HIA .. Zombies in the new economy

The number of people and organisations waking up to the fact that their “old growth” business models have suddenly imploded continues to grow. Yesterday it was the Housing Industry Association’s (HIA’s) turn to use its last gasp of air to scream at the government for even more stimulus for housing.

Fresh cracks have appeared in Australia’s fragile property market, with the latest figures revealing that new home-loan approvals plunged to a 10-year low in March.

As borrowers grapple with the soaring cost of living and rising interest rates, the Australian Bureau of Statistics’ monthly housing finance data showed yesterday that the number of home loans fell 1.5 per cent in March to a seasonally adjusted 44,968.

The shock decline – the lowest result since February 2001 – bucked economists’ expectations for a 2 per cent increase and follows from a revised 4.7 per cent decline in the previous month. CommSec economist Savanth Sebastian said the housing market had “well and truly come off the boil”.

“The rate hikes over the past year are having a profound impact on consumer spending patterns,” he said. “The housing sector is cooling while businesses continue to highlight weak trading conditions.” In a sign that the housing affordability crisis continues to worsen, first home buyers made up just 16 per cent of dwellings that were financed in March.

Housing Industry Association chief economist Harley Dale said governments had to take action to support the industry.

“The clearest signal in today’s figures is the need for federal and state governments to step up to the plate and deliver on stimulus and reforms to reduce the cost of new housing,” he said.

Zombies… the walking dead.

I am sorry to inform Harley, in case he hasn’t noticed, that he now lives in Quarry Australia. The resource infatuated, surplus targeting government has just delivered this year’s budget and looks to have handed out its final round of help to the housing market, which if Harley didn’t notice, involved funding 15,000 less houses for construction. But that probably isn’t the worst of it.

As H&H noted yesterday from Moody’s:

At Aa2, the major banks’ ratings continue to incorporate 2 notches of uplift from systemic support. Moody’s views bank supervisors and the government in Australia to be supportive by global comparison and the banks to have high systemic importance, as implicitly recognized by the government’s “Four Pillars” policy (which restricts M&A among the banks).

I am not sure how you interpret that, but I see it as a very clear shot across the bow that Moody’s expects the Australian government to meet its pledge to continue to back the banks (ad infinitum!) while staying its course to surplus. The government coffers are now the banks according to Moody’s.

At the time of writing Wayne Swan is yet to comment on Moody’s statements but given his previous and continuous pledges about reaching surplus by 2013, even in the face of mounting road blocks, this news is only likely to strengthen that resolve. Given all of this, I simply cannot see the government handing over any more money to the real estate industry either directly or indirectly over the next financial year.  The current set of pretty hefty clandestine assistance – AOFM purchases etc – looks about as good as it s going to get. It would seem that the gig of overt stimulus for housing is up!

Without government stimulus the only way the HIA is going to see an uptick in housing construction is if the banks do some additional heavy lifting in lending. But it looks as if the rating agencies are playing tag team to stifle that.  Moody’s stated:

“Furthermore, with the domestic economy increasingly biased to the commodity sector, terms of trade that are exceptionally favorable by historical standards, and high asset prices, there is a potential for confidence shocks to impact the banks’ access to funding”

With Fitch ratings adding,

… Australian banks could have their credit ratings cut if they lower standards to boost mortgage sales as demand for home loans slumps.

“If we do start to see signs of erosion in those lending standards, there may be some negative pressure on ratings coming through,” Tim Roche, director of Fitch’s financial institutions group in Sydney, told a credit forum today.

Welcome to the new economy, HIA. Resources are the new king, the rating agencies have woken up to the fact that housing is now old news and have accordingly hamstrung the banks until they can adjust down their own risks to match that fact …. and the government isn’t going to help you adjust.

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  1. The zombie metaphor is quite apt. The same metaphor was used to describe the business models of Japanese banks and corporations.

  2. HIA Alert.

    Regional and remote areas are holding up well.

    50,OOO Dongas, er, I mean multiple single dwelling units are now being constructed in areas to be officially recognised as “splendid isolation locals”.

    First home buyers are seriously advised to take a keen interest in the “grub stake manor” model.

  3. I really don’t think any more stimulus will work well anyway. We face the exact problem as the US now, which is, everyone who was going to plunge themselves into mad amounts of debt to buy overpriced houses has done so.

    The stimulus brought forward the demand of those last few who were young or undecided.

    Now nobody wants to borrow to spend anymore.

    If Wayne fixes this problem, tell him to tell Bernanke how he did it.

  4. There is one stimulus that the government will eventually use to kickstart the construction industry, Its called releasing cheap land! only problem is that it also reduces property prices (unless the prices have already fallen.)

  5. Zombie housing market, Zombie consumers and zombie banking system – or just ticking time bombs?

    As I have stated in other posts, my major concern is the banking system’s 15 trillion dollar off-balance-sheet OTC derivatives exposure. This is more than 10x our GDP and with the government guaranteeing the performance of our banking system, these potential future losses will be socialised.

    The system is fundamentally broke. Do we prolong the enevitable and potentially bigger future problem or does the government step away now for the system to start cutting its losses and begin the purging process?

    This is why precious metals look so attractive at this point in time.


  6. I thought falling house prices would eventually make them more affordable? Stimulating buyers would have the opposite effect. Genius play from HIA.

    “The clearest signal in today’s figures is the need for federal and state governments to step up to the plate and deliver on stimulus and reforms to reduce the cost of new housing,” he said.”

    • The trouble with falling house prices is a leverage issue – the prices of the underlying asset decline while the debt remains.
      Suddenly people realise that the asset they have purchased is no a liability – and will slowly (or rapidly depedning on their job situation) eat them alive.

  7. talk about painting yourself into a corner. couldn’t have done better if they planned it.