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Economist Saul Eslake predicts Australia’s interest rate growth will slow

There is a glimmer of hope for Australians fearing more interest rate pain, with a leading economist predicting the massive hikes could soon start to ease.

On August 2, the Reserve Bank of Australia raised interest rates for a fourth consecutive month, bringing them to a six-year high of 1.85 per cent.

It was also the third month in a row the cash rate rose by 0.5 per cent, the fastest interest rate growth Australia has experienced in almost 30 years.

The RBA has made it clear interest rates will continue to go up as it attempts to bring soaring inflation levels down.

But independent economist Saul Eslake, former Bank of America Merrill Lynch chief economist (Australia and New Zealand), believes interest rates will not rise as high as some are predicting.

“I think the Reserve Bank is of a mind to get it (interest rates) up to about 2.5 per cent by the end of the year. That could be either 2.35 per cent or 2.6 per cent,” he told NCA NewsWire.

“Then they will be able to pause to assess the impact of what they by then will have done.

“In my view, that may well be enough to slow the economy sufficiently.”

Mr Eslake said raising the cash rate to 2.35 or 2.6 per cent should be enough to achieve the RBA’s goal of slowing down the growth of domestic spending to counter inflation.

“As customers do have to start paying for the rate increases that have been announced, you should see spending slow quite a bit,” he said.

“The other part of the answer is that there is now starting to be some evidence to suggest that the global sources of inflationary pressure have peaked.”

Mr Eslake’s projection goes against what the country’s big four banks have previously predicted after they all unanimously forecast more pain for Australians.

NAB expected the cash rate to sit at 2.85 per cent by November, while Westpac forecasted it would rise to 3.35 per cent by February next year.

But Westpac’s forecast was not as dire as ANZ’s, who expected the cash rate to rise above three per cent before the Christmas holidays.

“Our expectation is that the RBA will deliver this via four more successive 50 basis point rate hikes in August, September, October and November,” ANZ’s head of Australian economics, David Plank, wrote in July.

“This 200 basis points of additional tightening sees the cash rate target at 3.35 per cent by November.”

The CBA forecasted the cash rate will sit at 2.60 percentage points by November.

Mr Eslake acknowledged and did not dismiss these projections, but expressed concern over what it could mean for the Australian economy.

“My view would be that if the Reserve Bank does end up going straight to 3 per cent or 3.5 per cent… there will be a much greater risk of a sharper slowdown in the Australian economy,” he said.

RBA Governor Philip Lowe has previously said he expects they will take further action on interest rates, but indicated those changes are not “pre-set” and subject to incoming data at the time.

“The Board expects to take further steps in the process of normalizing monetary conditions over the months ahead, but it is not on a pre-set path,” he said in a statement following the August hike.

“The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labor market.”

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Mattress company Koala cuts 30 Australian jobs over economic uncertainty

Popular Aussie bedding and homewares company, Koala, has laid off 30 local staff due to unstable economic conditions.

The company shot up in popularity, particularly during the 2020 and 2021 lockdown periods, due to its competitive pricing, being all online and offering four hour delivery to metro areas.

However, just like many other companies, supply chain issues, inflation and surging interest rates have all taken their toll.

A Koala spokeswoman told The Sydney Morning Herald and The Age that uncertain economic conditions had resulted in 30 Australian staff members being made redundant last week.

Describing the former staff as “amazingly talented”, she said the company was supporting them with an outplacement service and professional connections.

According to the company’s website, Koala has “more than 200” employees.

The company also confirmed it had consolidated its offices in the inner-city Sydney suburb of Alexandria after previously also having employees located in the CBD.

News.com.au has contacted Koala for comment.

But it isn’t just the Australian staff that have been impacted, with 10 roles also being made redundant in South Korea following an expansion to the region last year.

The spokeswoman again told the publications “economic uncertainty” was behind the move, along with the need to “reduce our start-up cost in the market”.

“For the near term, our operations in Korea continue as we explore more efficient ways to serve the market,” she said.

The Sydney Morning Herald and The Age also cited claims from multiple industry sources that Koala had explored the possibility of listing on the Australian stockmarket, before abandoning the plan amid the recent the recent technology downturn.

The spokeswoman for the company strongly denied these claims.

“Like any private company with proven success as a market leader in our categories and markets, we are fortunate enough to receive countless inbound introductions from potential investors,” she said.

“They see the opportunity for Koala to continue to disrupt the global furniture market.”

She did not offer specific figures, but said Koala’s margins were double those of some of its competitors, adding that the decision to offer furniture and other homewares has led to “incredible growth” in non-mattress sales.

“We will continue to invest in our operations across Australia and Asia,” the spokeswoman said.

In October 2020, Koala copped significant backlash after announcing it would cease manufacturing its mattresses domestically and make them in China instead.

Staunch supporter of Australian-made products, Harvey Norman executive chairman Gerry Harvey, previously slammed Koala’s move, saying the name of the company implies the product is made domestically.

“Anyone selling imported mattresses are doing it because they can make more money,” Mr Harvey said.

“The marketing is dishonest… they are pretending they are Australian.”

The retail giant’s co-founder said overseas imports made it harder for local companies to compete in bedding and furniture.

Mr Harvey said his store predominantly sold made-in-Australia bedding, supporting local companies such as Sealy, SleepMaker and AH Beard.

When it was established in 2015, Koala marketed itself as a retailer of Australian-made furniture with a strong focus on sustainability.

However, most of its manufacturing has now moved to China and Europe, with the company deregistering itself in 2019 from using the Australian Made trademark.

“The decision to cease production of mattresses in Australia will provide significant innovation and quality improvements to help drive our continued growth across Asia-Pacific,” a company spokeswoman said at the time.

Koala said the move offshore would mean it would have greater influence in cultivating “sustainable behaviours” in its manufacturing and supply chain.

“We are always in search of the best manufacturers, suppliers, and makers around the world who meet or exceed our environmental and sustainability standards and conduct assessments to support this,” a spokeswoman said.

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Investing, tax, super, property: Money mistakes 40-somethings make

Your 40s is an exciting time when it comes to wealth building, as this is the time most people reach the tipping point on their journey to financial independence.

But you have to get it right. If you don’t, you’ll be playing catch-up in future years and likely will need to make sacrifices.

In this piece, I cover the key money areas you should be focused on in your 40s to drive success.

Automate your saving success

Your 40s will be close to your peak earning years, and will likely be your peak borrowing years, so being on top of your savings and cashflow is important.

From a savings perspective, when you’re earning bigger dollars the difference between doing OK and doing great is huge. If you don’t already have a good savings system in place, now is the time to make it happen.

You should be looking to automate your money management, have all your bills and commitments provided for and paid without you having to think about them, and to have your savings building automatically.

Having a good savings system is important so you’re crystal clear on how much money you have available to direct wealth building strategies. Particularly given your 40s are likely to be your peak potential borrowing years, having total clarity on your “free cash” number will give you the confidence to take full advantage of your ability to grow wealth through borrowing.

investment

By the time you get to your 40s, you should already have some good experience with investing and have a foundation of quality investments in place. If not, this should be your first priority.

There are a lot of different opinions (and ways to be right) on the best way to invest, but the statistics show us that passive index funds perform best 95 per cent of the time. My view is that passive investments are an extremely effective way to build wealth while minimizing risk.

If you’re really drawn to interesting investments (read: crypto, start-ups, etc), with higher potential returns and higher risk, it’s important in your 40s you have clear boundaries for how much of your portfolio you want to hold in these sort of riskier investments.

My view is that you probably don’t want to hold more than 10 per cent of your investments in this bucket, and skipping them altogether to focus on the more boring but highly effective investments like index funds will serve you well.

Property

Your 40s are going to be your peak borrowing years, with higher incomes and a long time until retirement age (as defined by the banks and lenders).

Risk management is critical, but in my opinion leverage is a highly effective way to build wealth relatively quickly – and something you should look to go “all in” on in your 40s.

I’m not saying you need to rush out and buy 20 properties, but having a good quality investment property, or properties, behind you in your 40s will do some magic in future years.

It’s important when you’re borrowing at higher levels that your plan around this is rock solid – you don’t want to be caught out by higher interest rates, rental vacancies, or unexpected expenses that can throw a spanner in the works.

If you’re going down this path, take the time to map out your game plan and consider investing in some good quality financial advice so you know all your bases are covered and that you can execute and drive the results you want with confidence.

tax

In your 40s tax planning can mean the difference between success and mediocrity. Your income (and marginal tax rate) will be higher, and you’ll have more investments behind you generating taxable income that needs to be dealt with.

Having a smart tax strategy will pay big dividends.

You’ll want to look at where and how you’re holding your investments, if you’re part of a couple, who should own which investments, how to leverage the concessional tax rates in super, and whether you’ll benefit from using tax structures like trusts and investment companies.

You should also be looking at tax strategies like debt recycling, super contributions, and harnessing the power of franked dividends to cut your tax bill and boost your after-tax investing return.

Every dollar of tax you save is an extra dollar you can direct back to your wealth building, ultimately helping you get ahead faster and easier.

Super

The effort you put into super in your 40s will be a big driver of your success in future years.

With a higher income and (relatively) limited time to retirement, you should be looking to maximize the tax deductible “concessional” contributions to super every year. The current limit for these contributions is $27,500 including money contributed by your employer.

If you haven’t been maximizing your super contributions in previous years, you can also “catch up” on up to five years worth of contributions, generating some serious tax deductions and getting a heap of money into the low tax super environment.

Maximizing your super contributions through your 40s will ensure you go into your 50s with a solid amount of investments behind you that can grow well over the decades to come.

Insurance

In your 40s your income and financial commitments will likely be at their highest levels, and because you still have some time to reach the typical retirement age, it’s likely you’re still heavily reliant on your income to get you to where you want to be .

I get that most people don’t like and often don’t trust insurance, but in my opinion this is something everyone should have until they’ve reached complete financial security.

Income replacement insurance premiums are tax deductible, and having this cover in place will give you peace of mind that the unexpected isn’t going to sabotage your money success.

Be aware that not all insurance is made the same, and cheapest is definitely not best when it comes to protecting your wealth. Insurance is incredibly complicated and can be confusing, so if you’re considering putting insurance cover into place you’ll benefit from getting some good advice.

The wrap

Your financial potential is still yet to be unleashed in your 40s, and the work you put in here will dictate how far you can go in future years. But it won’t just happen on its own – you need to be firmly in the driver’s seat here.

You should go into your 40s with a solid plan, revisit it regularly, and keep your focus as you move forward achieving your money milestones.

Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth www.pivotwealth.com.au, and Author of the Amazon best-selling book ‘Get Unstuck: Your guide to creating a life not limited by money’.

Ben has just launched a series of free online money education events to help you get on the front financial foot. You can check out all the details and book your place here.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your

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Aussie company collapses up to 50 per cent since April, Creditorwatch finds

It’s no secret there has been a “massive rise” in Australian companies collapsing but new findings show they have skyrocketed by a whopping 50 per cent since April.

The construction industry has faced a particular crisis with dozens of firms going under this year, but everything from billion dollar tech starts up to grocery delivery companies have become casualties of this “disturbing trend”.

Overall, companies going into external administration are up 46 per cent year-on-year, while court actions are up 54 per cent year-on-year, the latest data from credit reporting agency CreditorWatch found.

The huge jump has been blamed on interest rate rises causing “cheap money” to dry up, while spooked investors are pulling back on spending their cash on start-ups as valuations have taken a dramatic dive, with a slew of staff cuts battering the sector .

Meanwhile many businesses are already suffering depleted cash reserves as a result of the pandemic and the Australian Taxation Office (ATO) has ramped up its debt collection, according to the agency.

‘Ramping up legal action’

CreditorWatch has issued a chilling warning that the rise in business insolvencies will continue this year as multiple impacts batter the economy including ongoing supply chain issues, declining consumer confidence, rising interest rates, inflation and labor shortages.

CreditorWatch chief executive Patrick Coghlan said the hands-off approach to debt collection adopted by the ATO and many lenders during the pandemic is clearly over.

“The massive rise in external administrations is certainly a disturbing trend – now up 50 per cent since April. Our data shows that court actions are back to pre-Covid levels and the ATO has also stated that it is ramping up legal action for outstanding debts,” he said.

“With business and consumer confidence declining and inflation and interest rates on the rise, this doesn’t bode well for businesses, particularly small and medium enterprises whose cash reserves were depleted during the pandemic and are now operating on much tighter margins.”

No longer ‘awash with cash’

Aussie start-ups have been particularly hard hit, with the casualties piling up in the tech sector.

The latest was an Australian tech company called Metigy, which left staff “shell-shocked” by its sudden collapse last week, after it planned to raise money with a valuation of $1 billion.

Businesses that are trying to raise money for growth are particularly at risk in the current environment, added CreditorWatch chief economist Anneke Thompson.

“When interest rates were low and the world was awash with cash, investors were hungry for investment opportunities, and willing to move up the risk curve to find good returns,” she said.

“Now that cash is being consumed by ever-increasing prices and debt costs a lot more, the appetite for risk is dropping.

“Start-up businesses or those in the growth phase are always considered riskier. We have already seen this phenomenon hit the tech sector, and many well-known companies are being repriced to reflect this.”

Other recently failed Australian start-ups include grocery delivery service Send, which went into liquidation at the end of May, after the company spent $11 million in eight months to stay afloat.

There was also a Victorian food delivery company that styled itself as a rival to UberEats and Deliveroo that collapsed in July as it became unprofitable, despite making more than $6 million worth of deliveries since it launched in 2017 and had 18,000 customers.

Meanwhile Australia’s first ever neobank founded in 2017, Volt Bank, went under last month with 140 staff losing their jobs, while 6000 customers were told to urgently withdraw their funds.

A venture capital firm issued a sobering message about the state of Australia’s start-up industry, warning that more new companies would go bust and pulling back on funding as a result.

CreditorWatch also identified five regions where businesses are most at risk of going under with the suburbs of Merrylands, Canterbury and Auburn in NSW on the list, alongside Surfers Paradise and Ormeau in Queensland.

Construction collapses to continue

After four consecutive months of increases to interest rates and inflation continuing to rise, it is now clear that a slowdown in demand in many industries is inevitable, added Ms Thompson.

She said construction companies will continue to be impacted by late payments and reduced demand, particularly smaller operators.

The most recent company impacted was Melbourne-based Blint Builder which collapsed this week with approximately $1 million in outstanding debt owed to 50 creditors, according to the liquidators.

It joined smaller operators like Hotondo Homes Horsham, which was based in Victoria and a franchisee of a national construction firm – which collapsed in July affecting 11 homeowners with $1.2 million in outstanding debt.

It was the second Hotondo Homes franchisee to go under this year, with its Hobart branch collapsing in January owing $1.3 million to creditors, according to a report from liquidator Revive Financial.

Others include two major Australian construction companies, Gold Coast-based Condev and industry giant Probuild, which went into liquidation earlier this year.

There was also Norris Construction Group, which was in Geelong, collapsed in March with $27 million in debt. It owes $3.2 million to around 140 staff that it is unlikely to be able to repay, according to the liquidator’s report.

Meanwhile, Snowdon Developments was ordered into liquidation by the Supreme Court with 52 staff members, 550 homes and more than 250 creditors owed just under $18 million, although it was partially bought out less than 24 hours after going bust.

Other casualties this year include Inside Out Construction, Solido Builders, Waterford Homes, Affordable Modular Homes and Statement Builders.

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CBA boss warns of ‘short sharp contraction’ headed for Australian economy

The boss of Australia’s largest bank has warned that the economy is already declining and that a “short, sharp contraction” is on the way.

Late on Wednesday, the chief executive of the Commonwealth Bank of Australia, Matt Comyn, delivered the company’s annual results.

Although the CBA made an eye-watering $9.6 billion in profit over the last financial year, Mr Comyn warned that tougher times were on the horizon.

He told the Australian Financial Review that he predicted “a short, sharp contraction in the Australian economy.”

“We are definitely expecting a more challenging year ahead than we have seen in the last 12 months,” he added.

However, in some good news, the banking CEO believes a contraction is almost a certainty but a full-blown recession is less likely.

Australia is in the throes of an economic crisis as inflation rose to 6.1 per cent last month, the highest level it’s been for 20 years.

And for the first time in more than a decade, Australia’s central bank has had no choice but to increase the cash rate in a bid to stop rampant inflation.

For the last four consecutive months, the Reserve Bank of Australia has increased interest rates by 1.75 percentage points and Mr Comyn more rate increases will come.

Mr Comyn told the publication his bank predicts the cash rate to increase by another 75 basis points to sit at 2.6 per cent.

The cash rate is currently 1.85 per cent.

Once the cash rate hits 2.6 per cent, Mr Comyn said the economy would experience a contraction of 1.5 per cent.

He said he “hoped” that once the cash rate reached this point it would be enough to curb spending, adding “We need to see a slowdown in demand.”

Speaking to the ABC, Mr Comyn said “We do forecast recessions in the US, UK and Europe. We don’t believe that that’s the likely outcome in Australia.”

Already there are signs that Australians are splashing their cash less.

Mr Comyn said their customer data shows that spending is falling for both debit and credit cards.

This was significantly more for customers who had mortgages.

“It’s quite early post the immediate rate rises, [but] we are already seeing a downturn in spending across our customer base, both from a debt and credit perspective,” he said.

“Of course, that’s more pronounced with customers who have a home loan, and we expect that it will continue throughout the course of the calendar year.”

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Suburbs struggling the most amid RBA’s interest rate hikes revealed

An estimated one in five mortgage holders – or 551,000 Australians – will struggle to pay back their mortgage if interest rates continue to rise as expected.

Comparison site Finder found a whopping 20 per cent of mortgage holders will be in serious mortgage distress if their home loan interest payments increase by three per cent. Home loans have already increased by 1.75 per cent since May.

It comes as separate data from S&P Global revealed which suburbs in Australia are most at risk of defaulting on their home loans.

The Northern Territory came out as the worst state, with the highest percentage of mortgage holders more than 30 days behind on payments.

A fringe suburb in Perth topped the list in terms of debt overdue to the bank, while Sydney, Melbourne, Adelaide as well as some regional areas also received a poor rating.

Of even more concern was that the research was conducted before the Reserve Bank of Australia (RBA) starting increasing the cash rate, meaning these areas will be even more at risk of defaulting on their loans now.

For four consecutive months the RBA has hiked interest rates. Last week, after its August meeting, the central bank brought up the cash rate to 1.85 per cent.

The cash rate has already risen by 1.75 percentage points since May, following two years of interest rates sitting at a record low of 0.1 per cent.

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According to S&P Global, rising mortgage repayments have hit suburbs on the fringes of big cities the hardest.

Their research measured the weighted average of arrears more than 30 days past due on residential mortgage loans in publicly and privately rated Australian transactions.

The Perth suburb of Maddington, 20km from the city centre, topped the list of “Worst performing postcodes” in the report.

As of early April, 4.67 per cent of homeowners in Maddington are in arrears.

That was closely followed by Dolls Point, located in southern Sydney.

Of the mortgaged houses in that NSW suburb, 4.33 per cent are behind on payments.

In third place was another WA postcode, Byford, in Perth’s southeastern edge, with an arrears percentage of 4.16 per cent.

Western Australia had one more suburb on the list – Ballidu in the Central Midlands – while NSW had a total of four.

Bankstown and Castlereagh, from Sydney’s west and southwest, were also experiencing substantial pressure. Katoomba from the Blue Mountains, south of Sydney, also earned a spot in the report.

Victoria, Queensland and South Australia each had one suburb on the list – Broadmeadows in Melbourne’s north, Barkly in Queensland’s Mout Isa region and Hackham, an outer suburb of Adelaide.

A breakdown of each state showed that the Northern Territory was the most behind in its mortgage repayments, at a rate of 1.75 per cent.

Western Australia came in at 1.40 per cent, as of April this year, before interest rates started to be hiked.

Victoria received a score of 0.87 per cent while 0.85 per cent of NSW mortgage holders were also in mortgage arrears.

The ACT fared the best, with an arrears rate of only 0.33 per cent.

Overall, the national average was 0.71 per cent for Australia’s arrears rate, as of April.

“The swift pace of interest rate rises will create debt-serviceability pressures for households with less liquidity buffers and higher leverage,” the report noted, forecasting that sometime in the third quarter of this year a higher arrears rate would show up in new monthly date .

Finder also released a damning statistic about the state of Australia’s home loan debt.

A recent survey conducted last month concluded that more than half a million homeowners would be “on the brink” if interest rates rose by three per cent.

Of those, 145,000 Australis said they would consider selling their home if rates jumped because they would “struggle a lot” to repay them. That represents about five per cent of Australia’s mortgage holders.

The survey also found that 14 per cent of admitted respondents they might fall behind on their repayments or other bills.

Nearly half (48 per cent) would be able to manage, but would have to cut down on their spending, according to Finder.

Only a quarter of participants said a rate rise would not change their lifestyle or spending habits at all.

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CBA increases profit to $9.7 billion, says most customers can cope with rising interest rates

The Commonwealth Bank has announced a 9 per cent increase in profits, despite a fall in its margins.

The bank made a net profit of $9.7 billion over the 2021-22 financial year and its preferred measure of cash profit, which excludes a range of one-offs, rose 11 per cent to $9.6 billion.

The increase in profits came despite a steep fall in net interest margin (NIM) — the gap between the rate the bank pays to borrow money and the rate it lends it out at and its main source of profits.

NIM fell 0.18 percentage points to 1.9 per cent, driven by lower home loan margins in an ultra-low interest rate environment.

Analysts expect the NIM to grow as the recent jump in interest rates is passed on in full to mortgage borrowers but only in part to savers.

The bank made up for falling profit margins on its loans by growing home lending by 7.4 per cent and business lending by 13.6 per cent, although its growth in home lending was slightly below its competitors.

CBA has expressed confidence that its customers will be able to keep up their repayments in the face of rapidly rising interest rates.

It said two-thirds of its customers had direct debits above their minimum required repayments at the current level of interest rates, although this would drop to a quarter if the cash rate rose to CBA’s forecast peak of 2.6 per cent.

The bank also noted that more than a third of its mortgage customers were at least two years ahead in their repayments, with around half at least three months ahead

However, 22 per cent are only paying just on time, while a further 15 per cent are less than one month ahead.

CBA’s economists are tipping home prices to fall at least 15 per cent from peak to trough, largely because rising interest rates are reducing borrowing capacity.

Most households can only borrow about the same amount or less than they could in 2016, while property investors have seen their borrowing capacity cut.

Commonwealth Bank shareholders will receive a final dividend of $2.10 per share, taking the full-year payout from the bank to $3.85.

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‘Zombie’ homes are fueling Australia’s rental crisis, experts say

Real estate experts say Australia is experiencing a rental crisis that’s set to worsen without government intervention, and so-called “zombie” homes are fueling the problem.

A zombie home is a property that is occupied only part of the time – such as a holiday house listed on Airbnb – that is not available to rent on a short or long term lease but can generate large profits for the owner.

For example, a good property in a regional town, near the beach or one in inner Sydney could fetch $1000 for a weekend but just $800 on a weekly basis under a leasing arrangement, First National Real Estate CEO Ray Ellis said.

“It’s a lot easier to take your investment property out of the full-time rental mix and put it into the short-term rental mix which is basically AirBnB or weekend accommodation,” Mr Ellis told news.com.au.

“If you could get $800 a week by having someone there full-time but you can get $1000 for a Saturday and Sunday, and don’t have to go through all the extra legislation requirements, you’ll do it, because you’re making the same return,” he said.

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Throughout any city there’s “hundreds if not thousands” of zombie homes, especially in coastal areas, that are occupied one or two days a week, Mr Ellis said.

“There’s now too many occurring in most cities in Australia.”

The benefit for owners – apart from the financial element – ​​was not having the long-term commitment of dealing with renters, he added.

Zombie homes are widespread, with last year’s census revealing that during lockdown and while Australia’s borders were closed, there were more than 1 million unoccupied properties.

While it’s a win-win for landlords, renters are suffering with rents souring and long queues of desperate prospective tenants lining up to inspect properties. This has forced some to live in their cars, a motel or caravan – even couch surfing – to keep a roof over their heads.

“Investors are putting their properties out for Airbnb, but it’s taking rental properties away from renters and that lack of … properties available to rent is driving demand and prices up,” Finder money expert Rebecca Pike told 7NEWS.com.au.

PropTrack’s latest rental report for the June quarter found the number of renters per property listed on realestate.com.au had risen 28 per cent year-on-year across capital cities, with Sydney and Melbourne experiencing the greatest increase.

The number of rental listings in Sydney fell 21 per cent in the last year. The largest declines in listings were recorded in Melbourne (-25.7 per cent) and Brisbane (-24 per cent).

Overall, the number of new listings coming on to the market was 13.8 per cent lower than the decade average in June.

The strong demand for rentals and limited supply was leading to significant increases in advertised rent prices, the report found.

Rental prices in Sydney have grown by 6 per cent over the past year, after having fallen throughout the early part of the pandemic.

The median rental price for a house in Sydney is currently $620 a week and $500 for a unit.

Nationally, the median weekly rent for a house is $490 and $440 for units.

With higher land tax charges for investors and larger interest rates, many of these costs are being passed on to renters causing rents to rise even further, the report added.

Ms Pike told 7NEWS.com.au the rental crisis needed urgent action and would get worse over the coming months.

“We’re definitely seeing that demand for rental housing going up because we have so many more people coming into the country, whereas during Covid we really saw that drop,” she said. “There is definitely more demand at the moment, but there’s also less supply.

“Also with the RBA cash rate, if investors are paying more for their loans, they’re potentially passing that on to renters.”

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Australia rent prices: Real cause of property market crisis revealed

The cause of Australia’s worsening rental crisis runs far deeper than the economic pressures behind rising interest rates and soaring inflation, a prominent real estate expert has revealed.

Ray Ellis says the crisis will deepen without swift action from state governments on social housing and new build “red tape”.

Mr Ellis, former director of the Real Estate Institute of Australia and First National Real Estate chief executive, warned Australia has nowhere near enough homes to cater for its population, let alone accommodate migration increasing in the wake of the Covid pandemic.

He said state governments must urgently take responsibility for the immediate need for more social housing to remove pressure on the private sector.

“Between 1955 and 1964, state governments built about 140,000 social houses. We’ve never built that amount again,” Mr Ellis told news.com.au.

“There have been government incentives for landlords to become property owners and rent properties, and that has been the mainstay of any government policy.

“Social housing has become the responsibility of the private sector.”

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Significant lags on new developments largely hindered by “bureaucracy” also meant it was taking several years before construction could even begin.

“In the last 25 years, the provision of new land to build more houses by more private developers has been very slow and very cumbersome,” Mr Ellis said.

“It will take two years to go from the concept to the start of construction.

“Its just bogged down in bureaucracy by non-action or slowness in action.”

Slow-moving developments and underfunded and underresourced social housing were major contributors to the crisis, alongside a shift in attitude among landlords, Mr Ellis said.

He had observed landlords becoming frustrated at new regulations weighted towards tenants and immense pressure to provide rent so low that it would barely cover their costs.

“A landlord wants nothing more than a good tenant, so they will provide rent and services at a reasonable rate and comply with government legislation, but it’s not their responsibility to reduce their rent below what their source of income is,” he said.

Many landlords had become entirely turned off maintaining rental properties and as a result were offloading them, often to investors keen to make the most profit possible by using them as “zombie homes” such as Airbnbs.

“This is a genuine crisis. It doesn’t matter where you are in Australia, there is no rental stock available,” Mr Ellis said, adding that as “migration picks up again, it’s going to get even worse”.

“Australia is just not building enough houses for us to live in, let alone to be rented.”

Impact of ‘zombie homes’ on rental market

A zombie home is a property that is occupied only part of the time – such as a holiday house listed on Airbnb – that is not available to rent on a short or long term lease but can generate large profits for the owner.

Throughout any city there are “hundreds if not thousands” of zombie homes, especially in coastal areas, that are occupied one or two days a week, Mr Ellis said.

“There’s now too many occurring in most cities in Australia.”

The benefit for owners – aside from the financial element – ​​is not having the long-term commitment of dealing with renters, he added.

Zombie homes are widespread, with last year’s census revealing that during lockdown and while Australia’s borders were closed, there were more than one million unoccupied properties.

While it’s a win-win for landlords, renters are suffering from soaring costs, and have to put up with long queues of desperate prospective tenants lining up to inspect properties. This has forced some to live in their cars, a motel or caravan – even couch surfing – to keep a roof over their heads.

“Investors are putting their properties out for Airbnb, but it’s taking rental properties away from renters and that lack of … properties available to rent is driving demand and prices up,” Finder money expert Rebecca Pike told 7NEWS.com.au.

PropTrack’s latest rental report for the June quarter found the number of renters per property listed on realestate.com.au had risen 28 per cent year-on-year across capital cities, with Sydney and Melbourne experiencing the greatest increase.

The number of rental listings in Sydney fell 21 per cent in the last year. The largest declines in listings were recorded in Melbourne (-25.7 per cent) and Brisbane (-24 per cent).

Overall, the number of new listings coming on to the market was 13.8 per cent lower than the decade average in June.

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Real estate, RBA rates: Buyers avoid unrenovated homes as house prices fall

The Australian property marketing is already “setting”, with rising interest rates scaring borrowers away and forcing sellers to accept lower prices.

But not all homes are made equal, and buyers are becoming more picky — with newly renovated, turnkey properties now in demand, auctioneers say.

Stefan Stella from Ray White Glenroy, whose sale of a $1.5 million East Brunswick terrace to a young couple who “weren’t really looking” went viral over the weekend, told news.com.au there was “a bit of turmoil” in the market but that “anything that’s priced correctly does sell”.

“I had another auction on Saturday that was a complete dead duck, no action whatsoever,” he said.

That property, a 700 square meter corner block development site, would have normally sold for $1.3 million to $1.4 million, but passed in at $1.1 million.

Given the troubles in the building industry, Mr Stella said properties that are already renovated are more desirable.

“Basically anything that is going to require work, people are now taking into consideration the additional time and costs,” he said.

“Barkly Street was an exception, it’s the best street in East Brunswick.”

When prices began to fall earlier this year, Mr Stella said many sellers baulked at taking a haircut on a “superior property” to one down the street that might have sold for a higher price just a few months earlier.

“With all the negativity in the media the past three or four months, I’d say now most people are accustomed to the market that is, whereas at the start they were utilizing comparable sales from three months earlier when the market was no longer comparable. ,” he said.

“That’s where it was hard. Everything is still selling provided it’s priced right.”

Mr Stella said apartments had been worst affected by the downturn, followed by unrenovated properties.

“And then the townhouse market, I think because of its pricepoint, you generally find it holds its own a little bit more,” he said.

Meanwhile, Sydney-based auctioneer Tom Panos said in a video update on Saturday that seven out of his 10 auctions that day sold.

“That’s a pretty good result – 70 per cent today, which is saying to me two things,” he said.

“Number one that there is settling and normality coming into the market.”

Mr Panos said the media was the “best vendor manager in real estate at the moment”.

“Every time I walk into a property the first thing I ask is, ‘Mr and Mrs Vendor, what’s your understanding of the current market?’ Nine out 10 vendors say to me, ‘We know it’s hard, and we know it’s getting harder.’ And for that reason you are getting vendors that are either giving you reserves that are realistic, or they’re giving you optimistic reserves with a fallback number which is normally good enough to sell a property,” he said.

After a few weeks of “OK results” – Mr Panos in July said he was “really stressed” after almost no buyers showed up to his auctions – the real estate coach said there was a “settling in the market and people are accepting these are the new values”.

“The real question is going to be, what’s going to happen in September, October, November as the market appraisals start lining up now as we end the winter, and we move into our spring selling season which sees an upswing in listings?” he said.

“One would assume that more listings should see a softening of prices. But the softening’s already happened. I’ve said it before, there’s a data lag that economists are missing by about three, four months. The market has already been repositioned in most areas by 10 per cent, even 15 per cent, some markets even 20 per cent. But realistically, we’re probably going to see another softening of around five, 10 per cent. We’re close to the bottom I think.”

He pointed out that “every time there’s a rate rise that equates to 1 per cent, it basically means borrowers get 10 per cent less from their bank”.

“So if you get a 2 per cent increase in interest rates, you’re roughly looking at approximately a 20 per cent drop in borrowing availability for a buyer from a bank,” he said.

“This is an important number because what’s it’s basically telling us is that if rates keep going up at the speed that they’re going up at the moment, that buyers are going to have less money.”

Mr Panos speculated that this is why there were “a few buyers that are rushing in and snapping up property”.

“They’ve sat down with their mortgage broker and their broker has basically said to them, ‘Listen, there’s two sides to this. Yes there might be a further dropping of prices, but since they’ve already dropped, and you’ve got this loan approved right now, use it, secure a home that you like, and even if you haven’t bought at the bottom , you are keeping it for the next five, 10 years. But if you don’t buy it right now, guess what happens? You might not have the same amount of money out in the marketplace because you’re going to be rerated by the banks.’”

It comes after the Reserve Bank hiked interest rates for the fourth month in a row last week.

The 50 basis-point increase at the central bank’s August meeting brings the official cash rate to 1.85 per cent, up from the record low 0.1 per cent it was up until May.

Already, the rise in interest rates has pushed house prices down in most major cities as borrowers stare down the barrel of higher monthly payments.

PropTrack’s Home Price Index shows a national decline of 1.66 per cent in prices since March, but some regions have seen much sharper falls.

“As repayments become more expensive with rising interest rates, housing affordability will decline, prices pushing further down,” PropTrack senior economist Eleanor Creagh said.

There were 1080 auctions across the country on Saturday with 51.3 per cent sold, according to preliminary clearance rate data from PropTrack.

Melbourne saw 364 auctions with a clearance rate of 59.1 per cent, while Sydney had 354 auctions with a clearance rate of 48.9 per cent.

“It was a quiet week for auctions across the country,” Ms Creagh said.

“Although, clearance rates ticked up in Brisbane, Melbourne, Sydney, Adelaide and Perth despite the third consecutive outsized rate rise delivered last week which brought the cash rate to the highest it’s been in six years. We are perhaps reaching a point where vendor price expectations have lowered after several months of price falls in some parts of the country, so more properties are clearing at auction.”

Ms Creagh added that buyers were also aware that borrowing power would be “further constrained with rates continuing to rise and so some are taking advantage of the increased choice available now”.

“New listings have remained strong and although prices are falling, there is lots of choice for buyers,” she said.

“That said, sales volumes are slowing as housing market conditions have moderated with rising rates.”

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