MARKET UPDATE – 31 MARCH 2013 (SENTIMENT IS THE DRIVER)

When you absolutely “know” your job or business is safe and stable, then and only then do you stick your neck out, borrow against future income or profits and maybe splurge some.  This is sentiment and you can throw as many figures around, bend and twist them as much as you like, put spin here and there but deep down, if the people ain’t happy it just doesn’t stack up.

The Spin Gurus would have us all believe that things are “just dandy” sometimes by jamming it down our throats that we are far better off than say….mmmm…Cypress!  But, you numpties, we aren’t Cypress, or Greece, or Spain, we’re ORSTRAYLIAH!

The sentiment out there is very, very conservative and in many areas, frightened and afraid would be a better descriptor.

Why would I say that you ask?  Well, it’s borne out by new figures (again, if you can believe “figures” but in this case it’s fairly bloody obvious) that show that mortgage holders are building in bigger and bigger “buffers” in case they lose their job, have reduced hours of work or their business fall on (even more) hard times. We are collectively AUD$160 BILLION ahead on our mortgages apparently. And some AUD$30 BILLION of that stuffing has come post GFC.

People are pulling their heads in like a bunch of turtles.  Still going to coffee shops in droves to spend $5.00 and chat about their woes, but try being a mid-range luxury goods seller, or any kind of retailer nowadays – it’s nasty out there.

The Reserve Bank has come out and added to the statistics by saying that borrowers are more than 20 MONTHS ahead in principal and interest repayments, and that our previous dangerously high level of personal debt had come down sharply.

However, there is the other end of the market where folks are struggling to meet repayments.  I chatted with some people in the money world before Easter and was interesting to hear their real life, real time stories.  Lenders are bending over backwards to ensure the least number of people get into a default situation.  And they’re not doing it out of the kindness of their heart either.

We discussed the local area and narrowed our focus to a few streets that I’m really familiar with. This area was targeted by certain people and was heavily promoted and sold in the lead up to the GFC.  People who bought for investment purposes are keeping their heads above water as interest rates have dropped and rents have skyrocketed. Cash flow is manageable.  Poor buggers who bought to live in are screwed.  Why?  Dodgy loan applications, low start subsidised, interest only loans that have suddenly reverted to principal and interest at  a rate quite a bit higher than market… real life scenarios quoted to me saw young couples’ repayments jump by $1,200 a month.  That takes a lot of food off the table, and if you earn between $40,000.00 and $80,000.00 a year, could knock $22,000.00 a year off your gross pay!

No wonder this group are hurting and scared. And to make it worse, they’re trapped.

House bought in lead up to GFC for $495,000.00.  Loan $450,000.00.  Amount paid off loan – pennies!  Last sale in the street of identical house and land – $430,000.00 less Agents and lawyer’s fees and charges leaves say $415,000.00 means you still owe the Bank $35,000.00 and nothing to show for it…

I’ll keep running around like Chicken Little and I’ll keep saying that Aussie house prices are STILL way too high and a correction to “affordable levels” is still well overdue.

More next time…

 

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