestigious gated community of The Country in Diamond Bar, was built in 1994 and offers almost 1200sqm of living space.

It’s got six bedrooms, nine bathrooms, a den, an indoor pool, a 1000-bottle wine cellar, an office with a hidden room behind a bookshelf, and expansive views.

Naturally, it has luxe features at every turn, including Italian marble and travertine floors, a statement staircase, bevelled glass windows and 12m cathedral ceilings.

When they talk about keeping up with the Joneses, this is where they live.

Sandy Bay, Tasmania – Price not disclosed

There’s something about Tasmania that just speaks to me, and I find myself browsing their property listings on a regular basis.

Tassie is home to some gorgeous homes, I think made all the more beautiful by the stunning environment they are in.

Take this exceptional Sandy Bay property, for example – it’s the perfect blend of style and location, where the modern design of the home perfectly complements the beautiful but rugged position it inhabits overlooking Hobart and the River Derwent.

The home, on the market through Charlotte Peterswald For Property, has four bedrooms, four bathrooms, an abundance of massive windows to make the most of those staggering views.

Best of all, it’s within walking distance of Hobart, which is, in my humble opinion, one of the most beautiful cities in Australia.

Trowbridge, Wiltshire, England – $6.9 million

The English countryside gives you plenty of opportunities to live large. Holt Manor, in Wiltshire, allows you to do this to excess.

The manor house dates back to the 17th century

and is approached by a stunning gravelled carriageway that screams grace, sophistication and ridiculous wealth.

This place has literally everything you could want in an English estate.

There’s a reception hall, a drawing room, a library, cellars, a study, outbuildings including a former brew house, stables, a former coach house, and a stone-built barn.

Then there’s the walled garden, formal gardens including an Italian garden, an arboretum, a

tennis court, paddocks and parklands.

It occupies about 39 acres in total, so it’s big enough to make a statement – but not so big your team of private gardeners are in over their head.