Why property is your financial life raft + What made Selena Gomez a billionaire

Hi everyone,

As a family business, happy National Family Business Day for yesterday. 70 per cent of all Australian businesses are family-owned and 40 per cent are run by a couple, typically a husband and wife.

Around 170,000 people are counted as contributing family members working in a family business and about 25 per cent of contributing family workers are in agriculture, forestry and fishing. One in 10 people working in a family business are in construction, with similarly high numbers in accommodation, food services and the retail trade.

In other news:

The US Federal Reserve joined the global trend of central banks cutting the official interest rate. The UK, Europe and Canada have already started.

The Fed cut rates 0.5 per cent to stimulate an economy which has inflation under control but is sliding into recession.

Our strong employment figures yesterday (more on that in a tick) will mean we’ll have to wait into next year before our Reserve Bank joins the rate-cut party.

But I just wanted to share again one of my favourite graphs which shows how sensitive Australia is to interest rate moves compared with the rest of the world.

The vast majority of Australia’s home loans are on variable rates, which means any rate hike, or cut, immediately affects household budgets. Remember, roughly a third of Australians own their home outright, another third have a home loan, and the remaining third rent.

In the US by comparison, 95 per cent of home loans are on a fixed rate (many fixed for as long as 30 years) which are unaffected by changes in official interest rates.

It’s a very big difference.

Also in this week’s newsletter:

• Jobs market stays very strong, which means any interest rate cut is on hold.

• Term deposit rates are on the slide.

• An interesting tax innovation suggested by Donald Trump.

• How property has become the financial life raft of the cost-of-living crisis.

• Property listings surge as the spring selling season continues.

• Why houses have been a better investment than apartments.

• Rental vacancies on the rise and rents easing in some cities.

• Stock of the week: Whitehaven Coal.

• Selena Gomez is a billionaire. Something to share with your daughters and granddaughters.

Job growth still strong, unemployment steady and interest rates on hold

Australia needs to create 30,000 new jobs a month for the unemployment rate to stay steady at 4.2 per cent. In August 47,500 were created and 48,900 in July. The August result was double what the market expected.

That is an incredibly strong result when combined with the fact that the population grew by 49,400 in August. Basically, a new job was created for every migrant who arrived.

Interestingly, the surge is in part-time employment where 50,600 positions were created in August and 3,100 full-time jobs were lost. Is this an early sign of a weakening job market?

Over the previous three months, 143,000 permanent jobs were created. Last month 3,100 permanent jobs were lost.

Even so, at this stage, there is no signal for the RBA to cut rates on the back of this data.

Around the States, Victoria has the highest level of unemployment and WA the lowest.

Term deposit rates on the slide

According to a survey from the Reserve Bank, term deposit rates are on the slide following a global fall in market interest rates, or bond yields. The downward trend means most Australian savers are now yielding less than 5 per cent on new term deposits.

Official data from the central bank reveals that the average advertised interest rate on one-year term deposits fell to 4.3 per cent in August from 4.5 per cent in July, while the average advertised rate on three-year term deposits fell to 3.8 per cent from 3.95 per cent.

So, it’s time to maybe start looking for better alternatives like private credit investments, which can deliver investors yields of around 10 per cent a year - more than double term deposit returns.

I’ll take a look at private credit options in detail in next week’s newsletter.

An interesting thought from Donald Trump

In the US election campaign, former President Donald Trump has announced a “concept of a plan” to eliminate taxes on overtime pay as he woos working-class voters. While the announcement came as a surprise to his staff, he has previously committed to cutting federal tax on tips. The proposal has been implemented in Alabama where it secured broad bipartisan support.

But some economists reckon that this could be a bigger revenue loser than anticipated. They point to the possibility of workers changing their employment classification from full-time to hourly, to avoid taxes on work beyond the standard 40 hours per week.

Homes have become the financial life raft of Australian families

I know the property boom is making it tough for first home buyers to get into the market, but it is saving thousands of Australians from going broke in this cost-of-living crisis.

While Australians are increasingly cash-poor during this financial crisis, they are generally asset-rich, and getting even richer if they own a property. Even those who took the negligent advice of the previous Reserve Bank Governor, buying a house in the last two to three years on the false assumption that interest rates wouldn’t rise until 2024.

Imagine the devastating financial havoc from high inflation, high interest rates, a slowing economy and a falling property market. That is the traditional combination of an economic recession, which we would be in now if it wasn’t for the impact of 500,000 new customers (migrants) over the last year - keeping the economy slightly above water.

Core Logic’s latest Pain and Gain report found that in the June quarter the medium gain from sales of existing properties was $285,000 per property. That’s a record profit on sales since the property research group started this report back in the early 1990s.

There were 91,000 property sales over the June quarter and 94.5 per cent were sold for a profit above their purchase price. In Brisbane, 99.1 per cent of property sales were profitable, 98.7 per cent in Adelaide and 95.4 per cent in Perth.

Even though the Sydney and Melbourne residential property markets are cooling compared with the smaller capitals, they still had respectively 92 per cent and 90 per cent of sales making a profit.

Those relatively small number of properties sold at a loss had a medium deficit of $40,000.

The problem is homeowners are getting richer, but it doesn’t feel like it. That medium $285,000 profit on the sale of a property could instantly solve anyone’s cost-of-living crisis but it is frustratingly unattainable unless you downsize to a smaller property and bank the profit.

But that increasing equity in your home’s rising value can be used to ease your cost-of-living cash crisis in other ways.

First up, start negotiating a better home loan interest rate with your lender based on the higher equity.

The general rule of thumb is that the more equity you have in your property, the better the interest rate you’ll get from a lender. Over the last few years, many people who took out a loan based on a small level equity in the property would now have a much larger stake given Australia’s property boom. And that could mean a better interest rate.

Lenders base your home loan rate on your ‘loan to valuation ratio’ (LVR) - the size of the loan against the value of the property. An analysis by Compare the Market found that interest rates for borrowers with a LVR of 50-60 per cent could be up to 0.40 per cent less than some of the top rates on offer for borrowers with an LVR of 80-90 per cent.

For a property valued at $500,000, that could be a difference of $1,015 on a borrower’s monthly repayments. That’s an extra $1,000 a month into your household budget to meet cost-of-living expenses.

Property owners who have not refinanced during the past few years could be missing out. If you have been paying off your mortgage for quite some time, it’s also likely that the value of your property has increased.

People with a lower LVR are often entitled to lower interest rates because their loans are seen as less risky - this is your trump card.

But just because your LVR has decreased and improved, it doesn’t necessarily mean the bank will automatically drop your interest rate. You have to do the heavy lifting to get that discount and actually ask the lender.

If you’ve recently undergone renovations or believe your property value has increased, you may have to ask the bank for an evaluation so they can determine whether you will qualify for a lower rate.

Another advantage of refinancing a home loan using your improved LVR to negotiate a better interest rate is that you probably paid lenders mortgage insurance on the original loan, if you had less than a 20 per cent deposit. That could have been up to $40,000 which would have been capitalised into the original loan.

If your equity is now higher than 20 per cent, no lenders mortgage insurance is needed.

Houses more profitable than home units

CoreLogic Pain and Gain Report also found houses remained more profitable than units through the June quarter, with a profit-making sales rate of 97.2 per cent nationally, compared to 89.4 per cent in the unit segment.

The rate of loss-making sales in the house segment came in at just 2.8 per cent nationally, compared to 10.6 per cent across the unit sector. Not only were units around four times more likely to make a loss from resale than houses, but the median nominal gain from house resales was almost twice as large as that of units, coming in at $340,000 and $185,000 respectively.

Interestingly, the rate of profit-making sales in the regions (95.7 per cent) remained higher than the capital cities (93.8 per cent) in the June quarter, however, pockets of weakness are emerging in parts of regional Australia.

Peak property values spike listings in the spring selling season

Spring property selling season has well and truly started with auction numbers up. But the number of people actively bidding is falling, and this is causing a fall in clearance rates.

All of this adds up to a slowing market, with price rises likely to moderate or even fall.

In August, Ray White conducted 3,534 auctions nationally, an increase of 15 per cent compared to the number of auctions held at the same time last year. There were 2.7 people on average actively bidding, which is a decline from 2.9 people from the same time last year.

On an annual basis, this hasn’t made much difference to price growth year-on-year; it has accelerated since last year. But on a monthly basis, it does seem to have resulted in a slow-down. In August last year, prices increased by 1.1 per cent. This August, they increased by 0.5 per cent.

While nationally, there has been a reduction in active bidders and a drop in the clearance rate, it has been disproportionately impacted by slower conditions in Sydney and Melbourne, and to a lesser extent by Adelaide and Canberra. Both Perth and Brisbane have seen an increase in the number of people actively bidding and an increase in clearance rates.

Perth is a very small auction market and hence this data needs to be used cautiously. Notably, Brisbane saw a big increase in auction numbers (up 51 per cent), however, average active bidding numbers are now the highest in the country. Both Perth and Brisbane are seeing accelerating rates of growth, in distinct contrast to slowing growth in Melbourne and Sydney.

Good news for renters ...

According to SQM Research, Sydney’s rental vacancy rate slightly dropped to 1.6 per cent, Melbourne’s increased by 0.1 per cent to 1.6 per cent, Canberra again recorded the highest rental vacancy rate of any state or territory at 2.1 per cent, Perth and Darwin showed the same vacancy rates at 0.7 per cent, and Adelaide experienced the lowest vacancy rates at 0.6 per cent.

Over the past 30 days leading up to the 12th of September 2024, Brisbane’s combined rents fell 0.8 per cent, Perth's dropped by 0.5 per cent, Hobart down 0.6 per cent, and Canberra by 1.2 per cent.

In contrast, Sydney recorded an increase in house rents by 0.6 per cent to $1,031.09 per week, while Adelaide rents rose 0.9 per cent.

Darwin is showing the most significant monthly growth, particularly in house rents, which surged by 9.6 per cent.

Please, check you have all your superannuation

Australians are missing out on more than $17.8 billion in lost and unclaimed superannuation, according to new data from the Australian Taxation Office (ATO). Many people are unaware that they may have money waiting for them due to outdated contact details or forgotten super accounts.

Since 2021, the ATO has managed to reunite almost $6.4 billion of unclaimed super with its rightful owners. But there’s still $17.8 billion left to be found. If you’ve changed jobs, moved house, or simply forgotten to update your details, you might have unclaimed super.

Superannuation funds often struggle to locate individuals who have not updated their contact information, leaving large amounts of money unclaimed. The ATO reports that even retirees are missing out, with $471 million held for Australians aged 65 and over.

How to reclaim lost super:

• Confirm your contact details: Ensure your superannuation fund has your current address and contact information. This simple step can help avoid lost super in the future.

• Check your superannuation balances and employer contributions: Make sure you’re receiving the correct contributions from your employer by checking your account regularly.

• Look for lost and unclaimed superannuation: You can search for lost superannuation through your MyGov account, or by contacting the ATO directly.

• Find and consolidate multiple accounts: If you have more than one super account, consider consolidating them to save on fees and make managing your retirement savings easier.

• Confirm nominated beneficiaries: Make sure your super is passed on to the right person by updating your nominated beneficiaries.

Stock of the Week: Whitehaven Coal

Let me explain from the start that every investor has their own Environment, Social and Governance (ESG) filter, and it varies from person to person. Some people are against investing in fossil fuel companies while others don’t like gambling stocks, or alcohol, or defence manufacturers, etc.

These are decisions for you to make personally. I write about different investment alternatives based on what the experts say about their investment potential and not their ESG qualities, because that’s up to you.

Having said that, Whitehaven Coal came up on my daily share investment program, The Call, (on the Ausbiz business streaming network, www.ausbiz.com.au, 7Plus and Samsung SmartTVs) with expert panelists David Lane from Ord Minnett and Kai Chen from MPC Markets.

The coal miner’s share price has dropped from $9 a share in July to around $6 today, as coal prices fall on the back of the global economic slowdown.

Whitehaven has been a predominantly thermal (used in power stations) coal producer but recently acquired the Blackwater and Daunia metallurgical (used to make steel) coal mines from BHP.

Both David Lane and Kai Chen recommended Whitehaven as a “buy” at these levels, agreeing that the demand for coal will stay stronger for longer than most people think, and that the transition to reliable renewable energy will take longer to replace fossil fuel.

To reinforce David and Kai’s point, global coal consumption is currently at record levels with China consuming 56 per cent of the world’s coal and, for the first time, India’s consumption has surpassed Europe and North America

Selena Gomez is more than just a good singer and actor ... she’s also a billionaire

My daughters and granddaughters love Selena Gomez’s music, while Libby and I love her in the Disney series, “Only Murders in the Building” alongside Steve Martin and Martin Short.

But according to Bloomberg’s Billionaires Index, she is also an incredibly savvy business woman. Just 1.3 per cent of her wealth comes from music and just 1.8 per cent from acting.

The bulk of Gomez’s wealth is from Rare Beauty, the cosmetics company she launched in 2020. Rare Beauty’s sales topped $400 million this year.

Gomez co-founded her second venture, Wondermind, in 2021. The media platform is centered around providing mental health tools, and was valued at $100 million in 2022.

As well, Gomez has over 400 million followers on Instagram, making her one of the world’s most popular people. This has paved the way for lucrative endorsement deals with companies like Puma (two-year $30M deal in 2017) and Coach ($10M deal in 2016).

This graphic shows a breakdown of Selena Gomez’s $1.3 billion in wealth, based on data from the Bloomberg Billionaires Index.

Business ventures: