Chapter 1: What is the focus of this week's Real Estate Podcast episode?
It's The Real Estate Podcast, across every state, city and town of Australia. And welcome to another episode of The Real Estate Podcast, available on iHeartRadio every morning and also on Spotify and Apple and wherever you get your podcasts from. Well, it's another Sunday as your weekend continues. And if your property weekend has been a success, well done.
And if today is what you are hedging all your bets on, then good luck. It is the 14th of August already for 2022. And coming up, it is a Sunday. So we have the Sunday Real Estate Rewind. where it's an opportunity to revisit some of the leading real estate interviews with various guests over the last seven days. And I'll tell you what, it's been a really busy week.
So some of those are coming up in just a moment. And if you're celebrating your birthday for the 14th today, you share your special day with Magic Johnson turning 62. Also, Steve Martin, the comedian, is turning 76. And Halle Berry looking fantastic at 55 years young today, celebrating her birthday.
From first home buyers to property investors and everything in between, every morning on The Real Estate Podcast. It's the main centre forecast with propertybuyer.com.au. And looking at today's weather for Sydney, a little bit of cloud around, but it should be a mainly dry day. 19 degrees is your forecast high. Melbourne expecting a few showers developing with 15 degrees.
Brisbane a sunshine Sunday and 22. And in Perth expect cloud around, but another dry day and 22 degrees. Grab your coffee and switch on your real estate breakfast every weekday morning from 6.30. It's your real estate weekend podcast in review. And having a look at the mortgage default rates, they're starting to rise at the moment.
I guess a question here is, and it's a pretty serious one, where do you see that going in the next 12 months?
We do expect, in general, kind of bad debts or loan defaults to pick up over the next two years. But we kind of expect it to rise around about to average levels. So at the moment, if you look across the banks, their bad debts are around about 0.02% of total loans, plus or minus. So some of them actually still have negative debts.
bad debt provisions because they're able to offset the fat that they built in during COVID. We see that going up to about 0.2%. So it is going to increase by, you know, around 10 times, but that's still a fairly low level. I think the important thing to remember when it comes to mortgage defaults is that you really need unemployment to rise, to see that rise materially.
What we usually see as the driver of loans going bad is it's a significant change in circumstances. It's unemployment. It's a death in the family. It's severe illness.
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Chapter 2: What insights can we gain from the Sunday Real Estate Rewind?
It's something which affects your ability to earn an income. And just potentially having your value of your house go down significantly, which is likely ahead with rising rates, isn't usually enough to see people defaulting their loans. And historically, what we've seen in Australia is is people have been pretty good at tightening their belts and keeping on paying the mortgage.
Enjoy your morning coffee. It's your real estate weekend podcast in review. You're one person who is saying, hang on just a moment, RBA, cool your jets and pause for potentially a couple of months. Let's see what's going to happen. Catch our breath and see what those global factors and where they're going to land into the argument first before any further cash rate hikes.
Yeah, no, I think a wise strategy from here would be to sit back for a while. My calculation is that the total interest payments and mortgage holders in Australia can almost have doubled in this period. And because we have so many variable rate mortgages in Australia, we're going to see a pretty immediate impact.
When I say that, I don't mean within days and weeks, but within weeks and months, we're going to see the results of what this first wave of rate hikes is doing, particularly to the housing market. So I think it's worth just sitting back for a month or two. I don't think this is the end of the tightening cycle by any stretch.
I think they've got a pretty clear idea that they want to get the cash rate up to two and a half to three, but I just don't think they should rush it all through in the next few months. They should just seize back a little bit. But there's also a case, a strategy, a tactic to get it done early and then sit back and get the pain out of the way.
I'm just a little bit more cautious, I suppose, at the moment.
And Australia has always been resilient when situations are at a tipping point, which is where we find ourselves. And if I was a gambler, Warren, I'd say to people, never bet against Australia's economy because for that very reason, resilience.
Yeah. And don't bet against our housing market. I worked in banking in terms of the big four at ANZ and at Westpac when I was early in my career. And I spent a lot of time in the first 20 years of this century trying to explain to people all around the world, particularly overseas, why the Australian housing market wasn't about to fall into a massive hole.
And there's lots of reasons for it, not least that our country is extremely successful economically to this day. But also, you know, we have certain characteristics of our housing market that are important to never forget. And the one is we never have enough houses. And that is critical to the prospects of any downturn. We're going to get a downturn in the housing market.
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Chapter 3: How are mortgage default rates trending in the current market?
Yeah, so a lot of people have 1.99% fixed rates at the moment, but they're going to be up at 4% or 5%. That's a huge jump. I think the best analogy is what happened in the US around what was called the adjustable rate loans. That was before the global financial crisis. Again, people were lured into loans. very low rate loans.
And then suddenly the rates went up and it was the trigger of those higher rates that lifted defaults and then created the broader global financial crisis. I think that's the better analog. I've never known an example here in Australia where we've actually had this sort of similar thing play out until now. And it's worth thinking about the last sort of 15, 20 years, rates have only ever gone down.
So a lot of people will find this as a big shock. And I fear that some people won't be preparing early enough for what's going to be ahead.
OK, and the RBA, of course, they're lifting the rates. They're trying to fix inflation, but is it likely to fix the inflation, which is sort of running away?
Great question, because, of course, a lot of the inflationary pressures have nothing to do with local economy issues and employment, as we said. It's to do with the international economy. You know, supply chain disruption, the oil price, those things. So in a way, lifting interest rates is a very weak lever to try and actually tackle the underlying inflationary issues that we've got here.
The concern I have is you lift interest rates, you can squeeze a lot of households. But inflation could remain stubbornly high because of the fact that it's actually other issues that are driving it. And that leads us into a stagflationary environment where you have horribly low income growth, high unemployment and unfortunately high interest rates.
I hope we don't go there, but I do fear that the RBA might be a little bit too optimistic in terms of its current forecast as to what's going to happen next year. I think rates may be high for longer and I think that inflation could be high for longer.
It's your real estate weekend podcast in review. Well, Double Bay, yes, it is a great spot to own some property if you're fortunate enough to live there and have deep enough pockets, I guess. And you're not only servicing Double Bay, but you're also servicing some of the other areas.
Correct, correct. So we're based in Double Bay, but basically we cover anywhere down the peninsula through to Vaucluse, Watson's Bay. We've got listings along the beaches down to Marooba in Kensington as well.
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