SQM Research on the housing finance data

As my fellow MacroBusiness bloggers have already pointed out, Australia’s housing finance data released today by the ABS was bad, real bad.

One of Australia’s few truely independent property analysts, the Managing Director of SQM Research, Louis Christopher, offered perhaps the most damning assessment via a series of Tweets:

Home loans drop on weak demand in biggest fall in 14 years… The housing finance approval No.s released today represent the largest monthly decline I have seen in my career. This downturn is serious… The bad approvals No.s prove once and for all that the reported auction clearance rates are not to be believed. They are unreliable.

Mr Christopher followed up with a somewhat sobering assessment in a newsletter released this afternoon [my emphasis]:

“Today’s housing finance approval numbers, released from the Australian Bureau of Statistics suggest that demand for housing has completely stalled in the new year. Indeed, demand for housing is now weaker than back in the second half of 2008; a point where house prices fell by five per cent as an average for the eight capital cities around the country.

We believe this has occurred due to the November 2010 interest rate rise and less so the Queensland flooding.

This is a general alert that we are putting out to our newsletter subscribers that the market is falling and is likely to fall at least 5% this year as an average for the capital cities. As many of our readers know, we are most bearish on the Gold Coast and Sunshine Coast markets. Brisbane, Darwin and Perth also appear to be in significant downturn.

You will note as well that we have updated our Stock on Market for the month of March. National advertised residential properties rose by 13,100 or 3.8% for the month of March. There are now a total of 356,600 residential properties being advertised online. This time last year there was 241,700. That represents a 47.5% increase over 12 months.

At this stage it is difficult to determine when the market will bottom. Most likely it will occur shortly after any announced interest rate cut or significant federal government stimulus in the market place, similar to the First Home Buyer’s grant boost released in late 2008. There is an outside possibility that the market could bottom without an interest rate cut or government stimulus if there is a large acceleration in inflation. At this point in time, consensus estimates suggest only a modest to moderate rise in inflation.

It is important to note that in our opinion it is unlikely this downturn will materialise into a nationwide housing crash for the capital cities; rather a moderate fall in house prices is expected at this stage.”

So according to Mr Christopher, Australia’s capital cities are facing a drop in prices of at least 5% by year end, although prices at this stage are unlikely to crash.

Of course, the future direction of house prices will depend largely on whether commodity prices can remain at near 100-year highs. If China hits a speed bump, causing its growth to slow to say 5-6%, then a hard landing for Australia’s housing market is likely.

As I have said many times before, the downside risks to the housing market far outweigh any upside potential. Housing is simply the wrong asset, at the wrong price, at the wrong time. Please tread carefully.

Cheers Leith

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Leith van Onselen

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

  1. Horrible statistics all round for the housing bulls. So, finally is this market going to seriously correct and remain on a sustained downward trajectory?

    One wonders what Christopher Joye has to say about all this. This is one turd that cannot be polished.

      • Try and sell your house. Then reality dawns. say you think 500K. The offers will be low 400s.

        Try it.

        • I think it’s clear, with stock exploding and sales tanking, that a correction is underway. If it walks like a duck, etc.

  2. Leith, IMHO, this thing is going under whether commodities keep up their prices or not.

    There’s just not enough money available to funnel into housing to keep abilities and perceptions of growth sufficiently afloat, since Housing >> Mining.

    The credit cards, so to speak, are maxxing out, and there is enough momentum now on the can’t/won’t side of the equation to pull this baby down – all on its own.

    my 2c

    • Yeah I sympathise with your view. But I will believe it when I see it. Whether we will experience a crash or a slow melt is the big unknown. Either way, housing is a crappy investment right now.

      • Leith, you are bearish about bear scenarios?! My reading of the data is that there was effectively an audible ‘pop’ on or around 20 Dec last year, and we have stepped off the cliff into empty space. My concern now is how bad this is going to be, and whether my wife and I can keep our jobs.

        • It would be a mistake to call victory at half time. Sure, the recent data is very bearish, but I’ll wait a few more months to see if there is a lasting downward trend.

          That said, there is no way that I’d be jumping into the housing market right now. There is minimal upside potential but lots of downside risks.

  3. Someone explain, so accelerated inflation means a bottoming of the market?
    I thought accelerated inflation means higher interest rates, won’t this cause home owners more problems?
    I also have the view that once(or if) the AUD drops we will start importing inflation.

  4. But…New Zealand to your rescue! “Auckland’s largest real estate agency group, Barfoot and Thompson, has reported it handled 1,070 sales in March, which it said was its highest monthly sales figure in nearly four years.Volumes rose 75.7% from February and were up 15.4% from March a year ago.The average sale price of NZ$581,190 was up 11.4% from the NZ$521,887 reported in February and was up 6.6% from March 2010.”
    If you believe the figures, of course!

    • Bubblelicious

      But hasn’t NZ already had it’s correction? I call ” bull trap” or “dead cat bounce”.

  5. I am in WA,and house down the street advertised at $1m, got ridiculous amount of people going through it. Cars fill the street during a home open. Already received an offer inthe 900s from what I hear.

    There still seems to be good demand for high quality housing in the right location

    But it is clear that if you have a dud house in the wrong location, you’re pretty much not going to get an offer anytime soon.