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This is a Momentum Media production. Nerd alert! Property nerds. The home for data-driven property investors, where we uncover Australia's hot and cold markets, latest headlines and trends. It's that time of the month and we are ready for another podcast.
It's Arjun here, head of research at InvestorKit. And believe it or not, we are one more episode away from Christmas time. So that's pretty crazy, Lee. How's it going? Good, good, good.
Yeah, I heard on the radio the other day, 40th Christmas or something like that. So yeah, it's crazy that we're here already. I can tell you where the year's gone. It's gone to seven in a row interest rate rises. That's where it's gone.
That's obviously been on the mind of many and I'm keen to hear about, you know, obviously what the RBA rate's done from your thoughts and just how things are tracking on the lending side. Yeah, so we're here in November. November beginning right at the beginning of the month. I think it was the second. Obviously, the RBA announcement came through and as expected, the RBA has increased the cash rate for the seventh consecutive month and that's taken the cash rate from 2.
6% right up to 2. 8%. So we obviously spoke about that last month and we did foresee that to come through, another increase, and it is a lower increase than the 0. 5s for five consecutive months previously. And the other thing, I guess, you know, the question is, is like most people I'm getting asking me, clients, just friends, family, whoever, is how long is this going to continue for and how much will it continue by?
So in the announcement, the RBA did say a large part of the reason that the board has been raising the cash rate is essentially to return inflation, you know, so it's currently sitting at 7. 3% and they're looking to return it to its target range of 2. 3%, which we've all been talking about, right? And so people are going, oh, it's going to go for another six months. You know, we have our thoughts about it and we've spoken about that.
And the RBA actually themselves, they said they do expect an increase for further months over the period ahead. They are obviously closely monitoring the global economy, household spending and wage and price setting behavior. But they said that, yeah, we're definitely to expect further increases going forward. Yeah, look, there's a lot of lag in the data that I guess they're looking at. And so I spoke about it in our white paper that we released around Australia's housing fundamentals.
In that particular white paper, anyone keen to download, it's a free resource, investikit. com. au. We touched on RBA's interest rates. And really the core thing I felt was that we can expect them to overshoot.
And so when you've got, you know, so many supply driven impacts, we've got inflation data, we've got lag data and many other areas that they're working off. And we've got a rental crisis that's contributing a health amount to this data as well. I personally feel that, you know, it's going to be lagged in terms of what they see. And obviously when they start to keep putting interest rates up, which by the looks of it, they will continue to do, it will cause more harm than they'd intended to do. And it just means that they might overshoot or actually not even might remove that word from my vocabulary.
I'm quite confident they will overshoot. And a few signals that we look at are saying that that will probably happen in the early to mid next year. So it'll be interesting to see what comes up. I think on that note of cash rates, an interesting trend I always like to look at, also the savings ratio. So when we look at the savings ratio, it's essentially, you know, the level of household sort of the balance sheet, the strength of it when it comes to looking at the disposable income and consumption and looking at the savings that we're putting away.
Obviously that shot up heavily during the pandemic period. So just to give everyone a visual of this trend line from 2008 all the way up to 2020, this average of this trend line was hovering around 8%. Now that savings ratio trend line from 8% shot up to a huge circa 20% come COVID because everyone just swirled all their cash away, stopped spending, refinance booms, equities released. Also, we also considered all the government stimulus and everything like that. And then, you know, that started to get used as time progressed.
And then we went into lockdown too. That was coming down from the highs of 20% down to about 10 to 12% and then spiked up again in lockdown 2. 0, went back up to 16 to 18%. Again, similar reasons. And then is now back at about 9%.
And by next month's release will be back at 8%. So what that means is that if our cash positions are in line with where we were, you know, the whole time through that decade average almost of 2008 to 18, it does show that, you know, this increase in rates can't last forever because naturally as that line keeps coming down, balance sheets are going to start to be depleted a little bit more. We start to move from super, super strong household savings ratios to below long-term average household savings ratios. Now, the household savings ratios is not a core component of the measure. It is just one thing to look at amongst many others.
But I stick with the opinion we are going to see an overshoot just based on some of the metrics that we're looking at. Now, when it comes to the lending, it's interesting to see obviously, you know, from your world lead, the lending has a direct impact with the cash rate because of the moving assessment rate. So now how finance trends are also clearly responding to that 20-25% reduction in borrowing capacities. What is the data telling us from September ending data for housing finance? Yes.
So ABS data, lending indicators for September 2022 have been released and total housing fell by 8. 2% to $25. 1 billion. And this is after a fall of 3. 4% in August.
So for own occupier housing, this fell 9. 3% to $16. 8 billion, but it has remained 23. 2% higher than pre-pandemic level seen in February 2020. And then for investor housing, this fell 6.
0% to $8. 3 billion, but has remained 59. 8% higher than pre-pandemic level seen in February 2020 as well. So essentially, housing finance is higher than pre-pandemic. Yeah, so still definitely higher than pre-pandemic, but a huge drop nonetheless.
And that is definitely showcasing just that impact clearly from, you know, the huge changes in borrowing capacities and now the finance data starting to follow. So it's also showing on some of the price points of some of the higher price markets. It's clear across this country, the higher price markets seeing, you know, that obviously need a lot of finance to adjust in its play with property prices as well. I'm starting to see that discounting occur. We've obviously seen data is lagged like finance data.
When it comes to looking back of earlier markets from say Feb to August, we definitely noticed what the price declines were, were quite heavy in some markets like Sydney and Melbourne. And we are seeing even some of their surrounds and even more premium markets, some other areas starting to see that twist as well. So on the lower price markets, though, we have seen from our side, Lee, a lot of, you know, strengthening in terms of just staying quite resilient and some even rising. I've talked about a few regions there, which we'll talk about in more detail later in this section, but it's clear we know that finance and property prices move closely with each other, especially when we start to apply a six month delay. And so we start to see these finance trends drop off.
It is in line with the cooling off that we've seen as well. So it definitely makes sense. Now, when it comes to lending, Lee, obviously interest rates have seen a big jump and you've been seeing a fair bit of inquiry to finance from people just wanting to look at saying, hey, what's my rate now? What can I do with it? Can I move it?
Can I get better rates? What's happening there? The conversation that's happening now is people are starting to feel the increase. Regardless of how much you earn, people are starting to feel the increase in their repayments. And so now more than ever, obviously, we've always spoken about that.
It's a game. Property is a game of finance, but, you know, it's more so now, especially with people starting, even ourselves, we're starting to feel it a little bit in terms of repayment amount. So that is the main thing. People are getting all their rates reviewed, even if it's just with the current lender, obviously refinancing and recasting debt back over 30 years is really important to minimize those monthly repayments. And yeah, just making sure we're taking best advantage of special offers and campaigns that are out there at the moment.
And so with the recent cash rate increase of 0. 25%, there are a couple of small lenders that have not passed that on. And obviously being running a mortgage brokerage, Hills Finance, we have access to 40 different lenders. Every lender is very different with their policies, product uptake in terms of rates. And this is important to know, right, is how we take advantage of that.
So I kind of wanted to cover off some, I guess, campaigns or offers I'm seeing available. And these are across your smaller lenders. And it's good to know, especially if you're a multi-property owner, because I'll explain why is going around for quite some time now. I would say not all, but there is a big majority of lenders that are making an offer on this. I would say a couple of standouts is when lenders are offering cashbacks of, what do you call it, for purchases as well as refinances.
So for example, you may see an advertised cashback of 2K or 3K or 4K. There's some lenders going anywhere as high as 5K cashback, even 6K cashback still at the moment, but very few. I mean, there's about a handful of lenders that are also offering that same cashback if you're going to actually purchase a new property or have a new loan and have a new loan to purchase a property and they'll give a cashback for that as well, not just for refinancing. So double dip, huh? Lovely.
Yeah, but I guess the important thing, people think, oh, I've got four properties, I'm going to go to this bank, they're going to give me 3K cashback per property. That's very, very rare. There's actually a couple of lenders that would do that and they're not always the best for servicing and things like that. So majority is per client. Majority looking at cashback per client.
So most of the time, it's something to be wary of. So really looking at it more holistically just to see not cashbacks first, but more so the scenario, the valuation, and then the rate and cashback altogether. But it does seem like obviously in a time where people should be reviewing finances, making sure that they can hold on to assets and feel comfortable, get peace of mind during any times when rates are rising, it just makes sense that they obviously reach out to brokers, people like yourself. How can people get in touch? Yeah, best way to get in touch with our team at Hills Finance is on the website.
So it's hillsfinance. com. au and then there's a get in contact button and leave your details there. That's simple as that. So one of our team will get on call and we can go through the options.
But yeah, pretty much what I say is it's always three things that we really need to look at. Cashback is really important, but number one is policy. Each bank is very different around how they might look at income verification, employment history. Policy comes first because your scenario as a self-employed borrower might be very different to someone who's just started day one into their new PAYG employment, for example. And then number two, those things are going to impact what your borrowing capacity is.
And then number three, what is the product or rate on offer, but also cashbacks at that point. That's kind of the order of how we would prioritize which lender we would pick. Now, from an investor's standpoint, who's on a portfolio scaling journey, lending reviews can help in two different ways. Number one is if you're optimizing the portfolio, just continuing to get the best out of it, maintain cash flows, that's when reviews like this with yourself, Lee, can make a big difference. But when it comes to scaling portfolios, even first priority for all that is the way of valuations.
We all know lenders can be quite conservative in comparison to real value out there. We'll give you a scenario of just our own portfolio. We're doing an equity review and with one lender, we're able to get 600 to 700K equity out to be able to put some buffers plus also do some more reno for profit and then also scale the portfolio further. Then with other lenders, we're seeing equity out 550. And that's almost $100,000 that they're not agreeing with across multiple properties, some even down to 500.
So the key is you could see in portfolios of our size that 1, 150, 200K valuation differences just across a couple of properties combined and then even more and more. So definitely that was a key part from our acquisition strength and we're excited to, I guess, go on to buy some more properties this year as part of the plan from the equity release. Now, Lee, in terms of the current conditions, we've obviously talked about the flow of money. Now, the flow of money is finance trends, it's cost of money, it's cash rates. These are obviously core early drivers.
But we've actually been working on a white paper now and this white paper has been all about supply. Now, supply is the opposite side here of demand where demand flow of money plays a big part, but we want to talk about supply today for the deep dive in terms of this month's white paper. Now, for anyone tuning in, if you're after a free copy of this research report, you can get it from investigat. com. au.
Now, we've got Australia's housing supply crunch as today's white paper review and this has just been released this week and it's about 20 undersupplied regions that we've looked at across the country and it's the release of our new created supply shortage score. So an indicator map that you'll be able to grab from there. So these are SA3 regions. We've basically been reviewing the actual supply crunch in play. This is really important to look at how that marries up with some of the demand and pricing changes we're seeing and we'll kind of go through what we're seeing here today and deep dive in a little bit more.
But Lee, when it comes to our supply crunch, I know you had a read through the white paper yourself as well. I guess firstly, when you looked at that, did you note anything in the city's aspect of things? It's definitely not a lot of cities that I thought would be on there. What are your thoughts when you first look at it? There were quite a few regional cities actually.
Yeah, I mean, I thought definitely we were going to see a few more sub regions within the capitals, but the regions and the capitals had obviously a bit of both, but we actually found a lot of strong, strong undersupply in some of the regional still existing. So we will give away five on this particular podcast and then if you're after the next 15 of many more regions, by the way, and the supply shortage score, you can just jump on investigat. com. au and download yourself a free copy. So Arjun, tell me what were the main causes that you saw or you guys came up with for the reason of this?
Yeah, well, when it comes to the supply shortage, we've seen a few interesting data points. Firstly, we've seen a huge reduction in established supply. Now, before I go into causes, it's important to understand what we're seeing first. Established supply has been a huge declining trend since 2011. So from 2011, we've actually been looking at it from a populations and listings per capita trend.
So we were looking at the total trends of listing, the actual population growth and levels in Australia, and then we created a bit of a list per capita. Now, what we've seen is this has just been heavily declining since 2011. And since then, it just hasn't turned around. I mean, there was a little bit of a recent uptick in recent times. That's a big increase over the current year, but it is still heavily below where it was in the past.
Now, when it comes to the second layer of supply lead that we looked at, it was the listings for rent. That's been massive. So the current national average of vacancy rates at 0. 9% across many regions that we saw is huge. It's just so low that it hasn't been lower since April of 2006.
So irrespective of the demand changes on finance and irrespective of the price declines that we've seen in some areas across Australia, and then also the other areas that have softened in its growth rates, we are in for a huge supply shock right now when it comes to rental data. And as it turns on the housing side, we're still heavily undersupplied. Now, when it comes to other angles of supply, new supply is another one, Lee. New supply still does not meet demand. Now, if all building from approvals in play were going to meet demand, then I would say, yes, we would have a healthy pipeline of supply.
But the new building that's happened has kind of been stuck. And all the supply issues from the resources to delays, the trades, the jobs, the cost blowing out have contributed to this. And also the sentiment around building as well has contributed to this. But that's been another element. Now, going into the causes itself, we've seen a few causes.
Number one, we noted a lifted volume of net migration and smaller household sizes. So Australia's immigration has obviously massively been surging since 1990s to 2010s. And for anyone to, I mean, 2010s is now pretty much. But when it comes to the surge in immigration, yes, there's been a temporary shut off and now that's recovering quite quickly. But the actual trend of how much over we were from actual migration level has been quite heavy.
Now, when it comes to the net immigration, it doesn't immediately add it to households for sale or demand on the housing from a buying perspective. It starts on the renting side, but that is obviously swallowed up a lot of the available supply in housing. Now, moving from that household sizes as well, as they come down and smaller, we distribute the average household across more houses. So again, the take up of houses is greater as we spread it from that perspective. The household trend size has been decreasing subtly, but still important numbers as the population and time has gone on.
So it means not only have we seen increasing population, but we've also seen more houses spread. The second thing was the difficulties in accessing new land supply delays and development approval. So, you know, cities like Sydney and Adelaide have the natural beauty of the restriction with hills in certain areas, but really inefficient planning systems, rezoning processes have caused delays. And when it comes to the land developers accessing it, all the infrastructure around these land and areas really just have kept stock quite tight in Australia. So a lot of reasons.
I can't put it as one thing. I had to go through a list of things and we go through the list of things deeper in this particular white paper. But the reason why there are so many things is this is why many people fail to actually understand housing analysis that deeply is because it isn't just this one thing where someone can go on Twitter and make a Twitter post like some of the crypto coins and it explodes in value. Housing has so many complicated things going around where I've named seven or eight reasons here that you can go in detail in the white paper just to really talk about the actual causes behind this all. So Arjun, when I'm looking at this report, so you've listed the 20 under-supplied locations.
Like when I'm looking at those areas, what does that mean? Is that a good area to invest in these 20 locations or what are you guys saying? Yeah, it's a good question. So firstly, this is a heavily supply-driven analysis. And so for capital growth to exist, it requires a healthy level of confidence for people to take action.
It requires extremely low levels of supply and it requires a high level of demand in transacting for prices and rents to grow. So right now, across all these areas from a rental perspective, vacancy rates are super low as one of the indicators on supply. So you can just hand on heart say, how can you not see? So it's a tick from a rental return. Rents are likely to grow.
From a capital growth perspective, we've actually had a summary. And in this summary, we have the supply having six core data points, which one was towards the rent. And this makes up our supply short score, or we call it the triple S. So this is newly released and it's a scoring system based out of five. And we've incorporated deep data analysis, backtesting, machine learning, weighting through certain algorithms to really showcase where this impact is being held from different metrics.
Now, we considered future supply, so construction pipeline. We considered established supply, so listings trends, listing capita in terms of population movements as well. We considered price pressure. We considered rental pressure, housing availability, and people movement. So from a scoring perspective, it's essentially where people are going, what's being built, what's currently there for sale, how much element of pressure is there for prices to potentially increase, rental pressure, and stock available for people.
So you guys scored this from one to five, the closer to a five, the better. Correct. So a five was extremely low supply, high market pressure. A four was low supply, but increasing market pressure. Three was balanced supply, moderate market pressure.
Two was high supply, lowering market pressure. And one was extremely high supply, low market pressure. It was nice to see a New South Wales location quite local to us on there, on this report, Penrith. Yeah, for Sydney-siders. So for Sydney-siders, it is not all doom and gloom in Sydney.
It is a city of over 5 million people. Very important for people to realize to not overgeneralize one whole city as one market. We saw two regions in Sydney, actually, that produced some tight scoring, which was around the Camden region and also the Penrith region. So for those out that way, trends are still looking quite well-placed. It doesn't mean that it's going to rise by 20%, but it just means, and this is coming back to your core point, what this means is that in return of sentiment, and if the moment demand comes back to some higher levels than it is today, these areas have strong fundamentals in their supply scoring, which means if they were used, we've given away two areas, I promise I'd give away five for the rare, you can grab them from investikit.
com. au. But Barossa Valley was one region here, and we scored it 4. 2 out of five. Its established supply was pretty well-placed.
It wasn't too low. It wasn't too high, sorry. And when it comes to its rental pressure, extremely tight, its price pressure was also very high. Its people movement wasn't as good though, and its future supply was okay. So not a lot of people moving to the Barossa.
It's not a hugely, populations moving left, right, and center area, but future supply was okay, not too tight. It wasn't a super low construction pipeline, but the established supply, hardly any online, hardly stock being available from housing availability, pressure for price was still pretty healthy, and rental pressure was very, very tight. So when you see an area like that, and demand does come back in to higher levels, like people nationally from a sentiment level or interest rate cycle balancing out or flattening or even declining, lending changes happen and more lending becomes available. Areas with a very strong supply score likely to pick up faster and sooner when demand returns. So it's kind of one angle of an overall analysis.
And if sentiment and demand returns to higher levels, these areas feel more upwards pressure because of how low their pipeline is. It's kind of like an ostrich in the sand, right? Like you hit in the sand, you're looking down, you want to protect yourself, right? You don't want to do anything and times are tough or there's a lot of weak sentiment or money's not coming your way from the banks. And as soon as some money starts coming your way from the banks, you look up and you go, oh, I'm going to buy there now.
And there's nothing there. Reminds me of COVID when it first hit. For those Sydney goers that are a little bit hesitant on interstate investing, Penrith was 4. 5 and Camden was 4. 7.
My last question would be, because those are Sydney suburbs, they're quite high scored, right? How would you compare those to your Barossa or, I mean, are they still affordable type properties that you're seeing in those Sydney areas? So we can tell you, you're giving some goodies out for the Sydney suburbs. We've got to believe that there's a lot of people across the country here. I'm in the hills, so I need to look out for them.
Yeah, so Penrith and Camden, which are in these regions. Now, from an affordability perspective on a national level, they're not that affordable, but from an affordability perspective on a Sydney level, they are very affordable. And when it comes to that component, that could probably play a key reason as to why we haven't seen a huge uptick or high levels of housing availability still remains quite low. Rental pressure is tight here, but many parts of Sydney are in that space. We actually just rented our property, right?
Recently in the hills area, we- We got $40 per week above our thing, which is nice. So rental pressure from that end is healthy, but more importantly, Sydney aside, there are regions in this report from Sydney to regional Victoria, regional Queensland. Like if we just give another look at location, we had the region of Tamworth sit at a score of four. So, and when you see the scores, we use a chart called a spider chart. It looks like a spider web.
So you get to see some parts that are strong, some parts that are weak. I'm sure those who are into their data visualization will love checking this out. But when we have the spider charts or the spider web here, the good news is that you can start to see pros and cons. And that's the beauty of this analysis. We don't say everything's a five star.
We say, hey, this is 3. 8. This is 4. 2, this is 4. 3, because there's some weaknesses, some strengths.
So Tamworth, for example, had a weakness people movement. There wasn't huge sort of population versus, you know, listing trend that was there. But other aspects, pressure, housing availability, established supply, future supply, rental pressure, also really well. And that's why it's still ranked a four. Now, other locations as well.
We had the location of Toowoomba. Actually, a few Queenslanders. I'm giving away more than five here. So Toowoomba, Bundaberg, yeah, Rockhampton, Cairns, South region. So all of these locations scored between four and 4.
3 out of five. So yeah, if you're keen to check out these 20 region, there's obviously six core data points that went into them. They measure supply. So this is using our new metric of supply shortage. And we could have made this report a top 50 SA3 regions, but it'd just be too much.
So we thought we'd make it a top 20. And the reason why I say that is many parts of Australia remain undersupplied. So this is the key. If you feel like, hey, Arjun, does that mean growth is going to be the same as what it was last year? No, it requires a perfect world of all three things, demand, supply, confidence to all come together.
But on a straight out supply analysis, these markets have an extremely healthy position. And that does mean that should a greater level of demand return or should greater levels of confidence return, they have an ability to feel that pressure faster and at higher levels, which in turn impacts price pressure and price growth. That's the key here. And buying with low supply regions is such an important part because it will mean that you protect yourself as well when your market's more resilient too. So that's the core part of this white paper.
We go through 20 regions. We go through core data points on these 20 regions that stood out to us. Lots of interesting charts and new things that we're trying. And of course, our supply shortage, which we've recently released, and we'll keep that as a frequent release as well.
