Housing finance shocker

The drumbeat of crappy housing data is getting louder and more frequent. From theย ABS February Housing Finance we get the following:

Here are a string of graphs to give you a feel for how bad the trends are:

I call them bad, yuk, crap and foul. And here’s one last one to drive home the point (if you’ll pardon the pun):

House price falls are set to accelerate on this data.

Finally, to prove I am not making this up, refer below to theย CBA report on the data which doesn’t even bother reaching for the lipstick for this pig:
CommSecHomeLoans_110406[1]

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacificโ€™s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

Comments

  1. ABC radio news this morning announced Western Australia was in technical recession for the 6 months to December.

    • Surely the ABC is mistaken: WA is booming along with everyting mining ensuring Autsralia is ‘moving forwrd’.

      If WA is in a recession this will get very tough

      • I think what people forget about WA is that it’s like the whole country: There’s a mining sector, and then there’s everyone else who are suffering because of the mining boom causing a two track economy. Except in WA it’s worse than everywhere else.

        I know when all the billionare miners were campaigning in the street against the RSPT and saying it would stop new mining activity in WA, I was going “excellent”, because at least that would give the rest of us a chance to catch up.

  2. Brilliant…!!! the vested interests and spruikers must be running out of clean underwear looking at those.

    Guess the REA’s will have to sell their flash cars to get money in the door, maybe they will have to ride a bike to meet clients…haha

    • saw this tweet from Louis Christopher

      “The housing finance approval No.s released today represent the largest monthly decline I have seen in my career. This downturn is serious.”

  3. Let it all burn down. The Boomers and smug Gen X’s will get all that they deserve on this one.

    Is there a futures market on when the government will attempt to intervene?

      • I agree DE – in just about every area Gen Xers are still held captive by the Baby Boomers indulgent conceit.

      • Apologies – but being a younger person there are just as many people in the 40-50 bracket suggesting property is the ‘perfect’ investment as there are my senile grandparents approaching 80 years of age.

        Unfortunately I’ve seen peer pressure in my age group impact people’s lives already – with one close friend of mine (FHB in 2006) currently selling his house and his car. This person was out of work for a period of time, and used an ‘equity mate’ loan to ride the climbing asset prices and sustain a lifestyle. However the bank has seen the writing on the wall and is requesting he either provide cash to build a bigger equity buffer, or sell the house. This may suggest the BoQ is expecting prices to fall a little bit?

        I’ll just sit on the sidelines with my base to either property prices are 3x my very decent professional wage, or I have enough of a deposit that I can put down a 50% deposit for a house.

        • That sounds like a NINJA loan…

          If those exist here, then the Australian housing market’s in even more trouble than I thought.

          • If you read fine print in any mortgage contract you may find the paragraph which gives bank right to put you in default even if you paid every repayment on time. If revalued home price doesn’t satisfies LVR requirement that bank considers safe you are in default and bank may ask you to pay the difference.

        • The huge pressure on young people to buy is my particular bugbear. My father is a full time property developer (small scale stuff) and every couple of months for the last eight years without fail he talks about me buying a house. He once told me that you never make any money by saving or working, the ONLY way to make money is to leverage. That may have worked for the last thirty years but it seems like more and more this isn’t going to be the case in the future, at least with residential property.
          I quite like renting and the choice and freedom it allows me. When purchasing a property is both an affordable and an unemotional decision; then I’ll think about buying… maybe.

          • “He once told me that you never make any money by saving or working”

            LOL.

            Not to disparage your father, it’s more of a generational thing, but isn’t that a great way to incentivise people.

            Working and saving bad. Speculation good.

          • Endrortsonhousing

            Your father is just passing on his experience of life.

            And that’s what’s wrong with this country in a nutshell.

            But for every thing there is a season and today’s data shows that the extraordinarily long and prosperous season for highly leveraged property speculators may finally be turning to winter. Hope your dad stashed away a few acorns!

          • “He once told me that you never make any money by saving or working, the ONLY way to make money is to leverage.”

            I would actually have argued well for exactly the opposite – in the long run, and for most!

    • “Mr Nicolaou said the economy’s contraction was also due to initial construction work on some major projects winding up and the weak performance of the housing market.”
      .
      In other words, we finished digging some minor holes in the ground and we stopped selling houses to each other.
      .
      Can’t they.. like..co-ordinate these things? No digging while you are selling and vice versa ๐Ÿ™‚

      • “Canโ€™t they.. like..co-ordinate these things? No digging while you are selling and vice versa”

        Priceless! ๐Ÿ™‚

        The Joint State and Federal Commitee for Digging and Selling Co-ordination

      • This is concurs with my view of the WA economy. Billions of expenditure is earmarked for new developments in the Mid-West and Pilbara. But these projects are not in the construction phase. The construction phase is the employment windfall. Existing mines have undergone major upgrades – but they are existing mines – production continues and mining companies couldn’t help but make money in the current commodity price bubble. The much hyped new expansion is yet to take place. To my mind, the miners are cautious to sink said billions into development of projects that are years away from production. They can make good money right now, with a little tweaking around the edges. Those in Perth not employed by mining interests are like their counterparts across the country. Average wages, average mortgages, average, average, average. The WA Premier has woken up to the fact that that small to medium manufacturers in WA are not beneficiaries of the boom. Most equipment and componentry (even concrete slabs) being imported.

        • So, the expected windfall to the economy that we are all expected to pay for with rising interest rates, is actually based on proposed mine expansions….

          Surely, a change in management, drop in demand (especially China), introduction of a mining tax, change in wind direction etc, etc, could lead to the withdrawal of any number or all of these projects. Suddenly a mining boom doesn’t sound like an absolute certainty.

        • 3d1k, in QLD there is a similar Mexican standoff with new big mining investments (including rail and port expansions). Everyone is happy to talk about it, but there are no agreements to fund some of the bigger key projects. It is no secret how much of a risk it is to put many many billions on the table right now.

    • “ANZ Bank economist Ange Montalti said consumers will adjust to the higher level of interest rate and a recovery in housing finance is likely soon.”

      ๐Ÿ™‚

      • I’m not!! We are looking to buy a home soon (to live in). We have revised our max purchase price down by 30% because of all the variables.

        If I can convince my, wife we’ll wait another 6 months or so.

  4. You may be aware that the Refind website,
    http://www.refindhouseprices.com/
    gives an interesting daily view on the housing market. It currently lists 351,289 properties for sale and is trending upwards week by week. In December the number was around 320,000. It’s possible to search by postal district and sort the properties in various ways. Normally (though not just earlier when I tried South Yarra)you can select for price reductions. The number of properties reduced in the areas I regularly check surged just last week though it’s not a clear trend. The time advertised gives insight into just how long things can take to sell or how long owners hang on. The spruiker comments are a lesson in RE puffery e.g 52 Darling St south Yarra (346 days advertised) “fabulous investment opportunity”; 224/32 Bray St South Yarra (344 days advertised) “Investor Heaven”; 30-34 Bray St South Yarra (416 days advertised) “live the society lifestyle” – with picture of furnitureless apartment

    • Thanks Arcady – yep, much used site, as is http://www.onthehouse.com.au for previous sales records.

      The proliferation of this free data has one possible future outcome: no need to follow the RPData/Rismark index or data on sold properties.

      But it will take a long time before this data (which should be freely available, like share prices, CPI etc) collection is brought into the 21st century.

      I’m still waiting for the ASX Property MINI/CFD’s….. ๐Ÿ˜€

      • Prince,
        Would shorting banks (via CFDs or options) be another way to play the housing market? Seeing as most have >50% of their books in mortgages and are highly exposed.

      • I’d be very careful shorting the banks unless there was a serious catalyst that precipated such a fall, particularly with the delta decay on options (and the high leverage of CFDS)

        Although we have contend that banks are grossly overvalued (by at least 20-40%), it could take a very long time before the market finds that valuation, and indeed it may gravitate around it (whipsaw) for a time.

        Q Continuum will be doing a post shortly on what stocks/companies to avoid during the housing deflation – I’ll be following up my part 1 on the “banksters” shortly.

        But, yes, I am watching the long term pricing matrix for puts on the big four closely. QBE is another to consider (due to their huge exposure to LMI) ,but I’ll let Tim (Q) cover that one…

    • Just checked this site for the first time. I am not convinced data is accurate re listing time of properties. For instance I know of a few properties that have been sold but still report as available.

    • …and, it’s not, too…

      Housing brings down the entire countries economy with it.

      Not even the biggest resources boom in history can stop the momentum of the behemoth that is housing in Australia.

      Sure, we picked it – but let’s be careful what we wish for…

  5. LandDeveloper

    Hi H&H – this largely accords with what we are noticing at the “coal face”. But I was also wondering if you have had a chance to do a graph on the average loan amount? If I read your post correctly, you are showing trends on total loan numbers and total loan value, but it would be interesting to also see how the average loan size is trending… Whilst on face value it may seem easy to draw a conculsion that it would also be trending downwards, we’ve noticed that the average loan size is relatively stable – i.e. people are still borrowing the same amount of money, just not as many people are doing it. I’m not making any conculsions/arguments on this, I am just interested if someone out there has had the time to look at the numbers and see what’s happening there.

  6. neither of those house websites give a realistic picture – it is worse. I have been seriously watch 3 suburbs in disparate parts of Perth’s hosuing market (for different reasons) for the last 2 years and I personally know of some houses droppping in price by 20% before selling, and some still not selling.
    After 2 years I have found the property I wish to purchase (let’s just say I have eclectic tastes)- my offer is 29% below the original asking price; 23% below the current asking price. The property has been on the market 5 months. They are seriously considering my offer (It is a deceased estate – the genuine ‘genuine’ sale).
    Unemployment in parts of Perth is quite high – eg 12% in industrial Kwinana – no mining boom there, move along. Sure some people are making good money on the mines or in mining companies but the $500k~ mortgage belt is on the edge. More unemployment or higher interest rates will see more forced/genuine sellers and more realistic asking prices but at the moment a lot of people don’t have to sell, they just want to get out if they can. Property is illiquid and hard to panic sell like shares, but I suspect the next lot of monthly/quarterly stats will look mean.

    • I would be careful when analysing asking prices. These are a meaningless indicator. Selling prices are what count and only way to evaluate whether median prices are moving.

      • I agree. I was merely indicating that real sales are often at quite a discount to the asking prices … which are falling. Im my case the offer was based on safety margin discounts to selling prices – which is why my offer is being considered because of the substantiation I could offer.
        I just don’t think there are a lot of distressed sellers yet – hence rising listings. And if there isn’t it might be a softer landing than some anticpate.
        As much as I think housing is overpriced I dont think a big correction of 30% in quick time helps the nation. But if prices are flat for 10 years and incomes manage to grow etc then gradually housing becomes more affordable.
        I am reluctant to generalise tho because the market is so different from suburb to suburb.

        • But prices won’t remain flat over a 10 year period without a substantial fall if people expect them to remain flat.

          If negatively geared investors believe that there will be no capital growth for 10 years, they’ll either:

          *try and sell immeadiately and cut their losses, or;

          *they’ll be forced to hold on to their investment properties until prices begin to rise again, a 10 year period in which they’ll be making interest payments for no capital growth, ie. a loss on their investment.

          In this circumstance, there will be no demand from investors to buy property because they’d make a loss, and prices will plummet due to the increased supply of investors who decide to sell up.

          We’re in a situation where prices won’t remain flat… They’re either going to go up, or go down, and it doesn’t look like they’re going up…

      • Agreed. I have a sell on the AUD @ 1.06, Open Order. No one has taken it, its trading 2% lower. You have try, there are idiots out there.

        “Greater fool theory” meets delusion?