How to get rid of student loan debt + Money-poof your relationship

Hi everyone,

Hope you’ve had a good week. Football finals are starting and there is a real spring feeling in the air.

In this newsletter:

• Inflation down … but higher than expected.

• SQM’s ‘Housing Boom and Bust Report’ updated.

• Coping with the financial stress in your relationship.

• Bumper spring selling season - a big test for property market.

• The staggering Covid migration.

• How much is a bar of gold worth?

• Paying off your HELP/HECS early.

• The biggest fossil fuel consumers.

Inflation down ... but higher than expected

July’s monthly CPI figure, which came out on Wednesday, was a mixed bag.

Remember, the first month of a new CPI quarter can be a little misleading. The basket of items measured is skewed toward ‘goods’ with not many ‘services’ measured.

While prices of goods have been slowing, it has been the services which have stayed elevated and worried the Reserve Bank.

Annual inflation in July eased from 3.8 per cent in June to 3.5 per cent - slightly higher than analysts expected.

Interestingly, the next monthly CPI for August will be released on 25 September, which is the day after the next RBA Board meeting. But given the Secretary to the Treasury is on the Board, he should have some inside knowledge on the outcome.

Naturally, electricity prices in the July CPI fell by 6.4 per cent for the month as federal and state government energy subsidies kicked in. So, the power price figure was artificially lowered.

The August CPI will also show the full impact of energy bill relief, which is expected to be around a 20 per cent fall in electricity prices and bring headline inflation rate back down to within the RBA’s inflation target band.

The largest contributors to the annual rise in the CPI indicator in July were housing (4 per cent), food (3.8 per cent), and alcohol and tobacco (7.2 per cent). Gas prices rose by 5.7 per cent in July due to the usual annual price reviews.

New dwelling construction cost inflation continued to remain stable at an elevated 5 per cent, which has been the average pace since August last year.

In an encouraging sign, rents grew a steady 0.6 per cent from the previous month, down from 0.7-0.8 per cent a month for most of this year. Renters are moving into share houses or back in with family, which is reducing demand.

Furniture, household equipment and services inflation remained in deflation at -0.9 per cent for the year. Furniture (-5.3 per cent), household textiles (-3.5 per cent), glassware and tableware (-2.6 per cent) and major household appliances (-1.6 per cent) all remain cheaper than a year ago.

Automotive fuel prices fell by 2.6 per cent in July, but are still 4 per cent higher than a year ago. Prices at the bowser increased towards the back end of July and into the early part of August. But prices have since eased and will detract from monthly inflation again in August.

Holiday travel and accommodation prices fell by 2.4 per cent in July to be 0.2 per cent higher over the past year. Prices eased in July with the the demand for European holidays dwindling.

Update on Louis Christopher’s Boom and Bust Property Report

At the start of the year - as I do every year - I bring you Louis Christopher’s (from SQM Research) Housing Boom and Bust Report for the year ahead. I reckon it is one of the best property forecasting research papers to be issued each year.

What I love about it is that it provides a range of scenarios based on the current issues facing the economy, so it gives a spectrum of outcomes. It’s worth a revisit now we’re in August, to see how the property year is panning out.

Remember, back at the end of last year, there was a fear that an energy crisis would reignite inflation, interest rates would rise and unemployment lift, as we slipped into economic recession?

While the economy has softened and inflation is stickier than expected, the energy crisis hasn’t eventuated, thank goodness.

So scenarios 2 and 4 of the Boom and Bust Report haven’t eventuated.

“That means on our assumptions and forecasts, the remainder of the year is going to be determined by any relative slowdown in Australian population growth rates and any imminent change in interest rates,” says Louis.

“I am a believer that migration rates are currently slowing. I can’t prove it as the migration data is six to nine months lagged on present day. But as we have reported of late, we are now seeing some softness in the inner-city rental markets of Sydney and Melbourne, which suggests to me that internal student inflows are slowing.”

“So, that means our base case scenario of a housing price slowdown for 2024, led by falls in Sydney and Melbourne housing, is what I believe to be the most likely scenario that is going to play out for the remainder of 2024.”

So far for 2024, at the capital city level, SQM Research has dwelling prices up by 2.5 per cent, led by Perth, Brisbane and Adelaide.

On an individual city basis, SQM forecasts:

Perth

Stronger gains than expected and could come in at 20 per cent for the year. But beware, commodity prices, particularly iron ore prices, have been falling of late. A major rout on global commodity markets would likely put an end to the current WA boom.

Brisbane

At this time, Brisbane will most likely finish the year somewhere between 15-20 per cent up on 2023 levels. At present, there is nothing in the listings data, asking prices or auction clearance rates to suggest the tempo is slowing.

Darwin

Asking prices are down by 2 per cent for the past 12 months. Stock levels have remained elevated in Darwin over the year. Over one third of properties listed on the market have been listed for over 180 days, which has created a glut of housing stock for sale. The Darwin economy is languishing once again and the Covid surge of people from the southern states has stopped.

Melbourne

After a stronger-than-expected start to the auction year, auction clearance rates have been weakening since February. Stock for sale levels has been increasing and are now running above long-term averages. And rents are now on the decline. It’s not exactly a happy time for Melbourne property owners and there is nothing in the current data to suggest a turnaround is imminent.

Sydney

Sydney auction clearance rates have been weakening as all participants struggle with ongoing elevated interest rates. SQM believe their central premise of a slowing population growth rate (while there is no certain proof as yet) is occurring as we speak, thereby creating a lull in underlying demand for accommodation.

Adelaide

The market is up by 12 per cent year to date and there is absolutely nothing in the leading indicators to suggest any type of slowdown/weakening is about to take place. Adelaide housing prices are now very likely to finish the year up by 15-20 per cent. SQM think Adelaide’s relatively good affordability and a stronger-than-expected economy is doing great service to property owners, despite elevated interest rates.

Hobart

The market has weakened in Hobart this year and SQM sees nothing in the leading indicators to suggest the market is about to change tune. If anything, the weakness may accelerate from here.

Canberra

The data shows the ACT market opened stronger than expected in early 2024, but has since weakened and weakened further as the year has rolled on. For the past 30 days vendors have been negotiating with more haste. Asking prices are down 1.5 per cent in just that time. Listings levels continue to rise.

Coping with financial stress on your relationship

Interest rates to stay higher for longer. Inflation is stickier than expected. The cost-of-living crisis continues.

These are the economic headlines hitting the household budgets of every Australian. Yesterday’s disappointing monthly inflation figures show this perfect economic storm will continue to put the financial squeeze on everyone.

But while economists pour over every economic data point and analyse them minutely, I worry about the human cost this financial crisis is causing. Financial stress on relationships and on mental and physical wellbeing can be devastating.

More than three quarters of Australians say the rising cost of living has impacted their relationships or ability to socialise according to new research from comparison website Compare The Market.

One in five people (23 per cent) said money issues had put a strain on their relationship with their partner or spouse. But romantic connections aren’t the only dynamic under pressure.

One in ten people (10 per cent) said financial problems had damaged their relationship with their parents, while 8 per cent said rising costs had caused a rift with their children. It comes as a growing number of Australians turn to their parents for support to buy a home or cover the cost of household expenses.

Over a third of Australians (36 per cent) said they had to say “no” to social outings because they could not afford them.

This is the real cost of rising prices on people’s happiness.

Millennial marriages have been hit the hardest, with 38 per cent confessing that rising costs has caused the tension. They’re the generation hardest hit by rate rises because they’ve taken out more debt to buy their houses. They are also often balancing that tricky stage of raising a family.

More than a third of Gen Zs and Millennials also blamed rising costs for causing tension in their relationship with their parents. This is the generation caught by rising rents.

On the flip side of this, Gen X-ers and Baby Boomers said the cost of living has put a strain on their relationship with their children (39 per cent and 27 per cent retrospectively).

One of the keys to any healthy relationship is to be transparent about money and to work through the financial crisis together. Here’s a plan:

Step 1: Work as a team

Money matters are a responsibility that should be shared. You don’t want one person deciding how to spend and invest for you both. It’s a huge responsibility and can be very stressful.

Now, more than ever, both partners in a relationship need to work together to cope with difficult financial times ahead. If that’s not happening in your relationship, start making changes before the stress builds to breaking point.

Strains are going to be put on a relationship when there’s simply not enough money to make ends meet. You need open communication and honesty. Put your heads together and work out the best way to confront your financial problems and positively move on.

Step 2: Educate yourselves

For two people to jointly manage their finances, each partner must have a basic understanding of money. You don’t have to do a fancy investment course, start by opening your eyes and ears to financial news.

Online news feeds, newspapers, television and radio offer financial summaries and regular personal finance segments. Then there are whole sections of well-written, easy-to-understand books on money which provide enormous help.

The more knowledge you have, the more you will understand advice from your bank, financial planner, and those well-meaning family members and friends.

Step 3: Find a financial mentor

Seek as much free information as you can get. If you know someone who manages money well, ask them to be your financial mentor and pick their brain. If you want to keep your finances confidential, look for guidance from someone outside the family.

Just because you ask for advice doesn’t mean you have to follow it. Just add it into the mix of information you’re collecting. As a couple, go through all this financial knowledge and advice and decide what will work best for you.

Step 4: Develop a plan

Your relationship will be strengthened when you work out a routine for handling your money and find solutions to any financial problems.

Start by doing a family budget together. Tally your income, family benefits and any money from investments. Then get your bills and receipts and try to work out how much you’re spending each month. Your budget will show you where your money is going, how much is left over at the end of the month and where you can cut back.

Step 5: Save what you can

You and your partner need to have a common vision of where you are going with your money. Start by setting savings goals.

Talk about where you want to be financially in the short, medium and long term and how you’re going to get there. Paying off the mortgage as soon as possible or making contributions to superannuation are two of the best savings goals you can set. Concentrate on the mortgage first, and when that’s gone make superannuation the priority.

I reckon the biggest thing I’ve learnt in all my years as a finance journalist is couples on average weekly wages, who are disciplined with their money and working towards the same goals, often end up with more wealth than those earning three or four times as much but spend the lot.

Bumper spring selling season coming - a big test for the property market

According to the latest data from real estate giant, Ray White, a drop in iron ore and lithium prices has so far had little impact on Perth and regional Western Australia, which continue to be the strongest property markets in Australia.

Following this, Queensland and South Australia, along with their capital cities, are also showing strong growth. Meanwhile in Sydney and Melbourne, there has been a slight reduction in prices over the month.

The ‘spring selling season’ is about to start and there are a lot of properties coming to market - the highest level recorded within Ray White for this time of year. It is going to be a big test for the property market. A ‘listing authority’ is the point at which a seller signs with a Ray White agent but before the property is advertised.

While a lot of stock coming to market might suggest price growth softening, Ray White has also seen a pick up in first home buyer, owner-occupier and investor lending (as measured by the Australian Bureau of Statistics).

Loan Market, the largest mortgage broker community in Australia, saw a 23 per cent spike in pre-approvals for new loans in August. Average active bidding at Ray White auctions also remains solid. While interest rates remain high, it may be the growing potential for a cut is driving activity amongst buyers as we head into spring.

It’s good news for buyers that there are plenty of properties coming to market. Nationally, listing authorities (measured as a 28 day rolling sum up until August 18) are at the highest level Ray White has ever recorded since tracking this series.

The staggering Covid property migration

Everyone talks about the performance of the property market in such general terms but we all know that it depends on where and when you bought that property.

That’s why I was so interested in new data from CoreLogic which indicates 2021 is the most common year in which homes were last purchased, and roughly one in five Australian homes were purchased in the past five years. The Covid pandemic sparked a huge migration of Australians to new properties.

Unlike an annual turnover rate of properties, which shows the portion of stock traded in a particular year, the data shows the most recent sales date (based on the year sold) of homes as of July 2024.

2021 was a popular time for people to buy and sell property, with an estimated 549,000 homes last sold during this year. It has one of the highest annual growth rates in home values on record (24.5 per cent). Mortgage rates were also at record lows (with average new owner-occupied rates bottoming out at 2.4 per cent), consumer sentiment had moved through a decade high, and the HomeBuilder incentive was partly extended into the first four months of the year, encouraging the purchase of new homes.

At a national level, home values have increased 7.6 per cent since the end of 2021, which is not as strong as the returns for those who bought a year later, when market values saw a short, sharp dip in response to rising interest rates, before rebounding to new record highs.

Additionally, average mortgage rates for outstanding owner-occupied borrowers at the end of 2021 have increased 3.35 per cent, implying greater sticker shock on monthly mortgage payments, which on average will have increased by almost 50 per cent since the purchase date.

Many Australians who purchased in 2021 were incentivised into the market at a higher-risk time and when the Reserve Bank made its bold - and stupid - prediction that interest rates would not rise until 2024.

Average loan sizes reported by the ABS escalated quickly (up almost 18 per cent over the year). Buying close to the market peak means there may be a higher risk of low capital returns or value loss in the face of higher debt costs.

Since December 2021, home values have risen a more subdued 1.8 per cent across Sydney and are down 4.1 per cent in Melbourne.

How much is a gold bar now worth?

There is a real romance in seeing gold bars being stolen in Hollywood movies, or stacked in basements of central banks.

Recently there has been a surge in the gold price, particularly in US dollars. As a result, the value of one of those romantic gold bars, with 400 troy ounces, has passed $US 1 million.

And it has been a great investment over time.

The price of a gold bar:

• Today: $US1,000,000

• 1 year ago: $US 755,724

• 5 years ago: $US 602,880

• 10 years ago: $US 516,776

• 15 years ago: $US 376,260

• 20 years ago: $US 165,100

• 25 years ago: $US 102,960

Getting rid of your HECS debt isn’t impossible

Debt is just a fact of life for most of us. With almost two in three Australian adults carrying some form of debt, it can often feel like trying to push a boulder up an endless mountain. While credit cards and Buy Now, Pay Later debts get all the headlines, higher education debts like HECS/HELP are just as prolific.

With the growing burden of student loans, it’s no wonder many Aussies are looking for better ways to clear their HECS debt. The good news is there are a few strategies - and a helping hand from the latest budget - that can deliver some much-needed support.

Good news with higher-education debt relief

The 2024 Budget announced a major change to help more than three million Aussie graduates. A proposed cap on the HELP indexation rate will effectively wipe out around $3 billion in student debt. Even better, it’s backdated to be effective from 1 June 2023. Subject to the passage of legislation, it’ll ease much of the annual pressure on those with a sizeable HECS/HELP debt.

While your debt won’t disappear overnight, the burden will become more manageable. Reducing the indexation rate slows the growth of your debt. Until now, many graduates have found their HECS debt is growing faster than they can pay it off, thanks to the high indexation linked to inflation. If these new measures are passed through legislation, you’ll have a better chance of seeing your payments make a real dent in the principal balance, rather than just covering the increasing interest.

While no interest is charged on your HECS, the indexation of the debt at 4.8 per cent means not only does it continue to grow but also compounds. So there is a real incentive to pay it off early, particularly if you’re not earning more than the 4.8 per cent on savings accounts elsewhere.

Plus paying it off early is good for your credit rating.

Tips to pay off your HECS debt faster

While we wait for the wheels of government to slowly turn, there are some smart strategies you can adopt to accelerate how quickly your HECS debt is repaid.

1. Make voluntary payments whenever you can

Making voluntary lump-sum payments on your HECS debt can be done at any time via BPAY. While HECS debts don’t accrue interest in the traditional sense, they are indexed annually, so any extra repayments you make will directly reduce the principal. Even small, regular voluntary payments can make a big difference over time.

2. Start early

If you’re still studying or only recently graduated, it might seem tempting to ignore your HECS debt for a while. But starting to pay off your debt early - even if your voluntary payments are small - can slow down your debt and stop it from becoming overwhelming later on in life. The sooner you start chipping away, the less impact indexation will have on it, and the faster you’ll see it go down.

3. Look into salary sacrificing

Another option is to use salary sacrifice. You might already know how it can grow your superannuation even further. It’s an arrangement you set up with your employer to funnel a portion of your pre-tax income elsewhere - only instead of sending it to your super, you can make additional HECS payments with it. The advantage here is twofold: you reduce your taxable income, which might push you into a lower tax bracket, and you make larger repayments toward your HECS debt without affecting your take-home pay as much as you might expect.

4. Increase your repayments as your income grows

As you climb the career ladder and your salary rises, think about also increasing the proportion of your income that goes towards higher-education repayments. Since your mandatory repayment rate is linked to your income, higher earnings will automatically mean higher repayments. But you can go even further by voluntarily contributing a higher percentage of your salary than the minimum amount required.

5. Think laterally

If you have the time and the motivation, you might want to dip your toe into a side hustle to earn some extra cash. Since it doesn’t affect your regular take-home pay from your main job, you can funnel any profits directly into your HECS debt.

Another pastime that has the potential to generate more money is investing. While there are certainly risks that you could end up losing more money than you invest, if you do have a good run then you can put some of those profits into HECS repayments. Just be mindful that earning more money through a side hustle or investing could also push you into a higher tax bracket.

Paying off your HECS debt faster might seem like an impossible task, but with the right approach it’s entirely achievable. While relief from the government is hopefully on the horizon, in the meantime you can apply some practical strategies to take control of your HECS debt and work towards financial freedom. Since every little bit counts, why not start today?

Which countries consume the largest amount of fossil fuels?

There is so much focus on carbon emissions, quotas and protests over future fossil fuel developments that we often lose focus on who the biggest fossil fuels consumers are.

The International Energy Institute recently ranked the top 12 countries by fossil fuel consumption. The major takeaways were China and the US account for almost half (47 per cent) of global fossil fuel consumption while fossil fuels currently account for over 80 per cent of the energy mix.