The representative working group is lobbying the government for a broader section of study to be eligible for credit within the ‘equivalent degree’ requirement for advisers in the hopes that more people will be encouraged to join the profession.
Good investing requires real sacrifices, according to Oaktree’s Howard Marks, but you can’t expect to be compensated just for making them.
House prices to fall more in 2023, but crash not likely
Australian property prices have posted their sharpest falls on record as higher interest rates hit hard, with more pain expected to come in 2023 according to new research, as the central bank continues to raise credit costs. But pundits believe a crash in prices is unlikely.
The CoreLogic Daily Home Value Index (HVI) registered a record decline of 8.40 per cent between 7 January 2023 and a peak in values on 7 May 2022. Interest rates have risen so fast that it has caused house prices to drop sharply in nine months from their 2022 peak, according to CoreLogic.
The Reserve Bank lifted the cash rate from a historical low of 0.1 per cent in April last year to its current level of 3.1 per cent, and has signalled further rises this year. The figure below shows the sharp decline in the CoreLogic HVI, relative to previous periods of decline.
Eliza Owen, head of residential research at CoreLogic, expects housing market conditions to remain soft in the months ahead. Financial markets are pricing a peak in official interest rates of around 4 per cent this year, at least 100 basis points higher than current levels, on top of a sharp rise in rates last year.
“A 300-basis point increase in the underlying cash rate over just eight months has resulted in a rapid reduction in borrowing capacity, lowering the amount buyers can offer for homes. In addition to constrained borrowing capacity, higher interest costs may be dissuading potential buyers altogether,” Owen (pictured) tells The Inside Adviser.
“Ongoing increases in interest rates will further erode the borrowing capacity, and likely prolong the country’s housing downturn until interest rates stabilise.”
Sydney leads falls, other cities following
The bulk of the housing downturn is being led by Australia’s three largest capital cities, which also have the largest weighting in the national home value index. Sydney home values have seen a peak-to-trough decline of 13.0 per cent, while Brisbane values have fallen 10 per cent and Melbourne dwelling values are down 8.6 per cent from their peak. At the other end of the spectrum, Perth dwelling values have fallen less than 1 per cent from a peak in August last year.
“For perspective, the 8.4 per cent drop has come off a high base. The sharp decline in dwelling values follows an upswing of 28.9 per cent between September 2020 and May 2022, which was the fastest rise in home values nationally on record,” Owen says.
Given rising interest rates, Shane Oliver, chief economist with AMP, predicts Australian home prices will post a top-to-bottom fall of 15 per cent to 20 per cent, “with prices expected to bottom around the September quarter, ahead of gains late in the year as the RBA moves toward rate cuts”.
SQM Research managing director Louis Christopher adds that if property sellers aren’t realistic on prices, they won’t sell their homes this year. SQM data shows that the number of unsold homes is piling up, with properties on sale for more than six months jumping 14.3 per cent last year, which is the biggest yearly rise since 2011.
“This rise in older stock completely confirms the depth of this housing downturn and is very typical of what is recorded in past downturns, as there remain more sellers than buyers, dwellings on the market that are not priced to market, don’t sell,” said Christopher.
“Until we see a major surge on distressed activity, I really doubt some of the more calamitous predictions of a housing crash in 2023 will play out. But as our research found in our recent 2023 Housing Boom and Bust Report, a cash rate of 4 per cent or over does indeed risk this very type of dark scenario playing out.”
Adding to price falls is the fact Australians are more indebted today than ever, with the latest Reserve Bank of Australia’s (RBA) estimate of housing debt-to-income ratio sitting at 188.5 per cent. A decade ago that figure was 162.0 per cent and in 2002, the ratio was 130.2 per cent, according to Owen.
“Higher household indebtedness may have increased the sensitivity of housing values to interest rate rises,” she says.
Property dominates household portfolios
Residential property still dominates household wealth. Around 71 per cent of household wealth is held in property, which totalled $10.1 trillion in the September quarter and compared to $3.3 trillion in superannuation reserves. In terms of other assets, Australians held $1.2 trillion in shares and $1.5 trillion in cash deposits, with deposits jumping by $50.5 billion during the September quarter of 2022.
Household wealth fell by 1.9 per cent or $276 billion to $14.2 trillion in the September quarter 2022, according to figures from the Australian Bureau of Statistics (ABS). Wealth per capita fell 2.2 per cent or $12,050 to $545,532 per person. The fall in household wealth was almost entirely driven by the decrease in the value of residential land and dwellings, which recorded its largest decline since December 2008. While property prices dropped, household liabilities rose $26 billion, driven by a $24.3 billion rise in housing loans as interest rates rose.
