Housing reports

A couple of new statements/reports out today about the housing market. First RPData have their monthly statement.

Housing flat in February with only 0.8 per cent growth over last year:

February’s index result (0.0 per cent s.a.) suggests that Aussie home values continue to tread water despite robust household income growth. There was little revision to RP Data-Rismark’s January estimates.

After a natural disaster-affected January (-1.5 per cent seasonally-adjusted [was -1.6 per cent] or -0.7 per cent ‘raw’ [was -0.9 per cent]), RP Data-Rismark’s Hedonic Index reports that Australian home values held ground during the month of February.

In the capital cities, RP Data-Rismark recorded flat dwelling values (0.0 per cent seasonally-adjusted or a slightly stronger +0.7 per cent in actual ‘raw’ terms). The ‘rest of state’ areas, which account for the 40 per cent of homes not located in the capitals, also displayed some improvement during February with house values rising by 0.5 per cent seasonally-adjusted (+0.3 per cent raw).

Over the 12 months to end February, Australia’s capital city home values have hardly moved, rising by only 0.8 per cent. The story is the same in the rest of state regions, where home values remain unchanged (-0.2 per cent) over the last year.

The median dwelling price in the capital cities has eased down to $459,000 over the three months to end February from a peak of $473,000. (Note: rates of return or capital growth should not be inferred from these medians.) The median in the rest of state markets is markedly lower at just $323,000. Across all Australian regions, the national median dwelling price was $410,000 over the past quarter.

Now I know these statements fit well with the “soft landing” crew, but I think the wide angle lens is hiding some real issues. If we drill down on some of the actual cities you can see that Sydney and Melbourne are doing some very heavy lifting to compensate for other areas. However both of these markets continue to slow. Call me contrarian but I see little evidence that a “landing” is occurring.

As I said recently it is 2008 all over again, the bottom graph show you why I have been saying that and why I am “on watch” for government intervention.

Genworth Finance also produced a very interesting report this week. For those of you who are not aware of Genworth they claim to be.

A leading provider of Lenders Mortgage Insurance (LMI) and credit enhancement product solutions in Australia and New Zealand. Working closely with our partners, our aim is to make home ownership more accessible to borrowers through the provision of LMI solutions.

They produce a bi-annual report called Streets ahead which is basically a survey on confidence and debt serviceability in the housing market. Their latest report is a very interesting read. I recommend you read the entire report but here are some key statements, many of which will come as little surprise to my regular readers.

National disasters tip confidence

In the 2010 Index released in September last year, we found homebuyer confidence was on a delicate balance as borrowers remained cautious about rising interest rates and higher costs of living. The March 2011 Index, based on a survey of consumers conducted in February, finds the recent devastating natural disasters have weighed heavily on confidence. Growing debt discomfort and higher incidences of mortgage stress in affected states have caused the Index to fall by 1.5% from 2010 levels. Indeed, national homebuyer sentiment would have increased by 0.8% if it wasn’t for the drop in consumer sentiment in Queensland; the state most affected by events of the past summer.

Genworth’s hardship data, which helps paint a clearer picture of borrower distress, tells a similar story. Total hardship requests increased by over 70% in 2011 (to mid-March) compared to the same period last year. Nearly half (40%) of these requests were natural disaster-related, mainly driven by the flooding in Queensland.

A telling trend from the survey showed that one in five (21%) respondents affected by the flooding in Queensland believed it would take them more than six months to get back on their feet, beyond the standard three month hardship solutions currently offered by many lenders.

Queensland and Western Australia the most fragile

It’s not just flooding, cyclones and bushfires that are impacting the country’s resources states. Other data shows house prices are declining across Queensland and Western Australia after years of strong economic growth. Residents of these states are not only showing greater pessimism about the housing market than the rest of the country, but are also experiencing greater difficulty servicing their debt. In fact, 9% of Western Australia residents surveyed said they had trouble making their debt repayments every month, compared to the national average of just 3%.

Higher cost of living adds to borrower hardship

The rising cost of living, in particular higher food prices, has become the main concern for borrowers expecting difficulty meeting mortgage repayments. This has overtaken concern over interest rates rises, which most troubled borrowers in 2010.

First homebuyers are upbeat but the year ahead will be the real test

After some concern first homebuyers (FHBs) over-committed in the bid to take advantage of the government incentives in 2008 and 2009, Streets Ahead finds these borrowers are faring well. They’re more confident than the average, are less likely to have experienced mortgage stress and are also more comfortable with higher debt levels. But the year ahead could be crunch time, with nearly one in four FHBs expecting to find it hard to meet their mortgage commitments.

I think this an interesting point, first home buyers are confident coming out of very stimulatory environment with low interest rates. 2011 is the year where that confidence meets the “new normal” with nearly 25% of this cohort claiming they are going to struggle to meet their mortgage commitments. I am not sure we are going to see a major rise in direct delinquencies come out of this , although there has been some recent uptick, but the psychological effect of seeing friends struggling to make ends meet is sure to have an effect on new entrants to the market.

Growing discomfort despite unchanged debt levels

Turning back to trends across the nation, household debt levels did not change during the period, with 27% of respondents in both 2010 and 2011 surveys putting half or more of their monthly income to paying off debt. However, households have become more conservative about how much debt they are willing to take on, with the proportion willing to borrow more than 80% of a property’s value falling 10% from 39% to 29%. This suggests that other factors such as the rising cost of living are causing borrower concern.

Queensland residents have a larger debt burden than other Australians, with one in three using more than half their income to service debt. Although the level of debt is increasing for Queensland and Western Australia, these residents are only marginally less comfortable in borrowing larger amounts.

Mortgage stress up, but borrowers remain optimistic

Though household debt levels have remained constant, the rising cost of living and the effects of natural disasters have led to a greater degree of borrower stress with 21% of borrowers finding it difficult to meet their mortgage repayments in the 2011 survey, up from 15% in September 2010. This increased stress sees borrowers less willing to become more leveraged or invest in new property.

Unsurprisingly, Queensland and Western Australia residents were more likely to have experienced trouble making repayments, with Western Australia residents having the highest proportion of borrowers who experienced trouble meeting repayments in every month.

Despite past strain, borrowers remain fairly optimistic about their ability to meet repayments over the coming year, perhaps due to the expectation interest rates will remain unchanged in the short-term.

If households are spending half their income servicing debt one has to ask what happens if one of the income earners comes unstuck. In an environment of disleveraging I get the feeling the average Australian simply doesn’t  understand the macroeconomic forces that are now driving the the broader economy. The following chart displays this  beautifully.

Even in times of mortgage stress the housing dream lives on.

Latest posts by __ADAM__ (see all)


  1. “The median dwelling price in the capital cities has eased down to $459,000 over the three months to end February from a peak of $473,000. (Note: rates of return or capital growth should not be inferred from these medians.)”

    How abour rates of LOSS can they be inferred? -2.96%. String that together quarter on quarter and the Irish and Americans will be commenting on us and tut tutting.

    So how, did the floods in country Vic, QLD and central WA effect Hobart and Darwin?

    Were there flods in Melbourne and Perth?

    Natural disasters effecting house prices across the board? Bloody bullshit artists, whats the next quarters excuse? Fukushima? Libya?

  2. I am stunned of that last chart! Actually,… is this “stressful positiv thinking” explainable or is this the Australian attitude?

      • He also said that the RBA is trying to slowly deflate the housing market. Wow, I wonder what the negatively geared investors banking on capital gain in the next decade or so thought when they heard that? Amazing how in only four months the tone of reporting in the MSM has changed.

        • Based on 30 years observing the RBA, a former student at the aforementioned institution and former player in the esteemed position I summise…

          The RBA has about as much chance of a ‘controlled deflation’ as a Queensland University Rugby Prop after a Grand Final win with 25 litres of beer, interspersed with a dodgy Vindaloo and dodgier Doner Kebab, has with a controlled bowel movement.

  3. DE

    Where (and how) has the “robust household income growth” mentioned by RPData occurred. Sadly not in my household…

      • My wife and I are on EBA’s and we average 3% yoy.

        I know of a plumber that became a Real Estate Flogger in 2006 who until recently was making an income to rival a consulting surgeon or the check captain on QF32 (the A380 with the sucessful outcome to and from Singapore http://www.abc.net.au/4corners/content/2011/s3172488.htm ).

        A mate at work has a brother whose income gains recently combine Capt Evan’s income with Pete the Plumber and his noveeau golden eagle with golden eggs.

    • Think Pollies, bankers, civil servants and Mining execs.

      They always see things entirely from their own perspective, particularly the two from the non productive sector.

      • Are nurses, doctors, air traffic controllers, policeman, fireman, royal flying doctor pilots etc civil servant gougers?

    • “Where (and how) has the “robust household income growth” mentioned by RPData occurred. Sadly not in my household…”
      RPData derive their household income data from the ABS National accounts stat – where churches and clubs find themselves lumped along with the household sector.
      Since it is obvious that your household is neither a church nor a club, I can only assume that churches and clubs are rolling in cash. 🙂

  4. That has always intrigued me, how household income growth is always robust.
    Most people I know are having their paypackets go backwards thanks to rising fuel, power and groceries.

  5. DE, thanks for a great, informative article.

    To you and the other MB bloggers, please keep your eyes on debt reports, days outstanding, fractions in arrears, etc; especially for the “smaller” (non-mortgage) items (credit cards, utility bills, personal loans, etc, etc)

    IMHO, that’s where “it” is at now – insight into where things are, and where they might likely be going.

    Will also benefit the investment and business decisions of your readers, too, as they try to keep ahead of the rolling ball.


  6. Word around the property industry is that Genworth are (allegedly) suing a number of Property Valuers at the moment thanks to loan defaults.

    Lending money to people who may not actually be able to pay it back is certainly a cause of “hardship.”

  7. “Call me contrarian but I see little evidence that a “landing” is occurring.”

    That’s a bit cryptic. Are you saying that you see evidence that a “crash” is occurring? If not a “landing” or “crash” then what?

    Personally, I can imagine no greater evidence for a “landing” than nationally flat prices as reported today.

    • Unless you live in Hobart, Brissie, Darwin or Perth and your landing pad is 1,000ft below ground ala James Bond movie.

    • Sarah, I think you previously mentioned that you are in “Banking”.?

      If this is the case then I hope you would be able to appreciate the difference between a “aggregate value derived from a point in time snapshot of a dataset” and a “trend in that underlying dataset over time”.

      RPData seemed to have made a media release based on the fact that they can find 0% growth across a population adjusted aggregation of their proprietary dataset, yet did not seem it significant to highlight the strong underlying trend in their statement.

      I can only guess why.

      However as you would know from being in the finance sector it is the long term trend in the data and the underlying economic fundamentals that matter.

      Please let me know if you can provide any “insider” information from the banking sector that will affect this long term trend, because right now I can’t see anything at all.

      • “However as you would know from being in the finance sector it is the long term trend in the data and the underlying economic fundamentals that matter.”

        Firstly, I have never revealed my professional sector and I’m not about to.
        Yes, it is the long term trend that matters. The long term trend for house prices is very definitely up.
        You avoided my question. When you say you see no evidence of a “landing”, does that mean you are expecting a “crash”?

  8. Sarah, I find your lack of imagination disturbing.

    A “landing” is like a “tapering of values” or “flattening of price”.

    A crash is when you are expecting a landing and theres no landing gear beneath you.

    FHB=landing gear.

    • Generally, such figures mean one of two things, given the broader climate (IMHO):

      a) it is the beginning of a plateau

      b) is is the deceleration of price growth – the peak of a bull-run – after which is comes down the other side…a crash.

      One can only paste their beliefs over data at this point.

      Personally, i think it is not plateauing – i don’t think it’s possible, really, in a true market – and the plateau will only occur once the govt steps in with MASSIVE injections and incentives to counter deflationary pressures with inflationary pressures; and that will only occur after they freak out at what they see occurring in the housing market (10-20% drop that they can’t attribute to other things).

      My 2c

  9. I love that last chart on the public sentiment on housing (survey data)

    should be a great tool for choosing a time to buy/ picking the bottom.

    is this a regular survey? would be great to see this chart once a month up here