Housing Affordability Slightly Improves
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Housing Affordability Slightly Improves

Despite mortgage serviceability ratios at decade highs in some capital cities.

By Kanebridge News
Wed, Aug 31, 2022 11:43amGrey Clock < 1 min

With the recent decrease in house prices has come the first measurable signs of an improvement in affordability across the property market.

Yet despite the downturn, the pressure on interest rates has kept mortgages — proportionate to incomes — at the highest level they have been since June 2011 according to the latest ANZ/CoreLogic Housing Affordability Report.

The new research found that with property values decreasing, the time it takes to save for a home deposit has also dropped across the combined capital cities by 11 days to 11.11 years in the three months to June 2022.

In Sydney, the time needed to save a deposit was at 17.1 years while Melbourne came in at 13.6 years.

Further, the ratio of dwelling values to household income has also dropped slightly across the combined capitals, down by 0.1 point to 9.3 over the June quarter.

Despite this, the proportion of annual household income required to service a new mortgage nationally is up to 44% from 40.4% the previous quarter.

In Sydney and Melbourne, where property values declined 2.8% and 1.8% respectively, mortgage serviceability is higher with the share of income needed to service a home loan in Sydney up 3.3% to 66.1% and 2.3% to 52.7% in Melbourne.

“There’s a bit of a perception that if house prices fall, then mortgage affordability will improve but actually, on our interest rate forecasts, prices would have to fall another more than 25 per cent for mortgage serviceability to improve, and we don’t think that prices will fall that far, certainly not a national level,” said ANZ senior economist, Felicity Emmett.

“So with higher interest rates, we are seeing a big increase in how much people have to pay to service their mortgage and that means on that measure, affordability will deteriorate”

 



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Thousands of Australian companies on the brink of going into administration as EOFY nears

Along with high inflation and weak consumer spending, there’s another key factor pushing a record number of businesses to the edge

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More than 10,000 companies are expected to have entered external administration by the end of the 2024 financial year, a level not seen for more than a decade. Data just released by the Australian Securities & Investments Commission (ASIC) shows 1,245 companies became insolvent in May, the highest monthly number this financial year. At present, a total of 9,988 businesses have gone bust in FY24 with data from June yet to be finalised.

Deloitte Access Economics Partner David Rumbens said the surge in business insolvencies this year was a “clear sign of economic distress”.

He commented: “[ASIC] predicts that by the end of the financial year, the number of companies entering external administration will likely exceed 10,000 – a level not seen since 2012-13, in the aftermath of the Global Financial Crisis (GFC).”

Mr Rumbens said the elements contributing to this year’s surge in insolvencies include high inflation and interest rates, weak consumer spending, and the commencement of more proactive tax debt collection activities by the Australian Taxation Office (ATO).

“One of the key factors contributing to this surge in insolvencies is the [ATO] pursuing debts that were previously put on hold during the COVID-19 pandemic,” he said.

Mr Rumbens cited ATO figures showing collectable debt rose 89 percent in the four years to June 2023. This has particularly impacted small businesses, which account for approximately 65 percent of the total debt owed at about $33 billion. “But more strictly enforced debt collection is coming at a time of tough economic conditions. High interest rates and cost-of-living pressures have weakened consumer spending, particularly in more discretionary components of spending.”

The construction sector has seen the highest number of insolvencies by far in FY24, mirroring the trend of FY23. Of the 9,988 insolvencies to date, 2,711 of them are in the building sector, which faces several challenges. These include a substantial lift in the cost of construction materials that is well above inflation and has made many fixed-price contracts signed within the past few years unprofitable. There is also a significant labour shortage that is delaying new home completions and new project starts, and also adding higher costs to projects.

“The construction sector has been hit particularly hard, with construction firms leading industry insolvencies in every quarter since mid-2021,” Mr Rumbens said. “They have accounted for approximately 25 percent of all insolvencies during this period. The residential construction sector is already facing a backlog of projects to complete as a result of skills and material shortages in recent years, and increased insolvencies in the sector may only exacerbate the problem of housing shortages.”

The ASIC data shows the next biggest industry affected is ‘other services’, which includes a broad range of personal care services such as hair, beauty, dietary, and death care services. The sector has seen 939 insolvencies in FY24. Retail trade is next with 687 insolvencies, followed by professional, scientific and technical services with 585 insolvencies.

“The food & accommodation sector has also experienced a wave of insolvencies. High input costs, worker shortages, and weak consumer sentiment have put pressure on businesses. Specifically, in March, cafés, restaurants, and takeaway businesses accounted for 5.5 percent of total business insolvencies, the highest proportion in the last three years.”

Mr Rumbens pointed out that while the number of insolvencies was high, it represents a lower share of the business sector at 0.33 percent than it did in FY13 when it was 0.53 percent. “This reflects the increase of registered companies in Australia, which has risen from just over two million to 3.3 million since 2012-13. Even so, the continued lift in insolvencies since 2021 highlights the difficult conditions many businesses face at present.”

 

 

MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

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