Home loan bonanza + How global shares boost your portfolio

Hi everyone,

Sydneysiders, hope you’ve been able to stay dry. The rain has been horrendous here.

It is a full house at our place this weekend as we all gather to farewell one branch of the family who are off to live in Dubai. It’s the way of the world these days where there are great opportunities abroad for Australians.

With kids and grandkids now in Perth, Dubai and London, it makes for a nice holiday to visit everyone.

On the economic and financial front, the Productivity Roundtable was the main game this week. Lots of talk, lots of ideas ... Now let’s see what comes of it. Hopefully it doesn’t follow the usual routine of taking forever to produce a report and the recommendations are ignored.

As I’ve said before, with such a huge majority, Labor needs to be bold and lead fundamental economic and tax reform. It’s time for a new Paul Keating-like reformer to emerge to set the economy for the next 50 years.

Fingers crossed.

In this newsletter:

• Rate cut home loan bonanza.

• Why you should have international exposure in your portfolio.

• The impact of interest rate cutting cycles on property values.

• How does your SMSF compare with others?

• Australians love a spare bedroom ... or two, or three.

• The massively increasing carbon footprint of data centres.

Rate cut home loan bonanza - The property market ignited

Interest rate cuts not only reduce mortgage repayments but they increase borrowing power. For example, after three rate cuts a couple on a combined income of $200,000 now qualify to borrow over $1 million ... and with more rate cuts on the way that borrowing capacity will rise even further.

The impact on the property market is significant with buyers armed with more borrowing power on the hunt for their dream home.

Australia’s biggest home loan lender, CommBank, says after the last two rate cuts they saw a 12 per cent jump in home loan pre-approvals with the average borrowing amount up 13 per cent, compared with this time last year.

The bank figures show the rate cuts have lifted borrowing capacity 7 per cent with a big jump in activity across home buyers, investors and upgraders.

Looks like the rate cut is set to spark another increase in property values.

Why you must have some international share exposure in your portfolio

It has never been easier to invest overseas, either directly or through ETFs and managed funds. Those who have taken advantage of this access have been big winners when it comes to performance.

According to investment research group Rainmaker Information, international equities large cap (large international listed shares) was the top-performing managed fund asset class in FY 2024–25, delivering a median return of 16.6 per cent for the financial year.

This was followed by emerging markets (15.2 per cent), Australian large cap (13.3 per cent), Australian small cap (13.1 per cent), and Australian income-focused funds (12.2 per cent).

When it came to the best performing individual investment products for the last financial year, video gaming and resources topped the list but all their portfolios were heavily skewed to international exposure.

The top-performing products over the 12-month period were the BetaShares Video Games and Esports ETF, which delivered a 90.5 per cent return, followed by the VanEck Video Gaming and Esports ETF with a 66.8 per cent return.

Commodity ETFs also featured prominently, with the Global X Physical Platinum ETF returning 65.5 per cent, the BetaShares Global Gold Miners ETF (Hedged) up 58.2 per cent, and the VanEck Gold Miners ETF returning 57.2 per cent.

ETFs were also dominant across the best of the performing funds, representing eight of the top 10, and 19 of the top 30.

Impact of interest rate cutting cycles on the property market

A bit earlier I talked about the surge in home loan pre-approvals that CommBank has been experiencing and I was pondering what the impact will be on home values.

Ray White chief economist, Nerida Conisbee, has done a deep dive into this issue and it provides a fascinating insight into what’s happening ... and, how rate cut cycles can have differing impacts on values.

Australia has had three major interest rate cutting cycles since 2015, each delivering vastly different impacts across the housing market.

The Reserve Bank's gradual easing from May 2015 to May 2016 saw rates fall from 2.25 per cent to 1.50 per cent, followed by a more aggressive round of cuts from June 2019 through the COVID-19 emergency period, which brought rates down to a historic low of 0.10 per cent by late 2020.

The current easing cycle, which began in 2024 from multi-year highs above 4 per cent, marks the third distinct phase of rate cuts within a decade. Suburb-level analysis by Ray White shows that each cycle has benefited entirely different segments of the property market, with the most responsive areas shifting significantly depending on the economic context and buyer demographics of each period.

2015-2016 cycle: The shift to affordable regional coastal markets begins

The first cutting cycle from May 2015 to May 2016 saw the Reserve Bank reduce rates by 0.75 per cent in response to moderating economic growth and subdued inflation.

This gradual easing primarily benefited coastal lifestyle markets within commuting distance of major cities, with NSW's Central Coast emerging as the standout performer.

These suburbs, typically priced between $800,000 and $1.2 million at the time, attracted people looking for coastal lifestyles within commuting distance to Sydney. While COVID led to a shift to regional areas, the reality is that it had already started quite some time earlier.

2019-2021 cycle: Premium Sydney suburbs dominate the rate cut response

The most aggressive cutting cycle began in June 2019, then accelerated dramatically during the COVID emergency period as rates plunged from 1.50 per cent to 0.10 per cent.

These unprecedented rate cuts led to the strongest responses in Sydney's premium suburbs. These were predominantly million-dollar-plus markets, reflecting how the combination of ultra-low rates and fiscal stimulus created a pronounced "wealth effect" favouring established property owners looking to upgrade or invest in premium locations.

2024-2025 cycle: Affordable outer suburbs emerge as the new rate cut champions

The current cutting cycle, beginning from the highest rates in over a decade, has fundamentally reversed previous patterns by most benefiting affordable, outer suburban areas.

Perth has dominated this cycle, with areas like Midland-Guildford (15.6 per cent growth), Mandurah (15.5 per cent), and Balga-Mirrabooka (15.4 per cent) leading national growth rates. Adelaide's outer suburbs have also responded strongly, with Smithfield-Elizabeth North posting 14.4 per cent growth. These areas, typically priced between $550,000 and $750,000, represent traditional first home buyer territories where borrowing capacity improvements from rate cuts have the greatest impact.

It's a dramatic shift from previous cycles, with the most rate-sensitive areas now concentrated among affordable markets, rather than lifestyle or premium segments. It reflects how Australia's housing affordability crisis has fundamentally changed who benefits the most from monetary easing.

How does your SMSF compare against others?

According to the Australian Taxation Office, there are 646,000 self managed superannuation funds, representing 1.2 million members and holding over $1 trillion in investments.

If you have a SMSF, you’re always wondering how other SMSFs are being managed compared to your own. Where are others investing compared to you?

According to Rainmaker Information, SMSF portfolios have doubled their allocation to fixed interest since 2015 to 9 per cent - despite the low interest rate environment.

Rainmaker also noted that SMSFs have been repositioning their portfolios towards fixed interest and pooled investments. Pooled investments refer to collective investment vehicles such as managed funds, life insurance policies, or other types of collective trusts. Their share of overall portfolio allocation has increased from 13 per cent to 18 per cent.

The allocation to cash among SMSF investors has plummeted. In 2013 SMSFs held nearly one-third of their investments in cash, while in 2025 cash makes up just 16 per cent.

While equities show the most year-on-year fluctuation in allocation, the 36 per cent allocation in 2025 is sitting at almost the same level as it was in 2015.

Property has also stayed stable, currently sitting at 16 per cent of all funds invested in SMSFs.

Australians love a spare bedroom... or two, or three!

It is with a sense of guilt and embarrassment that I admit Libby and I live in a house where we have spare bedrooms - and we’re part of the much-pilloried Baby Boom generation. The shame we feel.

Economic and finance gnomes lay blame for the housing crisis purely at our feet because we should be downsizing in the name of efficiency to something where there are no spare bedrooms. We are part of the more than 60 per cent of Australian households made up of just one or two people.

It’s a valid economic argument, but the human rationale is that we have four married children and nine (soon to be 10) grandchildren who, weirdly, love hanging out with each other at our place. Our son and his family lived with us from October to June then our daughter and her family moved in prior to them moving overseas. This weekend we have 13 people sleeping at home as our West Australian mob comes to visit.

And we love it.

Look, I get the economic rationale of why we should be downsizing but, selfishly, a higher priority for me is a base for our kids and grandkids to hang out and have fun with each other.

Property research group, Cotality, has analysed the make-up of the current Australian housing stock and poses the question of whether we’re building the right mix of properties.

Couples without children and people living alone make up the majority of households, while only around 30 per cent of Australian households are families with dependants. A notable 31 per cent are couple families without dependants, and 27 per cent are people living alone.

Of the lone-person households in Australia, the Bureau of Statistics data suggests around 40 per cent are aged 65 and over.

When comparing the number of people in each household with Cotality data on housing by number of bedrooms, there is a clear mismatch.

The most common household type in Australia is two-person households, yet the most common housing type is three-bedroom homes. One-person households are the next largest group, accounting for 27 per cent of all households, but one-bedroom and studio dwellings make just 6 per cent of Australia’s housing stock.

Apart from my situation with a big close family wanting to hang out, the rise of the home office, the desire for in-home care later in life, and space for hobbies and visitors, means those extra bedrooms are being put to good use.

New houses have also generally become larger over time, with one explanation being that more amenity is needed within the home to account for the growing distance from large commercial centres. As we build further and further out on city fringes, homeowners may find it more convenient to have home amenities like a gym, workspace or home theatre.

The Cotality report notes that of the new housing pipeline overall, the share of home units is shifting gradually higher. In the past decade to June 2025, ABS data shows dwellings other than houses made up about 40 per cent of approvals - up from 37 per cent in the decade prior.

Cotality data shows there has been strong demand for larger dwellings, with the five-year annualised growth rate highest for four-bedroom homes nationally (8.7 per cent), compared to just 3.7 per cent for studio and one-bedroom dwellings. This stronger capital growth may help explain the preference for buying and holding houses over units - and larger houses over smaller ones.

According to the Cotality report, governments could make it more expensive to have more housing than you need, and cheaper to live in smaller housing. This has led many to advocate for tax reform like abolishing stamp duty (which makes it cheaper to move housing), and replacing it with a broad-based land tax (which increases costs based on the amount of land owned).

These options are both politically difficult as it would involve moving from a tax that applies to a small number of voters each year - those who purchase property - to one that will tax two thirds of voters who own property.

This would, however, potentially introduce an incentive for older Australians who own their home outright to downsize. Reforming pension asset tests to include the value of the family home would also help the numbers stack.

The massively increasing carbon footprint of data centres

I did have a chuckle when Woodside Energy’s CEO Meg O'Neill singled out young people who order online goods, implying their consumption habits contradict their anti-fossil fuel stance.

She made the comment after Woodside’s annual meeting was disrupted by protesters angry over the company’s huge oil and gas production.

You don’t see those protestors taking aim at the operators of data centres. Have a look at the chart below. By 2030, US data centres will be guzzling 12 per cent of America’s total electricity usage. That’s the equivalent of Norway or Sweden’s total electricity consumption.

And that’s just US data centres alone ... not globally.

Data centres power everything from social media to online searches and shopping. As AI grows, even more demand will be placed on the power grid.

I reckon Meg O’Neill has a point.

By the way, when Meg O’Neill made the comment, I looked up the carbon footprint of online shopping platforms like Temu and Shein. They both ship 9,000 tonnes of cargo a day - that’s 88 fully loaded Boeing 777 freighters - per day.