Bad analysis leads to misinformation about mortgage stress

By Michael Matusik, 24th October 2012

I have read some really crappy stuff about the property market in recent times, but the material just released about Brisbane’s mortgage stress takes the cake.

Without sounding like sour grapes – and there are none at all, despite a past connection – this work (by a Brisbane research firm) must have been done by someone very inexperienced.  Or maybe they were just chasing a headline.  Remember… “if it bleeds, it leads.”

But when you use the recent Census results correctly – meaning that you actually know what you are doing – you find that Brisbane’s households with a mortgage, on average, pay just 21% of their household income on repayments and that 90% of them pay less than 30% of their income on mortgage repayments.

Moreover, the mortgage payment to household income level of mortgage holders in Dutton Park averages just 17% and not 54% as was stated (in the “research” reported).  It is just 16% in West End; St Lucia and Kevin Grove and 18% in Woolloongabba, instead of the spruiked 44%; 41%; 39% and 41%.

So why are our figures so much different?

See, you cannot just multiply the median weekly household income in a suburb by 52 and the median monthly mortgage payments by 12, then divide the two and get a mortgage stress result.  But this is exactly what has been done.

Of course, doing so finds mathematically that the median mortgage payment to median household income ratio is 54% in Dutton Park.  Likewise, it is 44% in West End; 41% in Woolloongabba and St Lucia, and 39% in Kelvin Grove.  Taking a wider view, it is 32% across Brisbane and 40% on the Gold Coast.

Now just stop a minute and think – do you really believe that half the money households earn in Dutton Park is being spent on their mortgage – I mean really?  I see lots of people going out on an increasingly regular basis across inner Brisbane, often spending hundreds of dollars per night.  I see lots of shiny new cars, plenty of new clothes and coffee shops filled to the max.  How does this happen if people are paying up to half of their dosh on the mortgage?

What about the banks? No bank lends money at these ratios. You could not bluff your way into such a loan, even if you were Harry Houdini!

So sense does not prevail.  A good analyst always questions the results.

You have to dig deeper than the headline results to find the correct answers.  It takes a lot of effort to scroll down from page 1 to page 6 of the 7 pages of the 2011 Census QuickStats to find out the tenure profile and proportion of rent/mortgage paid by households in each location.  It does actually take some time to then visit the expanded community profile, and to visit tables X14 to X16 to work out the actual household incomes for those paying a mortgage in each location.

I have done this for the apparent five most mortgage stressed inner Brisbane suburbs, for Brisbane overall and the Gold Coast – because someone, somewhere always likes to put some more shite on the GC whenever mortgage stress is mentioned.

This analysis took me over an hour, which shows that doing this type of work cannot be rushed, takes effort and some knowledge.

Here are the results:

            Dutton Park:  58% of households rent; 19% pay a mortgage; 80% pay less than 30% of their income in rent; 96% pay less than 30% of their income to the mortgage; the average household income of a mortgage holder is $2,920 and not $989 as suggested, meaning that the real mortgage to relevant household income ratio is just 17%

            West End: 59% rent; 19% mortgage; 79% less 30% rent; 95% less 30% mortgage; mortgage household income is $3,070 and not $1,485; real ratio is 16%

            Woolloongabba: 58% rent; 22% mortgage; 79% less 30% rent; 95% less 30% mortgage; mortgage household income is $2,820 and not $1,330; real ratio is 18%

            St Lucia: 55% rent; 15% mortgage; 68% less 30% rent; 96% less 30% mortgage; mortgage household income is $3,040 and not $1,315; real ratio is 16%

            Kelvin Grove: 60% rent; 24% mortgage; 71% less 30% rent; 94% less 30% mortgage; mortgage household income is $3,100 and not $1,360; real ratio is also 16%

            Brisbane region: 33% rent; 37% mortgage; 88% less 30% rent; 90% less 30% mortgage; mortgage household income is $2,330 and not $1,388; real ratio is 21%

            Gold Coast: 35% rent; 35% mortgage; 83% less 30% rent; 87% less 30% mortgage; mortgage household income is $2,400 and not $1,173; real ratio is 24%

I do not take this stand lightly, I know the people involved, but this material does enormous damage to the Queensland market.  It makes new development harder to get financed; it contributes to a more difficult lending regime; it fuels even tougher valuations.  And it is just plain incorrect!

Sadly, several media outlets ran with this negative material.  Again “if it bleeds, it leads”.  But where is the journalism these days?  Why doesn’t someone question these results?  Or is it just about regurgitating media releases these days?

I truly think it is.  We no longer issue media releases, preferring to control what we say via the missive space and our own reporting.  I will make a bet – and despite several well-known property journalists subscribing to the missive – that our comments here will not get reported.

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Michael Matusik

Michael Matusik is a leader in residential market analysis and property advice in Australia.

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