Welcome to your 3 minute weekend good-news property investment reading. Off you go…
1. Aussie mortgages can cope
I’m not sure what got our attention more this week – the announcement that BHP will shelve its Olympic Dam mine expansion, or the stark assessment of Australia’s resource economy by Resource Minister Martin The-Boom-is-Over Ferguson.
Regardless, it cheered me right up to learn that Australian mortgages can cope with a severe downturn.
The Australian Property Institute (API) reports that a three-year study by Fitch Ratings, confirms that our residential mortgage-backed securities (RMBS) have shown resiliency under several stress tests, including a severe scenario where house prices crashed by 50%.
Under test conditions, employment was doubled to 11%; standard variable interest rates (SVR) on mortgages were increased to 12%; and house prices dropped by 35%. Fitch’s findings: mortgage defaults rose by 8% and approximately 97% of the “AAAsf” Prime RMBS ratings remained unchanged.
In a second test, unemployment was 15%; SVR also 15%; and house prices crashed by 50%. This resulted in an increase of mortgage defaults by 18% on average, according to API.
It’s a good result, but more encouraging still, the scenario itself is extreme, according to Fitch’s finance team director, Ben Newey, who said the test conditions were well beyond the realm of more plausible downside scenarios.
2. Rates looking okay
Thanks to Martial Peter for his “Glass Half Full” commentary and report on interest rates.
Most of the banks, says Peter, passed 0.20% to 0.25% of the latest RBA cut in cash rate to customers; and mortgage rates are now below the long run average.
Term deposit rates are still holding up pretty well – and savers have been benefitting from strong competition from banks to get more of their funding from domestic sources rather than offshore.
We can anticipate that with a tight federal government fiscal policy in place and a high A$, the RBA will respond to any further signs of weakness by lowering interest rates again.
Look for term deposit rates to fall a little further than the cuts in official cash rates, says Peter.
But for borrowers, he suggests that while rates could fall a little lower, there are some good deals around on 2-3 year fixed rates; and it may be worth considering ‘hedging your bets’ by locking in some of your funding.
Last word – a recent quote from the RBA Governor who noted, “the glass is at least half full”. Couldn’t agree more.
3. Winning presentations
Okay, modesty aside, I create pretty damn good presentations (and if you’d like to receive a copy of my latest one, just click here. You can ignore the date option – we’ll send you the most recent one.
But if you’d like to read some tips on creating a winning presentation from Inc.com, here are their 5:
- Big font size
- Put your content up high – display all bullets/important info on the top two-thirds of the slide
- Big ass photos – you get the picture
- Have interstitial slides – these are slides that start off a new section of your presentation; they allow a pause and let you set up the next section or idea
- Make it fun – learning doesn’t have to be boring
And by the way, if you are interested booking a Matusik presentation for your organisation or your clients – and be assured of up-to-date information and analysis, straight-forward delivery, a touch of genius and a little entertainment into the bargain – please email us for more information.
Michael Matusik is the director of independent property advisory Matusik Property Insights. Matusik has helped over 550 new residential developments come to fruition and writes the weekly Matusik Missive. The Matusik Missive is free, however, reprinting, republication or distribution of any portion of this material, or inclusion on any website, is strictly prohibited without the written permission of Matusik Property Insights and may incur a charge.
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