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.
‘Mortgage prisoners’ trapped with higher rates as lending rules get tougher
As lending rules get tougher – many are starting to feel ‘trapped’ in their mortgages.
This article on from Abc.net.au looks at how new rules and higher rates are affecting mortgage holders.
Tougher lending standards being driven by regulators and the banking royal commission are creating a legion of “mortgage prisoners”, according to interest rate comparison site Mozo.
Mozo found mortgage holders who borrowed near their limit in recent years were finding it increasingly difficult to refinance their loans and were “trapped” with their current lender.
“A mortgage prisoner is a homeowner who is unable to move to a more competitive mortgage deal, even if they’ve met every repayment, because they would not pass new affordability tests applied by the banks,” Mozo property analyst Steve Jovcevski said.
“Typically, this is because they took out the loan before stricter lending rules applied.”
Mr Jovcevski said stagnant wages and falling house prices were exacerbating the problem.
“Stricter lending criteria was introduced for good reason, with skyrocketing household debt, poor income growth and historically low interest rates.
“The flow-on effect is 30 per cent of owner occupier borrowers are now finding themselves facing mortgage stress — and many are also falling into the ‘mortgage prisoner’ category,” he said, citing research from Digital Finance Analytics.
“Given the current situation, banks have the power to hold some of their customers prisoner.”
‘Suck it up or sell’
The tighter lending conditions have particularly hit highly-leveraged investors who took interest only (IO) loans and are now being forced to refinance paying down the loan’s principal as well as interest (P&I).
Interest only loans typically run for five years before needing to be refinanced.
Earlier this year the RBA found the step-up from interest only to principal and interest would increase payments by about 30 to 40 per cent
In other words, the cost of the switch to a principal and interest loan for a $400,000 30-year mortgage with a five-year interest only period would be about $7,000.
While conceding it would be a non-trivial amount for the household concerned, RBA assistant governor Christopher Kent said it was unlikely to have a big impact on the economy, knocking off about 0.2 per cent a year off total household disposable income.
Property analyst Pete Wargent said at the moment most borrowers feeling the pinch were cutting back on expenditure rather than selling.
“Although listings are drifting higher — as stock takes longer to sell — new listings are at their lowest level for this time of year since 2013, so there’s been no rush for the exits by any means,” he said.
Mr Wargent said it was unlikely the tighter conditions would see a cascade of defaults, particularly as the spread between interest only and principal and interest loans had expanded significantly
“A lot of people switched early because P&I loans are now around 1 per cent lower [than IO], so you may as well pay off the principal — it will be cheaper in the long run,” he said.
Escape via shadow banking unlikely
Mr Jovcevski said shopping around for a non-bank lender may provide an escape route, but research from investment bank UBS suggested that may be just a temporary option.
UBS bank analyst Jonathan Mott has argued the so-called “shadow banks”, which have have seen their lending rise to record levels since the royal commission, would soon have to start raising rates rapidly in line with rising funding costs
Mr Mott told clients in a recent research note, the “regulatory mismatch” skewing the responsible lending crackdown towards the big banks was having worrying consequences.
Read the full article here
Where will the property market be in 25 years?
The past is in the past
Past performance – it’s no guarantee of future returns.
It’s often said that the next 25 years won’t be the same as the past 25.
And that’s no doubt true.
After all, if they were then we’d have to see something quite extraordinary happening to interest rates.
And as for the housing market, as Doc Cameron Murray’s extrapolation below shows, the national median house price would rise to nearly $3 million by 2043, with a house in Sydney costing about $6.35 million.
Source: Cameron Murray
Never say never, but I’m opting for a more sedate outcome than that!
Read the full article here
High-end handbag or property purchase: Here’s how the two investment strategies stack up
When it comes to a long lasting investment – would you choose a handbag or a property?
While the answer is obvious to most – an article on Domain.com.au taken a look at how the two investments measure up.
A handbag that is 10 years old and in “grade-two condition” last month sold in London for $289,338 (£162,500).
For context, less than two weeks later an apartment in inner-Melbourne sold for $7000 less than that.
It’s nice, too – hardwood floors, two parking spaces, and so on.
So, which is likely to be the more lucrative investment?
Judging by the problematic gauge of past market performance, a case could actually be made for the handbag.
While that particular diamond-encrusted Hermes Himalaya Birkin now holds the title of most-expensive handbag ever sold in Europe, auction houses around the world are regularly selling “investment-grade handbags” for small fortunes.
In fact, during the past 14 years the Rare Handbag Index – tracked by Jersey-based dot-com JustCollecting – has outperformed property and sharemarkets in Australia.
The index tracks the value of “regularly-traded and investment-grade” handbags and is said to have recorded an increase of 170.1 per cent between 2004 and 2018.
During that time the median house price in Sydney grew 103 per cent, according to Domain data, and the ASX 200 gained 73 per cent.
Birkin all the way to the bank
Photo: Christian Vierig / Getty Images
Birkin handbags are a powerful status symbol.
Various designer handbags find themselves on the index – Chanel, Dior, Louis Vuitton – but it’s almost exclusively the sale of a Hermes Birkin that makes headlines.
The most expensive handbag ever sold was $448,514 for a Birkin in 2016.
Since its creation in 1984, the Birkin handbag has become arguably the most sought-after fashion accessory in the world.
And because supply of new bags is kept low and available by the manufacturer to a hand-picked elite, the second-hand collector market has become lined with gold.
The handbags are now an instantly-recognised status symbol.
Victoria Beckham is said to have one of the biggest collections in the world, but the Kardashians could likely give her a run for her money.
Leaving the top-tier $290k diamond bags aside, if you’d managed to get your hands on a $5444 Cognac Ostrich Leather Birkin (40-centimetre) handbag – made by (you guessed it) Hermes – 14 years ago, you’d have made a tidy 275 per cent return by now.
It last sold for $20,415, according to JustCollecting.
It’s the best performer on the Rare Handbag Index of 19.
Thinking of investing? Here’s what you need to know
So, with all that in mind, should you start “investing” in handbags?
To do well comes down to the ability to predict what will be fashionable and desirable a decade ahead of the rest.
Knowing what’s in vogue right now proves a tall order for some – including your correspondent.
The market is, naturally, much more niche and has much less regulation than other markets.
Experts advise against buying any fashion accessory and expecting a return.
Spending up on a portfolio of investment-grade handbags is “very risky”, according to Melbourne fashion industry legend and purveyor of high-end accessories Christine Barro.
“When Phoebe Philo was brought in to design Celine and revive that brand [in 2008] … I had those bags and I just couldn’t get enough of them. It became this easy-sell,” Barro says.
However, tastes changed, Philo moved on, and now “it’s dead”.
“As soon as the doors would open at Harrod’s everyone would rush to the Celine counter to buy up whatever was on the shelf … it’s completely over,” Barro says.
Purchasing an apartment is ultimately the smarter decision.
After all, you can’t live in a handbag.
The pricetag some of these handbags command is astronomical, but the ever-changing nature of fashion excuses the bags as an approachable form of investing.
Read the full article here
Where are the buyers?
It’s no secret that the number have slowed down – so where are the buyers?
In this article for Switzer, John McGrath looks at what’s really going on.
If you’re selling in Sydney and Melbourne today, odds are you’ve noticed fewer people turning up at opens and few bidders competing at auction.
There’s a few reasons why buyer numbers are down, so here’s what’s happening and what you can do about it.
1. Investors have lost interest
After five years of exceptional price growth, rental yields in Sydney and Melbourne are pretty low (3.2% and 3% respectively) in comparison to other capital cities (4.4% in Brisbane, 4.6% in Canberra) and the prospects for further capital growth in the short to medium term have diminished.
At this point in the cycle, investors leave to pursue other markets, which is something we are seeing in Brisbane now as more southern city investors look north for opportunity. First home buyers are somewhat filling the void left by investors but only in the lower price brackets.
If your property offers particularly strong investment credentials, such as separate accommodation that improves the overall yield; or a large land size with potential for re-development or sub-division, include these specifics in your marketing to capture investors’ attention.
2. Owner occupiers have made other choices
There comes a point during booms when a sizeable proportion of owner-occupiers give up and depart the market.
They decide prices are just too high, it’s simply too hard to compete and they’re better off staying put and renovating or doing a seachange out of the city altogether.
Having said that, there are still plenty of buyers out there today – your agent just has to work harder to find them and negotiate with them.
In this market climate, owner-occupiers are not willing to buy anything just to get into the market anymore, which means the better quality properties are attracting the greatest attention.
You and your agent need to do all you can to help buyers fall in love with your home.
You can’t change the location but you can change the presentation of your property.
You can also reach more buyers with a comprehensive marketing campaign.
3. The credit crunch
Buyers’ borrowing capacity has changed and it’s taking longer to get approval following further credit tightening this year.
This is a big issue in the market today.
We’re hearing many stories of buyers pulling out the night before auction because their loan hasn’t come through in time.
Agents need to educate their buyers and ensure their pre-approvals are recent.
If not, it’s wise to suggest they double check with their bank.
The rules are changing day by day as each individual lender determines their new assessment criteria.
Agents should proactively refer buyers to high quality mortgage brokers that they personally know and trust.
It’s part of an agent’s role right now to ensure every buyer interested in your home has their finance.
With few buyers around, you don’t want to lose further competition because one or two of your best prospects have loan troubles.
If you’re selling via auction, you can always postpone if one or more of your serious buyers aren’t ready due to financing delays.
This is a strategic decision though – talk to your agent.
4. Fewer foreign buyers in our market
Australian property is less appealing to foreign buyers following the introduction of arbitrary application fees in 2015 and rising stamp duty surcharges and other taxes in several states.
The latest annual report from the Foreign Investment Review Board show approvals for residential property were down from 40,149 in FY2016 to 13,198 in FY2017.
This is partly explained by the effect of the application fees, with investors now only applying when a purchase is highly likely.
Other factors include China limiting capital outflows and Chinese investors looking to cheaper and closer South East Asian markets like Thailand and Vietnam, which are also associated with the Belt and Road policy that aims to link China more directly with Eurasia via massive new infrastructure.
A drop in overseas investment, particularly from China, is being felt mainly by developers and investors selling newly-built homes, as non-resident foreigners can typically only buy new.
Read the full article here
Best Advice From Commencement Speeches In 2018
What is the best piece of advice you eve got?
Sometimes we all need a word of encouragement – and these leaders have that covered.
This article for Forbes.com look an some of the most inspiring commencement speeches for 2018 so far.
This commencement season, many of the speeches deviated from the common themes of failure and resilience and touched more on the current political moment, emphasizing the importance of honor, character and honesty.
There was often emphasis on the qualities necessary to create change, and the doubt and isolation that often comes with wanting to improve yourself, your community, your employer, your country or the world.
Here are several pieces of advice from commencement speakers this graduation season:
Media mogul and journalist Oprah Winfrey addressed USC Annenberg School of Communication and Journalism.
“Every remedial chore, every boss who takes credit for your idea — that is going to happen — look for the lessons because the lessons are always there. And the number one lesson I could offer you where your work is concerned is this: Become so skilled, so vigilant, so flat-out fantastic at what you do that your talent cannot be dismissed.”
Keep Your Feet On The Ground
Hamdi Ulukaya, founder and CEO of Chobani and philanthropist, congratulated the MBA graduates at Wharton School at the University of Pennsylvania, then said, “It’s great that you are a Wharton MBA. But please, don’t act like it.”
“Don’t let it get in the way of seeing people as people and all they have to offer you, regardless of their title or position…If you want to fly high, in business or in life, you’ve got to keep your feet on the ground, and stay rooted to see what matters most,” he said.
Amal Clooney, the international human rights attorney, gave her first commencement address at Vanderbilt University. Her message focused on character, and that often living with character means having courage. “We need young people with the courage to say, ‘This is our world now, and there are going to be some changes.’”
Hold Yourself And Others Accountable
Media mogul and former New York City Mayor Michael Bloomberg gave the commencement address at Rice University in Texas, titled, “Graduates: Here’s An Honor Code For Life,” based on the honor code of Rice University.
“If we want elected officials to be honest, we have to hold them accountable when they are not or else suffer the consequences. Don’t get me wrong. Honest people can disagree. But productive debate requires an acceptance of basic reality.”
Listen To Your Inner Voice
Pulitzer Prize-winning journalist Ronan Farrow gave the commencement address at Loyola Marymount University.
“More than ever we need people to be guided by their own senses of principle—and not the whims of a culture that prizes ambition, and sensationalism, and celebrity, and vulgarity, and doing whatever it takes to win,” he said.
Weather The Setbacks
Jesmyn Ward, the author and National Book Award winner gave the commencement address at Tulane University.
Weather the setbacks until you meet the gatekeeper who will open a door for you,” she said. “Sometimes you are 20 when you stumble upon an open doorway. Sometimes you are 30. Sometimes you are 40 or 50 or 60. I remembered this when I felt like giving up, when I thought I’d pack all my notebooks and stories into plastic bins and put them away, when I thought I would resign them to the recycling bin.”
Build On Your Predecessors
Chance The Rapper gave the commencement address at Dillard University in New Orleans.
“The highest form of respect that we can pay to the people who came before us—the people who sacrificed for us and gave us everything—is to be better than them…Many of you will strive to be artists, doctors, lawyers, politicians, scientists. And as you do that, there will be moments of fear, moments where you walk right up to the edge of what your heroes have accomplished and think to yourself, ‘What’s beyond this? I don’t know. I’m scared to go on.’ And that is the moment when you have become as great as your greatest inspiration.”
Read the full article here
Weekend video: Are You Smart Enough For Your Age?
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