Sydney home owners now spend 45 per cent of their household income servicing their mortgage repayments, despite benefiting from record low interest rates.
The deterioration of housing affordability is best seen in the NSW capital, where the contrast between dwelling price growth and wage increases has been stark, new figures from CoreLogic and the Australian National University show.
"Capital cities are generally more expensive across all measures than regional markets despite household incomes generally being higher in capital cities," CoreLogic residential analyst Cameron Kusher said.
"Sydney is the least affordable housing market across most measures. Sydney's price to income ratio is significantly higher than all other regions analysed."
While the RBA kept the benchmark cash rate on hold at 1.5 per cent this week and few economists expect rates to rise until next year, it suggests that when they do, Sydney households will come under pressure to meet their already-steep repayments.
But the figures also highlight the disparity between regions when it comes to housing affordability. While affordability on a price-to-income and saving for a deposit basis has deteriorated in Sydney and Melbourne - where households spend 39.4 per cent of income to service a mortgage with an 80 per cent loan-to-value ratio - it is relatively unchanged or slightly improved in most other capital cities, the figures show. In addition, lower mortgage rates have given some households additional income to reinvest or spending elsewhere.
At the end of March 2017, the discounted variable mortgage rate for owner occupiers was 4.55 per cent and a mortgage required 38.9 per cent of a household's income. Nationally, the proportion of household income needed to service a mortgage peaked at 51 per cent in June 2008, when mortgage rates were 8.85 per cent.
In Brisbane the proportion of income required to service a monthly mortgage is 31.8 per cent, Adelaide 34.5 per cent, Perth 32 per cent, Hobart 31.1 per cent, Darwin 23.7 per cent and Canberra 29.2 per cent.
Upmarket accessories retailer OrotonGroup is in play after British-based fund manager Highclere International sold its entire 7 per cent stake, the AFR's Street Talk column reports.
Highclere sold 2.9 million shares through Angus Aitken's new outfit, Aitken Murray Capital Partners, just before the market opened on Thursday at $1 a share.
It is understood Highclere's stake was not bought by institutional investors but by a listed player, with industry sources pointing at Gazal Corp, which distributes brands such as Calvin Klein and Tommy Hilfiger.
Gazal Corp chief Patrick Robinson, a former senior executive at David Jones, could not be contacted for comment.
Solomon Lew's cashed up Premier Investments also springs to mind, but given the bath Premier has taken on its $101 million stake in Myer and its ambitious rollout plans for Smiggle, a tilt at Oroton seems unlikely.
Gerry Harvey was also mentioned as a potential buyer of the stake but ruled himself out on Thursday night.
Highclere was Oroton's fourth largest shareholder after the founding Lane family, Caledonia Funds Management chief investment officer Will Vicars and IOOF Holdings. It emerged with a substantial stake in 2015, when Oroton shares were trading between $2.12 and $2.69.
Highclere's decision to cut its losses speaks volumes about the prospects for Oroton, which has downgraded profit guidance twice this year and is expected to fall into the red in 2017.
OrotonGroup appointed investment bank Moelis & Co last month to conduct a strategic review and the board is considering options including a sale, a capital raising or refinancing of debt facilities after receiving approaches from potential buyers.
It is understood that a private equity firm with interests in retail - possibly Anchorage Capital Partners or Allegro Funds - has also taken a look at Oroton's books. A trade player is also said to have shown some interest and explored either making an outright offer or injecting capital into the company.
The Lane family, which owns at least 21 per cent, has ruled out privatising the company and appears to be willing to see its stake diluted or to exit altogether.
The thinly traded Oroton is pretty much unchanged this morning at $1.
No surprise that shares are sharply lower in early trade, following the global moves overnight.
The losses are indiscriminate - only eight stocks in the top 200 are higher at time of writing, and the benchmark index is off 47 points or 0.8 per cent at 5712.
Following the offshore sell-off in fixed income, Aussie 10-year bond yields have jumped 7 basis points to 2.71 per cent. The local dollar is down only a touch against its big brother at 75.8 US cents.
The morning's worst performer is Coca-Cola Amatil, as investors continue to dump the bottler as analysts downgrade the stock in the wake of yesterday's news that it had lost a contract with Domino's. It's off 5.7 per cent.
BHP is a rare winner, up 0.1 per cent as analysts upgrade the stock on the hope the Big Australian will spin off assets under the recently installed chairman.
SPONSORED POST
The bond market is getting interesting, and not in a good way, writes IG strategist Chris Weston:
Today is a fixed income story, with the ramifications of the trends developing in both nominal and 'real' (or inflation adjusted) bond yields having increasing bearings in equities, currencies and more progressively emerging markets.
The lead we have been dealt from offshore markets is undoubtedly negative and has been driven most prominently from the European bond markets. One just has to look at the German fixed income market, which to be fair was selling off into the ECB minutes (21:30 aest), but caught another leg higher with the market getting quite upset at the view that the bank was considering removing its easing bias on asset purchases. This really should surprise too greatly, but the impact of a market so long duration is that we have seen long-term interest rates selling-off fairly heavily, with the German 10-year bund up settling at the highest levels since January 2016. Adjust this for inflation expectations and we can see German (if we use this as a proxy of Europe) 'real' yields at the highest levels since February 2016.
In the US, most importantly we are seeing the five-year 'real' treasury breaking out to 25 bp and the highest levels of the year and the equity markets has caught on that this really does represent tighter financial conditions - the very thing the Federal Reserve wanted to see! Tech doesn't like this one bit, but neither does emerging markets and we can see the EEM ETF (iShares MSCI Emerging market ETF) falling 1.2%.
Hoo-boy.
Bellamy's Australia has put its shares in a trading halt as it determines the impact of the suspension of a key licence by Chinese authorities overnight at its recently acquired Victorian cannery, Camperdown Powder.
Last month, it raised $60 million to help fund the purchase of the cannery, which was supposed to deliver the company a key licence to allow its products to be sold into China, where regulations change in 2018.
The acquisition of a 90 per cent interest in Camperdown settled three days ago.
Camperdown Powder operates a canning line unit with capacity for up to 8000 tonnes a year, but Bellamy's estimates that it could be expanded to up to 15,000 tonnes within a year.
"The trading halt is requested to allow the Company to determine the reasons and impact of the Camperdown's suspension of its CNCA license by the China authorities overnight," Bellamy's said in a statement to the ASX.
The CNCA licenses are overseen by The Certification and Accreditation Administration of the People's Republic of China, which oversees foreign food imports.
China is in the midst of a number of changes to its import regime. Under new rules that will come into place in January 1, 2018, all manufacturers of infant formula products will need to be registered with the China Food and Drug Administration (CFDA).
At the time the Camperdown deal, Bellamy's said the Camperdown acquisition "provides an opportunity to reduce key regulatory risks, by securing the element of the supply-chain responsible for controlling the CFDA registration submission" and "strengthens Bellamy's competitive position, by addressing trade and consumer concerns regarding CFDA registration and a contract manufacturing model".
In the last year Bellamy's has been rocked by plunging sales and earnings, the loss of its chief executive and a boardroom coup that saw new directors appointed.
And here are the overnight market moves by the numbers:
Market Highlights
- SPI futures down 23 points or 0.4% to 5676
- AUD -0.3% to 75.83 US cents (Overnight range: 0.7577 - 0.7615)
- On Wall St, Dow -0.7%, S&P 500 -0.9%, Nasdaq -1%
- In New York, BHP +1.5%, Rio-0.4%
- In Europe, Stoxx 50 -0.5%, FTSE -0.4%, CAC -0.5%, DAX -0.6%
- Spot gold -0.2% to $US1224.53 an ounce
- Brent crude +0.3% to $US47.91 a barrel
- Iron ore -2.1% to $US61.96 a tonne
- Dalian iron ore +0.6% to 469 yuan
- Steam coal +0.2% to $US83.20, Met coal -0.3% to $US158.50
- LME aluminium +0.8% to $US1944 a tonne
- LME copper +0.2% to $US5851
- 10-year bond yields: US 2.37%, Germany 0.56%, Australia 2.64%
On the economic agenda:
- Chinese foreign reserves data
- Tonight major US employment release in non-farm employment and unemployment rate
- Bank of England's Carney speaks, and Canada releases its jobs figures
- G20 summit begins tonight
Stocks to watch:
- Keep an eye on "bond proxies" such as listed property, utilities and infrastructure stocks
- Coca-Cola Amatil cut to underweight at Morgan Stanley
- Silver Lake raised to neutral at UBS
- Beadell raised to neutral at UBS
As we mentioned, the drop in global government bonds gathered pace overnight, spilling over to equities, as German yields climbed to their highest level in 18 months in a sign that a hawkish shift by central bankers is penetrating the market.
While analysts described the moves as technical, most remain bearish on bonds, as investors adjust to comments by European Central Bank President Mario Draghi last week that spurred speculation policy makers will announce a tapering of bond purchases before the end of the year. The sell-off extended into US hours, as 10-year Treasury yields reached the highest since May, and the selling should extend into local trade today.
Bonds across Europe fell after the results of a French debt auction showed a drop in excess demand for 30-year securities. Trading volumes in bund futures contracts jumped after the auction results were announced, sparking the surge in yields. The move gathered momentum as the yield rose above 0.51 percent, which Citigroup highlighted as "strong support."
"There was some heavy supply from France which I think started it," Antoine Bouvet, an interest-rate strategist at Mizuho International in London, said. "The magnitude of the sell-off is excessive compared to what you would expect from a soft auction."
According to FTN Financial strategist Jim Vogel, the underwhelming French bond auction was "a small event" but one that the "new bearish sentiment is incapable of taking in stride."
The yield on German 10-year bunds rose nine basis points to 0.56 per cent, reaching the highest level since January 2016.
There is "probably no justification for bund yields to trade above 0.50 percent," Bouvet said.
France's auction of 30-year debt saw a bid-cover ratio of 1.53 times, compared with 1.93 at the previous sale on Jan. 5.
Also making their mark were minutes of the ECB's policy meeting in June, which showed "broad agreement" among members to retain the easing bias and cautioned that "even small and incremental changes in communication could be perceived as signalling a more fundamental change in policy direction."
While the monetary authority is "not in any hurry to tighten policy, the break-out of the range in bunds that has prevailed for more than six months does suggest more upside for yields," Jan Von Gerich, a strategist at Nordea Bank, said.
The hawkish tone from developed-nation central banks continued to roil financial markets, with US stocks falling the most in seven weeks, Treasury yields rising to levels last seen in May and crude settling below $US46 a barrel.
The 10-year yield climbed to 2.37 per cent, with DoubleLine Capital's CEO Jeffrey Gundlach saying the selling has only just begun. The S&P 500 Index closed below its 50-day moving average for the first time in seven weeks, with yield-sensitive shares leading losses. The dollar weakened following a private report that showed the pace of US hiring moderated before Friday's government payrolls data. The yield on benchmark German bunds hit the highest since January 2016.
Central banks from Asia to Europe and the US have struck a more hawkish tone in the past few weeks as they seek to remove nearly a decade of accommodation. The rise in yields has started to weigh on equity markets just as data show growth in the American economy may be moderating.
European Central Bank officials considered when they met last month removing a pledge to increase bond-buying, while ADP Research Institute data showed companies adding fewer workers to US payrolls in June than than the prior month.
Good morning and welcome to the Markets Live blog for Friday.
Your editor today is Patrick Commins.
This blog is not intended as investment advice.
Fairfax Media with wires.
1 new post(s) available. View post(s) Dismiss