Pete Wargent blogspot

PERSONAL COACH | PROPERTY BUYER | ANALYST

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Saturday, 25 May 2019

Lowest ever mortgage rates (rate cut spesh)

Deep cuts

Australia's lowest ever mortgage rates.

Coming soon, to a brokerage near you.

Variable rates are now being rolled out from 3.29 per cent (Early Bird spesh, with cash back).

Via RateCity:


Source: Rate City

And there's plenty more to come here between now and Q2 2020, with markets taking on board the Evans call for three rate cuts. 


Friday, 24 May 2019

Capitulation complete

Just cuts

It's been a long time coming, but the capitulation is now complete.

Bloomberg's latest survey of economists showed that all concerned see interest rates falling at least to 1 per cent over the year ahead. 


Notably, Westpac now sees three cuts this year, with further risks to the downside beyond that.


Bill Evans is usually ahead of the pack too.

Funding cost pressures are nowhere to be seen, so this should largely be passed on to borrowers.

Slow news day, you may have gathered, especially after the week we've had.

Thursday, 23 May 2019

Bond yields sink to record lows

Yields hit new lows

Plenty of feedback and questions about 'when interest rates go up again' and the mortgage rate buffer.

An interesting point of note is that as and when interest rates do go up again, a buffer of 2½ percentage points would actually constrain the capacity to borrow (should the proposed rules remain in place, which they may not). 

But that's not something that's going to happen any time soon in any case. 

Of course, we all agree it is important to allow for changes in circumstances. 

Which is, after all, what the buffer is for. 

But you also need to look at the likelihood of 250 basis points of hikes, which - as market pricing shows - over the near term is effectively zero. 

Meanwhile bond yields across the curve have continued to decline to their lowest ever levels. 


Source: Bloomie

The 5 year bond yield is just 1.23 per cent, while the 10 year bond yield is at a record low of just 1.58 per cent.

Heck, even the 15 year bond yield is only at 1.85 per cent, so the squawking about rate hikes should be put into a bit of perspective. 

Or, looked at graphically.


An interest rate buffer of 250 basis points is very prudent, all things considered.

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Addendu,: further declines in yields overnight.

Mortgage rates heading to record lows (in memes)

Labour force in detail

The ABS released its (largely ignored) detailed labour force survey today for the month of April 2019. 

I've jotted down a few points of general interest below, with a couple of memes to brighten up an otherwise predictably wonkish post. 

Unemployment rates are no longer trending lower in Sydney and Melbourne. 


In several other capital cities annual average unemployment rates are floating well above 6 per cent.


Sydney has had such a tremendous run in this respect; yet so many construction projects are winding down now that it's difficult to see much in the way of improvement from here, even for an eternal optimist such as my good self. 


And still there's not been too much in the way of wages growth, though perhaps we are through the trough now. 

Gizza job...

The median duration of job search has improved moderately over the past year in New South Wales (13 weeks), and quite significantly in Victoria (12 weeks).

But it remains relatively higher in Queensland and South Australia (both 18 weeks).

The Northern Territory is highly seasonal but you'd better allow for six months up there in the present climate.

Here's the national picture: 


With inflation decelerating there's realistically nowhere for interest rates to go but down, and down again. 

Funding costs plunge again

Interestingly, as a sundry observation, bank funding costs have also receded to record lows, meaning that we may see out-of cycle cuts to fixed rate mortgages too. 


This represents a remarkable turnaround from last year when all the talk was about spiralling funding costs and how many times the Fed might hike.

Instead, borrowers look set to enjoy the lowest mortgage rates on record. 

Wealth Ways for the Young

For the young

My newest book, and the fifth in the series, is now available in all good book stores...


...and newsagents (it's the one on the right, hey)...


...and online now.

It's a book in two parts, for parents and for teenagers.

Big short

Cash burn

After the fundraising analysts continue to debate whether Tesla is going to zero due to its mountain of debt and appetite for burning cash.

The share price is now down 49 per cent since mid-December.


Funding secured.

Incoming windfall

Also of interest overnight, the benchmark spot price for 62% Fe iron ore was up another 3.4 per cent to fresh 5-year highs at $105.78/t.

The price is up by more than 12 per cent in a week as stockpiles are run down in China.


The low point was just $38.30/t in December 2015. 

Rivers of gold here for the government's receipts, given that even $10 above the Budget assumptions sustained through the year can add $12 billion to nominal GDP and $3.6 billion to tax receipts.

The 2019/20 Budget had assumed that the free-on-board (FOB) spot price would fall through the fiscal year to US$55/tonne by the end of March 2020. 

What a windfall incoming here!

Wednesday, 22 May 2019

This is what the election result means for you

Election result

I take a look in this short video.


Assessment changes

Changes to assessment

It's interesting to consider how a new assessment rate for mortgages might impact lending.

A simple but stylised graphic below shows that currently mortgages written under 4¾ per cent could be treated a bit more favourably under the proposed 250 basis points buffer.

Following market pricing for the cash rate - and assuming that those rate cuts are broadly passed on by lenders - then the impact would be felt far more meaningfully for loans written under 5¼ per cent. 


It makes good sense, and appears likely to keep a lid on interest-only lending to investors (typically at higher rates), while favouring homebuyers.

It's good to see a dynamic and pragmatic move.

An interesting addendum: were interest rates to increase again in the future then a buffer of 250 basis points would constrain borrowing capacity.

Buyers return: The ScoMo put

No personal grudges, but there sure are a lot of happy people in the mortgage broking, real estate, and development space that Bowen isn't going to be in charge of the coffers.

Investors may still find financing hard work if they're looking at interest-only loans, but there seems to be a good chance that homebuyers might be hoovering up idle housing stock and getting things moving again. 

To wit:


Source: Property Chat

Wow, what a difference a week makes.

Enquiries on the up too.


All eyes will be on auction markets when they fire up again. 

Sydney's gross rental yields have increased from 3.2 per cent to 3½ per cent over the past year.

But even assuming a couple of rate cuts there's a limit to what Sydney prices can do from here until rental price growth returns, and that's some way off. 

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A noticeably brighter mood up in Queensland this week. 

I always kind of knew Labor was unpopular up here, but at the moment they are very, very unpopular.