Hevensvale, on the Gold Coast, has been named as the most mortgage-stressed suburb in Australia by the global ratings agency Fitch Ratings.
The Gold Coast and Sydney's Vaucluse have joined southwestern Sydney as the areas suffering the most from mortgage stress and loan defaults.
More than 840,000 residential mortgages - valued at $140 billion - were outstanding at the end of September, with interest rate rises in late 2007 and 2008 to blame.
Australian mortgage delinquency rose in the six months between April and September this year, Fitch Ratings said.
Southwestern and western Sydney remain the nation's mortgage stress hotspots, but there have been significant changes in the suburbs of Perth, southeast Queensland and New South Wales regional areas, such as Wollongong, Newcastle and the Central Coast.
One of the nation's most affluent addresses - Vaucluse - is rated seventh worst by loan value.
The top 10 suburbs and towns listed as suffering the most mortgage stress are: Helensvale (Queensland), Nelson Bay (NSW), Raymond Terrace (NSW), Katoomba (NSW), Greenacre (NSW), Guildford (NSW), Vaucluse (NSW), Fairfield (NSW), Cessnock (NSW) and St Marys (NSW).
Mortgage performance is expected to continue to deteriorate on the back of the Christmas spending season and the rapidly slowing economy, Fitch says.
"On a national basis, Australian mortgages, by value, that missed one or more payments, increased to 2.13 per cent from 1.88 per cent," said Ben McCarthy, from Structured Finance, who authored the Fitch report.
However a finding in the report suggests loans made between 2002 and 2007 are easier to service today than when the loan was first taken out.
"From this point of view if unemployment can remain subdued the Australian mortgage market will continue to perform well," Mr McCarthy said.
Wednesday, November 26, 2008
How low will house prices go in 2009
Recovery in house prices in the UK will be a long way off.
This past year will go down in the UK as the one in which the housing market raced from boom to bust.
In the autumn of 2007 prices began to fall each month as the international banking crisis took hold.
With the mortgage supply drying up, house sales have now slumped by more than half, first-time buyers have increasingly been driven from the market and the construction industry has plunged head-long into recession.
Building sites have been mothballed, thousands of workers laid off, and millions of unsold bricks are now being stockpiled around the country. And if the surveys by the Halifax and the Nationwide are anything to go by, house prices will end this year between 15% and 20% lower than they started - easily the biggest annual slump on record. About £30,000 has already been knocked off the selling price of the average house in the past year, and people have stopped borrowing extra cash against the now deflating value of their homes. So what will 2009 bring? More of the same or the beginning of an upturn?
More falls to come A year ago many experts were predicting that prices would be flat this year or might even rise a bit. Those views were rapidly outstripped by events. Now most commentators believe that prices will continue falling well into 2009, indeed maybe for the whole of the year. "We will expect prices to continue to fall because of the economic conditions; you wouldn't expect the market to turnaround in those conditions", says the Nationwide's chief economist
Fionnuala Earley, referring to the growing recession. Her counterpart at the Halifax, Martin Ellis, echoes that view. "We are comfortable with the view that there will be a 20% fall over 2008 and 2009". So if prices fall 15% this year, will they drop by just 5% next year? "We don't want to be too specific about next year," he replies.
Both lenders in fact will publish their formal house price predictions, with more specific figures, in the next few weeks and so will the lenders' trade body the Council of Mortgage Lenders. It recently described making short term house price predictions in the current market as "futile". But CML spokesman Bernard Clarke says it will stick its head above the parapet again soon. "We are going to be publishing something before the year end but we are currently working on it," he says. "Prices are likely to keep falling, at least in the early part of the year." Recession The economic downturn is one obvious factor that might help to push prices lower.
The availability of money remains restricted - which is where the key lies
Jonathan Davis, a chartered financial planner at Armstrong Davis, and spokesman for housepricecrash.co.uk says next year reality will kick in, even more than in 2008. "Next year prices will fall by 15-20% because unemployment is kicking in, house repossessions will rise rapidly and houses will go through auctions at previously silly prices - and banks aren't lending," he predicts. After forecasting the end of the house price bubble for several years, his worst predictions now seem to be coming true. "By 2010 prices will be significantly lower than the peak in late summer 2007; if they fall 15% next year then that will take us to 68% of the high point - a 32% fall," he points out. The key factor in the slump so far has been the rapidity with which the mortgage tap has been turned off, as banks and building societies have found they simply have much less money to lend. The industry is keeping its fingers crossed that the government's attempts to bail out the banking system, along with cuts in interest rates, will eventually see more money flow to borrowers. "Things are very fluid - credit is still in very short supply; interest rates are coming down quite sharply; and Libor is also coming down," says Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics). "So the cost of borrowing is falling, but the availability of money remains restricted - which is where the key lies." "And in truth no-one knows when that will change," he adds. Higher sales? The possibility that the mortgage market may free up a bit is hinted at by the Nationwide. HOUSE PRICE Predictions for 2009
It has just raised a further £1.5bn to bolster its finances by selling bonds to international investors, backed by the government's recently launched guarantee scheme for lending institutions. Rics, which is also working on its formal forecasts for next year, points out that there are some indications that sales, if not prices, might pick up next year. "Looking at our surveys, transaction levels do seem to be close to a floor and buyer enquiries are picking up, which is very significant, so there are potential buyers out there" says Mr Rubinsohn. "Prices will slip in the first half of the year and maybe all next year as well, but sales may pick up over the course of 2009." An even more optimistic view comes from Ray Boulger of the mortgage brokers John Charcol who reckons that house prices will stabilise by the middle of 2009. "The significant cut in rates will have a stimulating effect because some will see this as an opportunity to buy," he says. "Prices will drift in 2009, with the rate of decline reducing, and for the year as a whole will be broadly unchanged with a fall of 4% in the first half and a recovery of a similar amount in the second half." "Human psychology and the desire to buy a property is out there," he believes. Insurmountable problem For the moment Mr Boulger is in a minority. The leading economic consultancy Capital Economics has long predicted a big fall in house prices which, in its view, had risen far too high to be sustainable. Its housing spokesman Ed Stansfield is not about to change his tune, and predicts more of the same in the next 12 months. "There is not much evidence that the mortgage market is freeing up so I think we will see another 15-20% off prices in the coming year, so a one-third fall will have happened in just two years, reflecting the deterioration of the economy in the past year," he says. "Potentially base rates coming down may spark a revival of buyer interest, but the scale of the problem is beyond the government and I don't really think there is anything it can do," he adds. What about those efforts by the government and the Bank of England to make life a bit easier for banks and their borrowers? "Whether sentiment can be turned round when the chancellor and the governor of the Bank of England are saying there is a recession on the way is debatable," he says, pointedly.
This past year will go down in the UK as the one in which the housing market raced from boom to bust.
In the autumn of 2007 prices began to fall each month as the international banking crisis took hold.
With the mortgage supply drying up, house sales have now slumped by more than half, first-time buyers have increasingly been driven from the market and the construction industry has plunged head-long into recession.
Building sites have been mothballed, thousands of workers laid off, and millions of unsold bricks are now being stockpiled around the country. And if the surveys by the Halifax and the Nationwide are anything to go by, house prices will end this year between 15% and 20% lower than they started - easily the biggest annual slump on record. About £30,000 has already been knocked off the selling price of the average house in the past year, and people have stopped borrowing extra cash against the now deflating value of their homes. So what will 2009 bring? More of the same or the beginning of an upturn?
More falls to come A year ago many experts were predicting that prices would be flat this year or might even rise a bit. Those views were rapidly outstripped by events. Now most commentators believe that prices will continue falling well into 2009, indeed maybe for the whole of the year. "We will expect prices to continue to fall because of the economic conditions; you wouldn't expect the market to turnaround in those conditions", says the Nationwide's chief economist
Fionnuala Earley, referring to the growing recession. Her counterpart at the Halifax, Martin Ellis, echoes that view. "We are comfortable with the view that there will be a 20% fall over 2008 and 2009". So if prices fall 15% this year, will they drop by just 5% next year? "We don't want to be too specific about next year," he replies.
Both lenders in fact will publish their formal house price predictions, with more specific figures, in the next few weeks and so will the lenders' trade body the Council of Mortgage Lenders. It recently described making short term house price predictions in the current market as "futile". But CML spokesman Bernard Clarke says it will stick its head above the parapet again soon. "We are going to be publishing something before the year end but we are currently working on it," he says. "Prices are likely to keep falling, at least in the early part of the year." Recession The economic downturn is one obvious factor that might help to push prices lower.
The availability of money remains restricted - which is where the key lies
Jonathan Davis, a chartered financial planner at Armstrong Davis, and spokesman for housepricecrash.co.uk says next year reality will kick in, even more than in 2008. "Next year prices will fall by 15-20% because unemployment is kicking in, house repossessions will rise rapidly and houses will go through auctions at previously silly prices - and banks aren't lending," he predicts. After forecasting the end of the house price bubble for several years, his worst predictions now seem to be coming true. "By 2010 prices will be significantly lower than the peak in late summer 2007; if they fall 15% next year then that will take us to 68% of the high point - a 32% fall," he points out. The key factor in the slump so far has been the rapidity with which the mortgage tap has been turned off, as banks and building societies have found they simply have much less money to lend. The industry is keeping its fingers crossed that the government's attempts to bail out the banking system, along with cuts in interest rates, will eventually see more money flow to borrowers. "Things are very fluid - credit is still in very short supply; interest rates are coming down quite sharply; and Libor is also coming down," says Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics). "So the cost of borrowing is falling, but the availability of money remains restricted - which is where the key lies." "And in truth no-one knows when that will change," he adds. Higher sales? The possibility that the mortgage market may free up a bit is hinted at by the Nationwide. HOUSE PRICE Predictions for 2009
It has just raised a further £1.5bn to bolster its finances by selling bonds to international investors, backed by the government's recently launched guarantee scheme for lending institutions. Rics, which is also working on its formal forecasts for next year, points out that there are some indications that sales, if not prices, might pick up next year. "Looking at our surveys, transaction levels do seem to be close to a floor and buyer enquiries are picking up, which is very significant, so there are potential buyers out there" says Mr Rubinsohn. "Prices will slip in the first half of the year and maybe all next year as well, but sales may pick up over the course of 2009." An even more optimistic view comes from Ray Boulger of the mortgage brokers John Charcol who reckons that house prices will stabilise by the middle of 2009. "The significant cut in rates will have a stimulating effect because some will see this as an opportunity to buy," he says. "Prices will drift in 2009, with the rate of decline reducing, and for the year as a whole will be broadly unchanged with a fall of 4% in the first half and a recovery of a similar amount in the second half." "Human psychology and the desire to buy a property is out there," he believes. Insurmountable problem For the moment Mr Boulger is in a minority. The leading economic consultancy Capital Economics has long predicted a big fall in house prices which, in its view, had risen far too high to be sustainable. Its housing spokesman Ed Stansfield is not about to change his tune, and predicts more of the same in the next 12 months. "There is not much evidence that the mortgage market is freeing up so I think we will see another 15-20% off prices in the coming year, so a one-third fall will have happened in just two years, reflecting the deterioration of the economy in the past year," he says. "Potentially base rates coming down may spark a revival of buyer interest, but the scale of the problem is beyond the government and I don't really think there is anything it can do," he adds. What about those efforts by the government and the Bank of England to make life a bit easier for banks and their borrowers? "Whether sentiment can be turned round when the chancellor and the governor of the Bank of England are saying there is a recession on the way is debatable," he says, pointedly.
UK Northern Rock using 125% mortgage loans will be facing arrears trouble
Arrears on controversial home loans of up to 125% of the value of a property are driving Northern Rock's repossession rate. "Together" deals account for a third of the the Rock's mortgage book, but half of the number of mortgages in arrears and three-quarters of repossessions.
But Rock bosses told a committee of MPs they wanted to lead the way in helping people avoid losing their homes.
Buy-to-let specialist Bradford and Bingley was also under the spotlight. The two nationalised bank's management teams faced a Treasury Committee banking inquiry hearing.
High-value deals Northern Rock came under particular scrutiny over claims that the lender was "aggressive" in its repossessions policy.
This claim was strenuously denied by chief executive Gary Hoffman, although he warned that rising unemployment and falling house prices would increase the numbers in arrears. Northern Rock's Together mortgages - which offered loans of up to 125% of a property's value - were heavily criticised when the bank was nationalised. I believe you have inherited a shambolic organisation with a giant headache
John McFallTreasury Committee chairman about B&BMr Hoffman said that these mortgages had worked well in getting first-time buyers on the property ladder during the booming market. But now with some customers struggling to repay these mortgages, because they are often less well-off, Northern Rock's repossession rate has risen above the national average. Latest figures showed the proportion of Together mortgage customers in arrears for more than three months stood at 3.1%, whereas the industry average was 1.33%.
Mr Hoffman said he wanted the bank to lead the way in creating schemes to help people avoid repossessions, but the bank had to act in the same way as the rest of the industry. "We want to make sure customers stay in their home.
Repossession is a last resort," he said. Executive chairman Ron Sandler said only 1% of the repayment of the debt to the government was funded by repossessions, so there was no benefit in trying to push up the repossession rate for that purpose.
He said there would be no return of the bank to private ownership in the near future, with the economic situation making it more difficult. Buy-to-let 'closed' The Rock is doubling the number of staff dealing with arrears. The same trend can be seen at Bradford and Bingley (B&B), which has dominated the UK buy-to-let mortgage market in recent years.
Job losses at Bradford and Bingley will happen over timeB&B executive chairman Richard Pym said he expected the number of staff dealing with arrears inquiries to double, from the 200 employed in August, by the time arrears levels hit their peak next year. He added that the buy-to-let housing market was "closed". So many deals had been withdrawn that the market was completely different to a year ago. B&B, which had its mortgage business nationalised in September, has a £40bn loan book.
Some 60% of these mortgages are buy-to-let customers and another 20% are self-certified mortgages, which are common among people such as the self-employed. Mr Pym told the committee that at the end of September the proportion of borrowers in arrears on their mortgages stood at 3%, higher than the industry average.
One independent report suggested that, taking falling house prices into account, B&B could lose about £1.2bn.
The buy-to-let market is expected to be worse hit than the residential mortgage market. Mr Pym, however, said the recent cut in the Bank rate to 3% would have a "significant effect" in assisting landlords, assuming rents did not also fall dramatically. Job losses At the end of August, B&B had 3,100 staff, the committee heard.
This dropped by 1,700 following the transfer of the savings business to Abbey, and another 300 jobs went when business was closed to new mortgages. Mr Pym said it was "mindful of its obligations" to the community in West Yorkshire. Any further job losses would be phased, with 50 to 100 voluntary redundancies in the pipeline.
An agreement with the government means there will be no compulsory redundancies before 31 March next year. Yet he was unable to give a final level of job losses by the end of next year. Former chairman Rod Kent said the board was "deeply sorry" that the bank needed to be nationalised. Mr Pym said that there were only queues at four branches at the height of the crisis, and every customer who wanted to move savings could do so when the outflow of customers' funds reached £200m online.
Committee chairman John McFall, closing the session, told Mr Pym: "I believe you have inherited a shambolic organisation with a giant headache." Mr Pym confirmed he would step down from his job next summer, without any compensation, but having picked up a guaranteed cash bonus of £326,000 spread over two years.
But Rock bosses told a committee of MPs they wanted to lead the way in helping people avoid losing their homes.
Buy-to-let specialist Bradford and Bingley was also under the spotlight. The two nationalised bank's management teams faced a Treasury Committee banking inquiry hearing.
High-value deals Northern Rock came under particular scrutiny over claims that the lender was "aggressive" in its repossessions policy.
This claim was strenuously denied by chief executive Gary Hoffman, although he warned that rising unemployment and falling house prices would increase the numbers in arrears. Northern Rock's Together mortgages - which offered loans of up to 125% of a property's value - were heavily criticised when the bank was nationalised. I believe you have inherited a shambolic organisation with a giant headache
John McFallTreasury Committee chairman about B&BMr Hoffman said that these mortgages had worked well in getting first-time buyers on the property ladder during the booming market. But now with some customers struggling to repay these mortgages, because they are often less well-off, Northern Rock's repossession rate has risen above the national average. Latest figures showed the proportion of Together mortgage customers in arrears for more than three months stood at 3.1%, whereas the industry average was 1.33%.
Mr Hoffman said he wanted the bank to lead the way in creating schemes to help people avoid repossessions, but the bank had to act in the same way as the rest of the industry. "We want to make sure customers stay in their home.
Repossession is a last resort," he said. Executive chairman Ron Sandler said only 1% of the repayment of the debt to the government was funded by repossessions, so there was no benefit in trying to push up the repossession rate for that purpose.
He said there would be no return of the bank to private ownership in the near future, with the economic situation making it more difficult. Buy-to-let 'closed' The Rock is doubling the number of staff dealing with arrears. The same trend can be seen at Bradford and Bingley (B&B), which has dominated the UK buy-to-let mortgage market in recent years.
Job losses at Bradford and Bingley will happen over timeB&B executive chairman Richard Pym said he expected the number of staff dealing with arrears inquiries to double, from the 200 employed in August, by the time arrears levels hit their peak next year. He added that the buy-to-let housing market was "closed". So many deals had been withdrawn that the market was completely different to a year ago. B&B, which had its mortgage business nationalised in September, has a £40bn loan book.
Some 60% of these mortgages are buy-to-let customers and another 20% are self-certified mortgages, which are common among people such as the self-employed. Mr Pym told the committee that at the end of September the proportion of borrowers in arrears on their mortgages stood at 3%, higher than the industry average.
One independent report suggested that, taking falling house prices into account, B&B could lose about £1.2bn.
The buy-to-let market is expected to be worse hit than the residential mortgage market. Mr Pym, however, said the recent cut in the Bank rate to 3% would have a "significant effect" in assisting landlords, assuming rents did not also fall dramatically. Job losses At the end of August, B&B had 3,100 staff, the committee heard.
This dropped by 1,700 following the transfer of the savings business to Abbey, and another 300 jobs went when business was closed to new mortgages. Mr Pym said it was "mindful of its obligations" to the community in West Yorkshire. Any further job losses would be phased, with 50 to 100 voluntary redundancies in the pipeline.
An agreement with the government means there will be no compulsory redundancies before 31 March next year. Yet he was unable to give a final level of job losses by the end of next year. Former chairman Rod Kent said the board was "deeply sorry" that the bank needed to be nationalised. Mr Pym said that there were only queues at four branches at the height of the crisis, and every customer who wanted to move savings could do so when the outflow of customers' funds reached £200m online.
Committee chairman John McFall, closing the session, told Mr Pym: "I believe you have inherited a shambolic organisation with a giant headache." Mr Pym confirmed he would step down from his job next summer, without any compensation, but having picked up a guaranteed cash bonus of £326,000 spread over two years.
Citigroup executives consider sale of all or part of bank
With Citigroup stock value plunging, top executives at the financial giant are considering the sale of all or parts of the company, the Wall Street Journal reported on its website.
The debate within the company is at a "preliminary stage," and officials said the company has "ample capital, funding and strategic direction," the daily said.
The sale option is one of a range of dire scenarios company executives were considering after Citigroup stock fell another 26 percent Thursday, after a 23 percent drop on Wednesday.
The company's board of directors is expected to meet Friday to discuss options to reverse the stock slide, people familiar with the situation told the daily.
Citigroup, a component of the blue-chip Dow Jones Industrial Average, has tumbled more than 70 percent since the start of the year, with the bank hit by hefty writeoffs linked to the US real estate crisis.
Chief Executive Vikram Pandit and other company executives have told colleagues they are frustrated and confused by this week's 50 percent stock decline, the daily said.
Citigroup stocks on Thursday closed at 4.71 US dollars, their lowest level in 15 years, despite Wednesday's announcement by Saudi Arabian investor Prince Alwaleed bin Talal bin Abdulaziz Al Saud that he would increase his holdings in Citigroup Inc. to 5.0 percent, adding that he supports the banking giant's management.
At 25.6 billion US dollars, Citigroup's value on the stock market is barely higher than the 25 billion dollar aid package the US Treasury extended it last month, in the framework of its 700 billion dollar bailout plan for stricken financial institutions.
Besides considering selling the company to another bank, Citigroup executives are also looking into selling parts of the company, including the Smith Barney retail brokerage, the global credit-card division and transaction-services unit, Citigroup's most lucrative and fast-growing businesses, the newspaper said.
They are also exploring the possibility of merging with a rival. Some analysts have pointed to Morgan Stanley and Goldman Sachs Group Inc. as potential suitors, market analysts told the daily.
Citigroup also want to make it more difficult for investors to place bets that the company's share price will fall, a strategy known as "short selling," and have been lobbying the Securities and Exchange Commission to reinstate a ban on the trading strategy imposed at the start of the stock market crash.
Citigroup on Monday announced it was slashing a near-record 50,000 jobs worldwide in further belt tightening to cope with the global financial crisis and heavy losses. At its peak last year, the company employed 375,000 people.
It was the second largest job-cut announcement on record, according to global outplacement consultancy Challenger, Gray & Christmas, tying with 50,000 job cuts by retailer Sears, Roebuck & Co. in 1993 behind the all-time largest the same year: 60,000 by IBM.
The debate within the company is at a "preliminary stage," and officials said the company has "ample capital, funding and strategic direction," the daily said.
The sale option is one of a range of dire scenarios company executives were considering after Citigroup stock fell another 26 percent Thursday, after a 23 percent drop on Wednesday.
The company's board of directors is expected to meet Friday to discuss options to reverse the stock slide, people familiar with the situation told the daily.
Citigroup, a component of the blue-chip Dow Jones Industrial Average, has tumbled more than 70 percent since the start of the year, with the bank hit by hefty writeoffs linked to the US real estate crisis.
Chief Executive Vikram Pandit and other company executives have told colleagues they are frustrated and confused by this week's 50 percent stock decline, the daily said.
Citigroup stocks on Thursday closed at 4.71 US dollars, their lowest level in 15 years, despite Wednesday's announcement by Saudi Arabian investor Prince Alwaleed bin Talal bin Abdulaziz Al Saud that he would increase his holdings in Citigroup Inc. to 5.0 percent, adding that he supports the banking giant's management.
At 25.6 billion US dollars, Citigroup's value on the stock market is barely higher than the 25 billion dollar aid package the US Treasury extended it last month, in the framework of its 700 billion dollar bailout plan for stricken financial institutions.
Besides considering selling the company to another bank, Citigroup executives are also looking into selling parts of the company, including the Smith Barney retail brokerage, the global credit-card division and transaction-services unit, Citigroup's most lucrative and fast-growing businesses, the newspaper said.
They are also exploring the possibility of merging with a rival. Some analysts have pointed to Morgan Stanley and Goldman Sachs Group Inc. as potential suitors, market analysts told the daily.
Citigroup also want to make it more difficult for investors to place bets that the company's share price will fall, a strategy known as "short selling," and have been lobbying the Securities and Exchange Commission to reinstate a ban on the trading strategy imposed at the start of the stock market crash.
Citigroup on Monday announced it was slashing a near-record 50,000 jobs worldwide in further belt tightening to cope with the global financial crisis and heavy losses. At its peak last year, the company employed 375,000 people.
It was the second largest job-cut announcement on record, according to global outplacement consultancy Challenger, Gray & Christmas, tying with 50,000 job cuts by retailer Sears, Roebuck & Co. in 1993 behind the all-time largest the same year: 60,000 by IBM.
Monday, November 24, 2008
Citigroup says credit card loan losses will rise in the recession
Citigroup says losses in its credit card portfolio could rise between $US1 billion and $US2 billion each quarter from now through the first half of next year.
Citi's credit card losses could double over the next nine months.
Shares of Citigroup, which plans to slash 50,000 jobs worldwide, had declined 9.5 per cent to $US8.05 with just under an hour of trading remaining on Wall Street.
Citigroup also revealed its plans to change its accounting for a large portion of its risky, written-down assets. It will move about $US80 billion of the assets from its trading portfolio to either its held for investment, held to maturity or available for sale categories on its balance sheet.
Citigroup said that the company's capital position was strong and it was moving ahead with restructuring plans, which include an additional 50,000 job cuts.
Citi reported last month a $US2.8 billion net loss in its third quarter; its losses over the last four quarters totalled more than $US20 billion.
Citi's credit card losses could double over the next nine months.
Shares of Citigroup, which plans to slash 50,000 jobs worldwide, had declined 9.5 per cent to $US8.05 with just under an hour of trading remaining on Wall Street.
Citigroup also revealed its plans to change its accounting for a large portion of its risky, written-down assets. It will move about $US80 billion of the assets from its trading portfolio to either its held for investment, held to maturity or available for sale categories on its balance sheet.
Citigroup said that the company's capital position was strong and it was moving ahead with restructuring plans, which include an additional 50,000 job cuts.
Citi reported last month a $US2.8 billion net loss in its third quarter; its losses over the last four quarters totalled more than $US20 billion.
Big homes become hard to sell and finance
The new stimulas that flooding the Australian property market is not flowing up to the top of the market.
Melbourne house values are down about 2 per cent across the board over the past few months, but recent rate cuts and additional first-home buyer support, will make that sector more buoyant than other parts of the residential property market, valuer WBP says.
For example, Narre Warren, a typical first and second-home owner's suburb in Melbourne, has a very strong market in properties priced below $320,000, while the market from $320,000 to $500,000 is weaker.
WBP also says recent valuations in the blue-ribbon suburbs of Camberwell and Balwyn suggest the market has fallen between 10 and 15 per cent for properties priced at more than $1million, while those below $500,000 are less affected.The prestige sector, after being immune to 12 consecutive rate rises, is not faring well amid cuts to executive bonuses, a volatile share market, corporate profit downgrades and the increasing pressure of margin loans.Knight Frank Research, in its annual review of the prestige residential market released this month, says all these factors will affect prices.
The prestige sector generally held up well over the 2007-8 financial year. But even though it feels like ancient history now, sales volumes started falling in the first two quarters of 2008 in most capital cities, as the hit to family wealth started to befelt.In Melbourne, there were 44 sales of more than $5 million each, totalling $294 million for the 2007-8 financial year.
But 60 per cent of these were in 2007, with a 34 per cent fall in the value of sales in the first two quarters of 2008. The suburbs of Brighton and Toorak recorded the highest volumes in this price bracket, with nine sales of more than $5 million in each suburb.
In the entry-level prestige sector, the value of properties sold for the year was $2.17 billion, but that was down nearly 32 per cent in the first part of 2008. Knight Frank makes the distinction between entry-level prestige property, between $2 and $5 million, and top-end prestige property above $5 million.
In Sydney, it says, there are two distinct prestige markets. The first is mainly owner-occupied -- suburbs such as Woollahra, Vaucluse and Point Piper in the east, and Mosman, Manly, Neutral Bay, Cremorne and Hunters Hill in the north.The second is the beach areas of the upper north shore and around Palm Beach and Avalon.
A large proportion of these are second homes or luxury weekend retreats for those in Sydney's financial services industry.Prices for prestige residential property in Sydney actually rose 4 per cent over 2007-08 year, as measured by the Knight Frank Prime International Residential Index. But again, all the growth was in 2007, with a slowdown in the first half of 2008. Knight Frank expects the very top of the market -- the $10million-plus bracket -- will remain stable, and says trophy properties, which are usually waterfront or have harbour views, will always be in demand.
Areas with a high proportion of second or holiday homes, and entry-level prestige properties will be in for a tough time.More second homes are likely to hit the market, and entry-level prestige properties values will fall, as has already happened in suburbs more dependent on the financial sector for purchasers.
Melbourne house values are down about 2 per cent across the board over the past few months, but recent rate cuts and additional first-home buyer support, will make that sector more buoyant than other parts of the residential property market, valuer WBP says.
For example, Narre Warren, a typical first and second-home owner's suburb in Melbourne, has a very strong market in properties priced below $320,000, while the market from $320,000 to $500,000 is weaker.
WBP also says recent valuations in the blue-ribbon suburbs of Camberwell and Balwyn suggest the market has fallen between 10 and 15 per cent for properties priced at more than $1million, while those below $500,000 are less affected.The prestige sector, after being immune to 12 consecutive rate rises, is not faring well amid cuts to executive bonuses, a volatile share market, corporate profit downgrades and the increasing pressure of margin loans.Knight Frank Research, in its annual review of the prestige residential market released this month, says all these factors will affect prices.
The prestige sector generally held up well over the 2007-8 financial year. But even though it feels like ancient history now, sales volumes started falling in the first two quarters of 2008 in most capital cities, as the hit to family wealth started to befelt.In Melbourne, there were 44 sales of more than $5 million each, totalling $294 million for the 2007-8 financial year.
But 60 per cent of these were in 2007, with a 34 per cent fall in the value of sales in the first two quarters of 2008. The suburbs of Brighton and Toorak recorded the highest volumes in this price bracket, with nine sales of more than $5 million in each suburb.
In the entry-level prestige sector, the value of properties sold for the year was $2.17 billion, but that was down nearly 32 per cent in the first part of 2008. Knight Frank makes the distinction between entry-level prestige property, between $2 and $5 million, and top-end prestige property above $5 million.
In Sydney, it says, there are two distinct prestige markets. The first is mainly owner-occupied -- suburbs such as Woollahra, Vaucluse and Point Piper in the east, and Mosman, Manly, Neutral Bay, Cremorne and Hunters Hill in the north.The second is the beach areas of the upper north shore and around Palm Beach and Avalon.
A large proportion of these are second homes or luxury weekend retreats for those in Sydney's financial services industry.Prices for prestige residential property in Sydney actually rose 4 per cent over 2007-08 year, as measured by the Knight Frank Prime International Residential Index. But again, all the growth was in 2007, with a slowdown in the first half of 2008. Knight Frank expects the very top of the market -- the $10million-plus bracket -- will remain stable, and says trophy properties, which are usually waterfront or have harbour views, will always be in demand.
Areas with a high proportion of second or holiday homes, and entry-level prestige properties will be in for a tough time.More second homes are likely to hit the market, and entry-level prestige properties values will fall, as has already happened in suburbs more dependent on the financial sector for purchasers.
Reserve Bank of Australia to cut mortgage rates again in time for Christmas
The Reserve Bank of Australia's board will be cutting mortgage interest rates deep again for Xmas
Governor Glenn Stevens said board should consider up to a 75 basis point to a 1.0 percent rate reduction.
The board decided to cut rates by 75 basis points, taking official rates to 5.25 per cent, in light of the continuing poor conditions in financial markets, the significant deterioration in the global outlook and the likelihood of inflation falling.
"Given the changing balance of risks, there was an advantage in moving the setting of monetary policy quickly to a neutral setting," the RBA said in its board minutes.
Economists said they expected the RBA to move to an “expansionary setting” next month as it tried to shield the economy from the global financial crisis which has already dragged several countries into recession.
Commsec economist Savanth Sebastian, who expects a 50 basis point cut next month, said: “The move to a neutral monetary policy setting has been achieved quickly. However the case for further substantial rate cuts remains.
“The global economy continues to weaken and a stimulatory monetary policy setting will be required to combat the weakness in retail spending and housing.”
Westpac chief economist Bill Evans said the RBA’s desire to move quickly to a neutral cash rate suggested a cut of at least 75 basis points in December.
“Whereas neutral may have been around 5.5 per cent in previous cycles, we assess that it is now around 4.5 per cent, given the incomplete pass-through of RBA rates to household and business borrowing rates,” said Mr Evans.
“A decision to push rates to neutral or below as quickly as possible seems prudent in the current circumstances.”
Financial markets price a near-certain bet of a further 100 basis point cut at the RBA’s December 3 meeting. A cut of that magnitude would reduce official rates to 4.25 per cent, the lowest level since the aftermath of the September 2001 terrorist attacks.
ANZ economist Riki Polygenis, who expects a 50 basis point cut next month, said: “The use of the word neutral in reference to taking the cash rate to 5.25 per cent is the largest clue contained in the minutes regarding the outlook for monetary policy.
“On the RBA's latest forecasts, there is a clear case for monetary policy to move to an expansionary setting.”
The minutes revealed board members believed recent reductions in borrowing costs, the weakening Australian dollar and the federal Government's $10.4 billion stimulus package were insufficient to shield the economy from the global financial crisis.
“The marked deterioration in global financial conditions over the past couple of months ... was likely to have a significant effect on business and consumer sentiment,” the minutes said.
“This would probably lead to a significant curtailment of planned investment spending and caution on the part of households.
“Members agreed that a further sizeable reduction in official rates ... would enable a further meaningful reduction in rates paid by borrowers and could assist confidence among consumers and businesses.”
While inflation remained above the central bank's target range of 2-3 per cent, the sharper than expected slowdown in domestic and global growth along with lower commodity prices would see inflation to start to fall soon.
As such, the board members decided a “further size-able reduction ... would strike the right balance between the need to return inflation to the target and the need to reduce the risk of an unduly sharp weakening of demand”.
The RBA has become increasingly bearish about the outlook for Australia.In its November monetary policy statement last week, the central bank cuts its forecast for growth in fiscal 2009 to1.5 per cent from an August forecast of 2.0 per cent.
The projections undercut the IMF’s forecast for 1.8 per cent growth and the federal Government’s prediction of 2.0 per cent growth.
The domestic economy has been slowing along with the rest of the world, with several major economies now in recession.
The euro-zone, Japan and Britain have officially entered recession and many economists already believe the United States has slid into recession.
A meeting of the Group of 20 industrialised and developing countries in Washington at the weekend, which was attended by Prime Minister Kevin Rudd, pledged to work together to restore economic growth.
Leaders vowed to improve supervision of financial markets and reform the IMF and World Bank.
They also urged governments to inject more money into their economies and lower interest rates to stimulate growth.
Governor Glenn Stevens said board should consider up to a 75 basis point to a 1.0 percent rate reduction.
The board decided to cut rates by 75 basis points, taking official rates to 5.25 per cent, in light of the continuing poor conditions in financial markets, the significant deterioration in the global outlook and the likelihood of inflation falling.
"Given the changing balance of risks, there was an advantage in moving the setting of monetary policy quickly to a neutral setting," the RBA said in its board minutes.
Economists said they expected the RBA to move to an “expansionary setting” next month as it tried to shield the economy from the global financial crisis which has already dragged several countries into recession.
Commsec economist Savanth Sebastian, who expects a 50 basis point cut next month, said: “The move to a neutral monetary policy setting has been achieved quickly. However the case for further substantial rate cuts remains.
“The global economy continues to weaken and a stimulatory monetary policy setting will be required to combat the weakness in retail spending and housing.”
Westpac chief economist Bill Evans said the RBA’s desire to move quickly to a neutral cash rate suggested a cut of at least 75 basis points in December.
“Whereas neutral may have been around 5.5 per cent in previous cycles, we assess that it is now around 4.5 per cent, given the incomplete pass-through of RBA rates to household and business borrowing rates,” said Mr Evans.
“A decision to push rates to neutral or below as quickly as possible seems prudent in the current circumstances.”
Financial markets price a near-certain bet of a further 100 basis point cut at the RBA’s December 3 meeting. A cut of that magnitude would reduce official rates to 4.25 per cent, the lowest level since the aftermath of the September 2001 terrorist attacks.
ANZ economist Riki Polygenis, who expects a 50 basis point cut next month, said: “The use of the word neutral in reference to taking the cash rate to 5.25 per cent is the largest clue contained in the minutes regarding the outlook for monetary policy.
“On the RBA's latest forecasts, there is a clear case for monetary policy to move to an expansionary setting.”
The minutes revealed board members believed recent reductions in borrowing costs, the weakening Australian dollar and the federal Government's $10.4 billion stimulus package were insufficient to shield the economy from the global financial crisis.
“The marked deterioration in global financial conditions over the past couple of months ... was likely to have a significant effect on business and consumer sentiment,” the minutes said.
“This would probably lead to a significant curtailment of planned investment spending and caution on the part of households.
“Members agreed that a further sizeable reduction in official rates ... would enable a further meaningful reduction in rates paid by borrowers and could assist confidence among consumers and businesses.”
While inflation remained above the central bank's target range of 2-3 per cent, the sharper than expected slowdown in domestic and global growth along with lower commodity prices would see inflation to start to fall soon.
As such, the board members decided a “further size-able reduction ... would strike the right balance between the need to return inflation to the target and the need to reduce the risk of an unduly sharp weakening of demand”.
The RBA has become increasingly bearish about the outlook for Australia.In its November monetary policy statement last week, the central bank cuts its forecast for growth in fiscal 2009 to1.5 per cent from an August forecast of 2.0 per cent.
The projections undercut the IMF’s forecast for 1.8 per cent growth and the federal Government’s prediction of 2.0 per cent growth.
The domestic economy has been slowing along with the rest of the world, with several major economies now in recession.
The euro-zone, Japan and Britain have officially entered recession and many economists already believe the United States has slid into recession.
A meeting of the Group of 20 industrialised and developing countries in Washington at the weekend, which was attended by Prime Minister Kevin Rudd, pledged to work together to restore economic growth.
Leaders vowed to improve supervision of financial markets and reform the IMF and World Bank.
They also urged governments to inject more money into their economies and lower interest rates to stimulate growth.
Citigroup heads south as it warns consumer loan losses rise
Citigroup stocks took a bath in the wake of its warning that losses in its consumer loan portfolio could rise between $US1 billion and $US2 billion each quarter from now through the first half of next year, according to chief executive Vikram Pandit's speech notes released on the banking giant's website.The notes reveal "buried" details about company's expectation that consumer credit losses will be substantially higher, said Bernstein Research analyst John McDonald, who alerted his clients to the disclosure.
Citi's consumer credit losses in its third quarter were $US4.6 billion ($7.1 billion), meaning the guidance in the speech notes suggests the bank's quarterly losses on the portfolio could reach $US10.6 billion by the second quarter of next year.
Shares of Citigroup, which plans to slash 50,000 jobs worldwide, had declined 9.5 per cent to $US8.05 with just under an hour of trading remaining on Wall Street.
A Citi spokeswoman declined to comment on Mr McDonald's report, and referred other questions to the 13 pages of speech notes released on the company's website.
Mr McDonald cut his price target on Citi shares to $US11 from $US20 based on the higher credit losses outlined in the speech notes. He also widened his fourth-quarter loss expectation to US61c a share from US41c and cut his 2009 earnings forecast to US22c a share from US63c.
Citigroup also revealed in Mr Pandit's notes its plans to change its accounting for a large portion of its risky, written-down assets. It will move about $US80 billion of the assets from its trading portfolio to either its held for investment, held to maturity or available for sale categories on its balance sheet.
Mr Pandit said $US80 billion in assets had been marked down appropriately and that the realised losses on the loans would be greater than the level they'd been marked down to already, according to the notes.
He said the purpose of the accounting change "reduces the earnings volatility that these assets could pose," and that it allows Citi to benefit from a return on equity from any upside to the assets.
Bernstein's Mr McDonald said the $US80 billion comprised most of Citi's $US88 billion in risky collatoralised debt obligations, leveraged loans, mortgage securities and auction rate securities.
Once the assets are moved out of Citi's trading portfolio, any future write-downs would no longer follow through Citi's income statement unless it sells them, or recognises an "other than temporary impairment charge" against them, he said.
However, Mr McDonald estimated that Citi would still have to write-down $US3.5 billion on the assets in its fourth quarter when it makes the accounting change.
Mr Pandit delivered a speech based on the notes and a slideshow, which was released on the company's website.
Mr Pandit told those at the employee-only meeting on Monday that the company's capital position was strong and it was moving ahead with restructuring plans, which include an additional 50,000 job cuts.
Citi reported last month a $US2.8 billion net loss in its third quarter; its losses over the last four quarters totalled more than $US20 billion.
Citi's consumer credit losses in its third quarter were $US4.6 billion ($7.1 billion), meaning the guidance in the speech notes suggests the bank's quarterly losses on the portfolio could reach $US10.6 billion by the second quarter of next year.
Shares of Citigroup, which plans to slash 50,000 jobs worldwide, had declined 9.5 per cent to $US8.05 with just under an hour of trading remaining on Wall Street.
A Citi spokeswoman declined to comment on Mr McDonald's report, and referred other questions to the 13 pages of speech notes released on the company's website.
Mr McDonald cut his price target on Citi shares to $US11 from $US20 based on the higher credit losses outlined in the speech notes. He also widened his fourth-quarter loss expectation to US61c a share from US41c and cut his 2009 earnings forecast to US22c a share from US63c.
Citigroup also revealed in Mr Pandit's notes its plans to change its accounting for a large portion of its risky, written-down assets. It will move about $US80 billion of the assets from its trading portfolio to either its held for investment, held to maturity or available for sale categories on its balance sheet.
Mr Pandit said $US80 billion in assets had been marked down appropriately and that the realised losses on the loans would be greater than the level they'd been marked down to already, according to the notes.
He said the purpose of the accounting change "reduces the earnings volatility that these assets could pose," and that it allows Citi to benefit from a return on equity from any upside to the assets.
Bernstein's Mr McDonald said the $US80 billion comprised most of Citi's $US88 billion in risky collatoralised debt obligations, leveraged loans, mortgage securities and auction rate securities.
Once the assets are moved out of Citi's trading portfolio, any future write-downs would no longer follow through Citi's income statement unless it sells them, or recognises an "other than temporary impairment charge" against them, he said.
However, Mr McDonald estimated that Citi would still have to write-down $US3.5 billion on the assets in its fourth quarter when it makes the accounting change.
Mr Pandit delivered a speech based on the notes and a slideshow, which was released on the company's website.
Mr Pandit told those at the employee-only meeting on Monday that the company's capital position was strong and it was moving ahead with restructuring plans, which include an additional 50,000 job cuts.
Citi reported last month a $US2.8 billion net loss in its third quarter; its losses over the last four quarters totalled more than $US20 billion.
Thursday, November 13, 2008
Will house prices rise in line with the First Home Owners Grant rises.
Those of us who have lived through two, now three first home buyers incentive schemes know two things that most people don't. The first is that putting money into first home buyers pockets is like spraying petrol into a car engine. When the fire is burning you will get a massive acceleration, more maybe than the energy you put in. When you do the same to a sluggish or dead engine, you will flood the engine and kill the spark.
The first home buyers have spoken in their silence. The engine is dead, and its flooded.
It needs to be stripped down and over-hauled. Its sick and doesn't do the job it was intended to do.
Adding supply side demand [by giving incentives and cash to potential first home buyers to an inefficient/ housing market] may drive the market on, but it will not address the core issues.
The core issues are that banks put their self interest before their customers and won't pass on rate rises, and must be dragged kicking and screaming to do so, and that the new home market is geared to second and third home markets, and in doing so has become inefficient in building new home stock.
The result is that the average age of a first home buyer is nearly forty in Australia, [over forty in the US], and the home builders of Australia and America focus on where the money is, the second, third and fourth home buyer.
These people want to get it right, mostly for a couple and a dog, and take their time to design and decide, two reasons why we are building bigger and bigger homes for less and less people.
I have worked in the new home building industry in the 1980's, the 1990's and the 2000's up to right now.
The last month I was AV Jennings in the mid 1988's I sold 7 homes [I averaged 4 homes a month.] The average was 3 sales a month in the 1980's
The average for the 1990's was 2 sales a month for the industry.
By 2000, the average was 1.5 home sales a month per new home sales.
By 2008 this was 1.25 home sales a month per month and falling fast. Many builders have display homes where they can't get home sales consultants to work or they have decided not to open because of their "graveyard status". Many builders have display homes they can't sell.
The sales training given these days is better than in the 1980's and the sales people are more professional, and the urgent need for accommodation for families is dire. So why aren't homes being built?
There are many reasons, but the big one is that first home buyers want a home three times the size they need and twice the size they can afford, and State and local Governments are addicted to money they take in the form of fees and Stamp duty from land developers, home builders and their suppliers, and home buyers generally and new home buyers in particular.
This makes the homes that first home buyers are looking at, at least $100,000 more than they would be, and paying off a mortgage that is $100,000 bigger than it should be may get the banks rubbing their hands, but is making first home buyers reluctant to get into debt that deep for a dream that can become a nightmare in an unclear future.
We need to stop allowing Local councils and state governments dependent on bleeding new development and building projects.
So back to the original question.
Will the house prices rise by the size of the grant increase?
I don't think so. Not this time. In the 1970's it did because The new home builders have become niche suppliers to second, third and fourth home buyers, not first home buyers. The incentives are still too small and don't compensate buyers for the GST, let alone the ripoffs mentioned.
Land supply to Developers needs to be controlled by the Government, as developers and builders have not been meeting the markets needs for years, and land developers use deceptive marketing tactics that manipulate the markets and make land prices artificially high, under the guise of market forces. They buy raw land then hold it. They should be taxed out of doing this. They deliberately hold land from sale to give the appearance of scarcity, when land is in fact abundant. They tell customers that they only have three lots available when they have 15 or 50 available. The run sham auctions. They put sold signs on lots that are not sold.
If Governments acquired and banked residential land and created a competitive development industry first home buyers could see a new home price halved.
The truth is a block of dirt to build a home on should not have to cost $300,000 in the middle of nowhere, but it does on the Gold Coast, and in many areas of Australia.
It time for a breakout of the trend that has gripped Australian residential building and it time for a new deal for the smarter first home buyers that want that new deal.
First home buyers no longer want to get across the line, because they are smart enough to know that they are then the proud owners of a 30 year mortgage. That the mortgage is bigger than it should be should be concern for everyone.
Rick Adlam is the founder of the Australian Mortgage Exchange and Mr Mortgage
The first home buyers have spoken in their silence. The engine is dead, and its flooded.
It needs to be stripped down and over-hauled. Its sick and doesn't do the job it was intended to do.
Adding supply side demand [by giving incentives and cash to potential first home buyers to an inefficient/ housing market] may drive the market on, but it will not address the core issues.
The core issues are that banks put their self interest before their customers and won't pass on rate rises, and must be dragged kicking and screaming to do so, and that the new home market is geared to second and third home markets, and in doing so has become inefficient in building new home stock.
The result is that the average age of a first home buyer is nearly forty in Australia, [over forty in the US], and the home builders of Australia and America focus on where the money is, the second, third and fourth home buyer.
These people want to get it right, mostly for a couple and a dog, and take their time to design and decide, two reasons why we are building bigger and bigger homes for less and less people.
I have worked in the new home building industry in the 1980's, the 1990's and the 2000's up to right now.
The last month I was AV Jennings in the mid 1988's I sold 7 homes [I averaged 4 homes a month.] The average was 3 sales a month in the 1980's
The average for the 1990's was 2 sales a month for the industry.
By 2000, the average was 1.5 home sales a month per new home sales.
By 2008 this was 1.25 home sales a month per month and falling fast. Many builders have display homes where they can't get home sales consultants to work or they have decided not to open because of their "graveyard status". Many builders have display homes they can't sell.
The sales training given these days is better than in the 1980's and the sales people are more professional, and the urgent need for accommodation for families is dire. So why aren't homes being built?
There are many reasons, but the big one is that first home buyers want a home three times the size they need and twice the size they can afford, and State and local Governments are addicted to money they take in the form of fees and Stamp duty from land developers, home builders and their suppliers, and home buyers generally and new home buyers in particular.
This makes the homes that first home buyers are looking at, at least $100,000 more than they would be, and paying off a mortgage that is $100,000 bigger than it should be may get the banks rubbing their hands, but is making first home buyers reluctant to get into debt that deep for a dream that can become a nightmare in an unclear future.
We need to stop allowing Local councils and state governments dependent on bleeding new development and building projects.
So back to the original question.
Will the house prices rise by the size of the grant increase?
I don't think so. Not this time. In the 1970's it did because The new home builders have become niche suppliers to second, third and fourth home buyers, not first home buyers. The incentives are still too small and don't compensate buyers for the GST, let alone the ripoffs mentioned.
Land supply to Developers needs to be controlled by the Government, as developers and builders have not been meeting the markets needs for years, and land developers use deceptive marketing tactics that manipulate the markets and make land prices artificially high, under the guise of market forces. They buy raw land then hold it. They should be taxed out of doing this. They deliberately hold land from sale to give the appearance of scarcity, when land is in fact abundant. They tell customers that they only have three lots available when they have 15 or 50 available. The run sham auctions. They put sold signs on lots that are not sold.
If Governments acquired and banked residential land and created a competitive development industry first home buyers could see a new home price halved.
The truth is a block of dirt to build a home on should not have to cost $300,000 in the middle of nowhere, but it does on the Gold Coast, and in many areas of Australia.
It time for a breakout of the trend that has gripped Australian residential building and it time for a new deal for the smarter first home buyers that want that new deal.
First home buyers no longer want to get across the line, because they are smart enough to know that they are then the proud owners of a 30 year mortgage. That the mortgage is bigger than it should be should be concern for everyone.
Rick Adlam is the founder of the Australian Mortgage Exchange and Mr Mortgage
Friday, November 07, 2008
Rick Adlam has uploaded his personal web page
Rick Adlam has uploaded his personal web page so that friends and past acquainences can find hime easily.
If you want to findout more about rick adlam but were afraid to ask, please visit http://rickadlam.mrmortgage.com.au/ now.
There are a lot of Rick Adlam's in the world and I just wanted to get to no 1 in Google, Says Rick Adlam.
If you want to findout more about rick adlam but were afraid to ask, please visit http://rickadlam.mrmortgage.com.au/ now.
There are a lot of Rick Adlam's in the world and I just wanted to get to no 1 in Google, Says Rick Adlam.
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