Anyone who has followed the Australian property market for any length of time would know the name Dr Andrew Wilson. He is an economist at Australian Property Monitors and a well known as someone who likes to talk up the market. He is quite well known for declaring any current weakness in housing activity as proof of a “great time to buy before the next boom”
An example from December last year when it was becoming apparent that the market was stalling:
We’re having a shift in property at the moment. There’s been a pause here, a correction, people are taking a wait-and-see approach and we have a lot of stock being offered.”
“There are various reasons for that. The lengthy election campaign, a drawn grand final in Melbourne, and perhaps people were thinking about whether now was the right time to buy or sell. So what we are seeing here is a sentiment driven market, not a market driven by fundamentals.”
Wilson says that next year, incomes will increase, pushing finance upwards and prices will see some movement after this period of correction is over.
“It’s all about momentum. We are going to see more full-time jobs, which means higher income levels, and that will move back into the property market, and that will impact prices as well.”
As recently as April this year he was warning that a strike by first home buyers was about to lead to a surge of investor activity:
Dr Andrew Wilson, senior economist of Australian Property Monitors, says with figures in February showing lending to first home buyers near a record low, we might be seeing an “adjustment process” after demand was boosted by the Government’s first home buyers grant during the GFC.
Wilson warns while we might be seeing the signs of first home buyers abandoning the market, they might end up shooting themselves in the foot.
“If demand flattened at the bottom end, I think that’d be a signal for investors,” he says, saying investors had been sitting on the sidelines since mid-2010, putting their money into high-interest deposit accounts instead.
While Wilson doesn’t believe the first home buyers strike has any legs, he says it at least shows the “movers and shakers” that there are “significant barriers to entry”.
He also warns that a first home buyers strike might cause rents to rise, as greater demand for rental properties pushes up yields, increasing property’s attractiveness to investors.
And the same pattern of behaviour is clearly visible in this video in which he claims that subdued auction clearance rates in early 2011 were proof that the markets in Melbourne and Sydney would pick up after Easter and the “buyers market is fading fast”. It is not difficult to find other examples along the same lines.
For as long as I can remember Dr Wilson’s arguments have always been the same. No matter what, house prices will continue to rise. MacroBusiness readers would be well aware that this is flawed logic because house price growth is primarily driven by the rate of credit expansion. This is something that Dr Wilson has failed to acknowledge… until now.
Melbourne median house price soared by 30 per cent between the beginning of 2009 and the middle of last year. This extraordinary growth in prices was due to a surge in first home buyers’ activity unleashed by the first home owners’ grant boost.
According to Australian Bureau of Statistics figures, 47,449 home loans were approved for first home buyers in 2009 compared with 31,728 in 2008. Last year, only 28,894 home loans were approved for first home buyers as demand declined due to the expiry of the grant and rising house prices and interest rates affecting housing affordability.
Well bugger me! Just as RPData did 2 weeks ago, Dr Wilson has finally seen the light with an admission that post-GFC house price growth was caused by an unsustainable demand for credit by first home buyers. That is certainly a big step forward in analysis and quite a surprise for me to read it. After realising this I would expect that someone would then take it to its logical conclusion that house price growth is obviously driven by the rate of credit expansion and therefore until you see any obvious upwards trend in housing finance, house prices will continue in their current direction. Down.
But it seems that Dr Wilson has only managed to take the first step:
The bureau reports that only 11,961 home loans have been approved for first home buyers over the first six months of this year. Recently, however, signs are emerging of increased activity from this group.
About 6436 home loans were approved for first home buyers in the June quarter compared with 5525 in the March quarter, an increase of 16.5 per cent.
The average value of home loans approved to first home buyers over the past year has, however, remained relatively stable, with the latest data revealing an average loan value of $280,400 in June.
First home buyers should become more active over the remainder of the year, with increased levels of new supply and an improvement in housing affordability due to stable interest rates, subdued house price growth and rising incomes..
Does the March quarter contain January by any chance ? Oh well, we are half way there.