A ray of sunshine for housing?

Well it looks like housing finally got some good news yesterday with a bit of a Queensland driven rise in housing finance. This was a predicted event. I had this to say back in July:

I am actually expecting to see a bit of an uptick in median values in July as people bring forward their property transactions to beat the rise in stamp duty from August 1st. However there is not much movement in the latest auction rates data to support that theory, even so I am fairly sure that is what we will end up seeing.

However, after July 31 I would expect to see another slump after the mini-boom of July and I certainly cannot see anything in either the sales volumes or credit issuance trends in Queensland to support rising prices.

So I have already got half a point. I will have to wait another month to see if I get the full point. We have already witnessed one set of unintended consequences from the legislative change and if previous government interventions in the housing market are anything to go by then I expect to see the second.

The most interesting thing that I take away is that Queensland managed to re-stimulated the market with the incentive of a small time limited tax break. This is a clear demonstration that it is still very easy to stimulated demand in the housing market no matter how crazy you think the participants are in accepting such a deal. This small market intervention by the Queensland government may require a re-assessment by anyone who thought that stimulus would not be as effective a second time around.

Another ray of sunshine sneaking out from behind the dark clouds is the latest monthly report from my old data foe at AFG:

August mortgage sales surged to their highest volume in over eighteen months according to AFG, Australia’s largest mortgage broker. AFG processed over $2.7 billion of mortgages in August – the highest volume figure since March 2010. Refinancing accounted for 38.2% of all mortgages as property owners took advantage of a highly competitive lending environment.

While August figures are typically stronger than previous months, these figures trend well above seasonal expectations. There was a sharp increase in fixed rate home loans as lenders heavily discounted their rates. Fixed home loans comprised 9.4% of all loans processed compared to 7.9% in July – the highest level since December 2010.

A quick check of their Queensland report also suggests I could be about to lose my other 1/2 point, and possibly eat some words:

Time will tell. And yes, that’s a big jump in first home buyers.

Louis Christopher from SQM Research seems to be half in the sun and half in the shade in his latest newsletter, which backs up some of his previous comments that interested parties should be watching the market closely in case there is a bottom.

He predicts that in 2012, if there is a 25 basis point cut in official cash rates, prices would likely bottom out and even post modest gains in some cities, as the property downturn eases and confidence begins to return to the market. However if rates are left on hold, house prices are likely to keep falling well into 2012 with no market bottom until at least the middle of the year. If rates we to rise by just 25 points, either this year or next, house price declines would accelerate throughout the course of the year.

Below is a table, featured in the Christopher’s Housing Boom and Bust report, revealing Louis Christopher’s forecasts for median house price growth in each capital city for this calendar year and the next

Speaking of the report, Louis Christopher said “We have made forecasts based on three scenarios for interest rates. Our base case scenario is that interest rates are unlikely to change in the immediate future.

 “If interest rates do remain unchanged through to June 2012, then the accumulated peak to trough declines for most Australian capital cities will reach double digits by the end of that calendar year.

 “It’s clear to us that this current housing downturn is starting to build some momentum which is going to be very difficult to stop without some kind of stimulus from either the RBA or the federal government.”

Sunshine for housing? Or just a small clearing before the next storm cell? The international context will have a lot to say on that front. But for now, all eyes will be on the August ABS data release.

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  1. rational investor

    Im sure the qld home buyers boost has quite a lot to do with that uptick. It’s interesting that it’s not only just for fhb’s its for investors too.. the apparently previous egalitarian motives have gone out the window.
    It tends to be advertised on the tv during prime real estate punter/”investor” timeslots, ie during sunrise with koshy in the morning and during today tonight in the evening…

  2. We only have the AFG data to show that FHB bump is not just a one-off rush to beat the stamp duty change.
    I guess we have to wait until the official ABS data release before we can draw any conclusions.

  3. Dare I say ‘Evans-prime’ DE? There was a noticeable and immediate uptick in sales in my area (no impact on values), post the Evans rate cut prediction. Do the dates align?

  4. not for the building industry or supply : only SIX DA for houses have been approved by the GoldCoast City council for the month of August.

  5. There’s a jump in the number of loans and the overall value, but the value of each loan is relatively low compared to the last 18mths and the LVR is very high. That may indicate that sales are up but prices down or very moderate.

    In any case, as I’ve said before:
    1. the US experienced a small increase in values about 6 months into the bust
    2. most underwater loans were taken in 2007 and 2008 when people were buying after the peak and they thought that housing was more affordable.

    We may not follow the path of the US, but we should learn from it.

    • One more thought, those that buy now are the biggest suckers in the ponzi scheme.

      They should know that prices are unlikely to sky-rocket out of their reach in the next couple of months so they could take their time and indeed they should know that there may be a better price in a couple of months and yet they are taking on all the risk and liberating others of their debt.

      • Easier said than done. Most FHBs face tremendous peer/social pressures and parents, considering they are baby boomers too, aren’t exactly giving them neutral advice.
        As for me, speaking as a prospective FHB, I face none of the above and sitting on plenty of cash. I think I’ll hang on to the cash for another 2 years 🙂

        • NOT A ''TRUE BELIEVER''

          Mate, you’re doing the right thing. Our houses will not be more expensive than those in other western countries or Japan. I guarantee you’ll get a good one for the cost of a cheap used car!. Check out; http://www.foreclosedhomes.com

          • The brainwashing will take 10% declines for people to realise the game is up. The 2008 experience made people think a small downtick is only temporary and a good time to ‘get in’.

        • Either prices come down or I’ll keep renting (and eventually move back to Europe after 10 odd years or so).

          Never enslaving myself to the banks or getting into a crappy deal. I came here to escape the bs, not get myself into more of it. 🙂

          I’m a stingy Dutchman after all. 😛

      • I’ve had a better look at their numbers and apart from picking up an error in their tables, it is quite illuminating if you reverse engineer the average property price based on the LVR and average mortgage. It is much more volatile that the RP Data median values as it is average values and includes refinancing, but it indicates that there is a big drop in august property values despite increased finance. Australia moves from around $600k earlier in the year to $582K in July then $567K in August; Qld is harder to draw conclusions from but still indicates the lowest values in the last few months (Apr – $546K; May – $537K; June – $525K; July – $542K; Aug – $519K).

        Clearly this is not conclusive but I would say it indicates that the ray of sunshine is only for real estate agents as volume picks up, prices look like they’re not likely to bounce.

        • The NSW Budget is likely to trigger a sharp upswing in (Sydney) FHB loan approvals, before the stamp duty concessions are restricted to new dwellings next 1 July 2012.

        • Great pick-up!

          So we have slightly increased volumes (see my comments below for why it’s only slightly), leading to falling prices. Isn’t that a sign of a collapsing bubble?

      • Yes, different data source and month. There is some alignment between the two data sources in the magnitude and direction of values, but I suspect some difference may also occur between the data if loans are processed in one month and properties settled in another.

        The ABS data shows you the value of the loan not the property and LVR, from what I can find, has been strongly trending upwards in the last 18 mths so the ABS data is not as significant as it may seem on the surface.

        In either case, the August data looks pretty bad from this report when you look past the headline figure of total mortgage value to what it likely represents for the average seller.

  6. QLD is an anomaly because of all the government tinkering. The next few months of QLD data will be interesting but I suspect the QLD market is reaching a bottom because of the stamp duty rush and building grant which have given the market some momentum. We’ll know before Christmas.

    On a national level, I think the happy housing bears are about to be disappointed. Why?

    Because of interest rates. I agree completely with Louis Christopher that the direction of house prices is tied more closely to interest rates than anything else. My olds and their investor club friends are all holding off buying additional properties until interest rates drop. Yes, they’re unhappy about rents stalling but mightily pissed off about interest rates. One of them told me his son was waiting to get a start in the market with a unit but not until “the government* cuts rates by half a percent”, which he is expecting to happen before Christmas. And the slow market of the last 18 months leaves a fair bit of pent-up demand waiting to be unleashed. What I find mind boggling is the expectation that if the RBA cuts rates this time it will be a near permanent movement down to 4% or lower. And don’t think for a minute that more than a minority have seen what happened in the US and Ireland and even care. “It’s different here”. It really is.

    Don’t let the current price falls or the fact that The Block was a fizzer delude you – the real estate cult isn’t dead yet and a rate cut or two could begin to reignite the madness. We need either a crash or a decade of stagnation to kill this monster.

    All of this makes the RBA’s job even more complicated, because they can’t cut to save the economy without risking another blast of air into the housing bubble. As Rob Barratt said yesterday, “The only way to decouple interest rates from property speculation is through tax reform. Specifically, where the purchase of existing (as opposed to building new) property for rental “investment” is concerned.”.

    Keep dreaming on the last comment.

    *Yes he did say that :/

    • I’m really over the Australian Dream. If we hit the bottom now and shoot up again I’m going to take my 20% deposit for a median Australian house to the US and use it as a 60% deposit there and take a job at Walmart so I can make $800/month repayments rather than $800/week.

      This obsession with housing is intolerable. Living in house worth $500K rather than the same house at $300K doesn’t make you any better off, I wish people would see that sky-high house prices actually limit what you can do as you commit so much of your income to servicing a massive mortgage.

      • You really don’t want to go the USA. It might seem good, but they’re in big trouble.

        It’s really not worth moving to the US just for a house. One thing I’ve learned from all of this housing nonsense in Australia is that there is far more to life than the bricks that surround your bed.

    • Rediculous that people will make such a long-term decision on a slight rate cut when interest rates is something that can fluctuate on a monthly basis. Do they believe that the rate cuts will last the 30-odd year duration of their mortgage? Or are they planning to pull out like a 10 year fixed loan?

      • I don’t know, but the group I was referring to are baby boomers hoping the capital gain on their investment properties will pay for their retirement so this lot have a 10 year timeframe at most.

        I think we’ve already seen the short term mindset when it comes to interest rates based on the number of 2008/09 FHB who got into trouble when rates rose. Not the brightest bunch that’s for sure.

        Then again, when John Howard was questioned about housing affordability in 2004 he retorted “Nobody has come up to me and complained ‘Mr Howard, my house just doubled in value!'”. The short term thinking trickles all the way from the top down…

        • Howard was the master of short-term plays. Kinda ironic that the guy who really started this whole short-term political gaming in this country that now dominates also turned out to be our second longest serving PM in history.

          Would that be a plus to him or a minus to us the voters?

          • The end game of Australian property is when at 4.5% you still pay in double for in mortgage when compared to rent in a FHB area.

            Are we there yet ? No ? If we see mortgage debt levels pick up from here it wont be far away.

            If mortgage debt levels dont pick up from here then property prices will decline steadily.

            Either way property as an investment stratgey for new entrants is dead. Baby boomers are safe.

          • +1 to you

            And a big minus to stupid voters.

            Isn’t there a quote that we get the politicians we deserve or something like that?

            We’ve chosen to be so complacent with our education and politics, and we’re reaping what we’ve sown.

    • Says something doesn’t it?

      The fact that 90% of mortgages are variable and not fixed.

      It’s all really a punt, not the academic/sentient RBA exercise that the bullhawks think it is..

      • Yeah Prince but which way ?

        Given the bank sets both rates, taking a fixed rate is effectively saying I believe my guess at future rates is better than a multi billion dollar bank’s – not that bank economists are infalliable. Its a different game entirely overseas where life of loan fixed rates are available, and fixing rates doesn’t restrict early repayments.

        That said fixing rates is an effective hedge given the limited control most can exert over their incomes.

    • I think we are just assuming official rate cuts will be automatcally passed on. In the event of a full blown Euro Palaver, I reckon funding will get mighty tight. Banks are already complaing of being squeezed on margin in the future due to anaemic credit growth. I don’t see them suddenly turning all benevolent and passing on full cuts.


    Funny how European, Japanese and American interest rates are so low and yet their houses are worth next to nothing. But then, Australia is different because we have kangaroos, ah?

    • No, Australia is different because we have negative gearing, an unstoppable property cult and a resources boom.

      • People in the USA can claim their mortgage on tax, which is even better than negative gearing IMO. People in the US also had a property cult, and they have the mother of all credit booms, which easily trumps our resources boom.

        We’re only different insofar as speculators still have confidence in this countries ability to offer a return on cheaply acquired capital. The moment that return starts to look ‘risky’ is the moment the rats (speculators) will scurry for the hills and leave us with the pain.


    Why is Perth’s property on its knees then ? That’s the mining capital of Australia !

    • As I sais above.. This just looks like the effect of the boost.


      The boost is available to anyone, including investors, who build or purchase as new home.

      The August data from the ABS is likely to show a huge uplift in new home sales in Queensland while existing home sales stagnate.

      This could produce a short-term lift in housing prices, but once these effects wear off then there will once again be a correction.

      • The effect of the mining boom is only felt directly in housing in mining centres $1m+ for something pretty average in some towns here.

        Perth itself has all the usual of occupations found in any other city and unless you are directly involved in the resources sector, similar wages growth and impact from rising utilities, healthcare, household consumption. Many small retailers are doing it hard, property prices stagnating or declining and so on.

        Perth is the epitome of the two-speed economy!

    • Perth house prices ramped up exessively as people thought FIFO mining money. Unfortunately FIFO workers ‘get on a plane every week’. As soon as rents rose above the cost difference of flights to elsewhere the market stalled.

      There are FIFO crew living in Bali and flying into perth for work because the rent differential is less than the cost of the flights.

      The age old real estate mottor of location, location location doesn’t apply to a mobile workforce.

      • There are FIFO crew living in Bali and flying into perth for work because the rent differential is less than the cost of the flights.
        You cannot be serious!!
        Hmmm, I wonder where China/mining fanboy is logged in from? Shangai?

        • Dead cheap- airfares + 1 week accommodation at modest hotel – probably get it for $500-600, sometimes less. And to the list, I would add Thailand and the Philipines, not to mention New Zealand!

          And Mav, I’m in Perth.

      • Seriously. Flights from perth to bali are much cheaper than flying perth to east coast. It was quite common (maybe 1 in 300) in 2009. It was (I dont know if it still is) cheaper to fly Pt Hedland Bali than Pt Hedland Perth.

        I’m in Oz. NTIAOYB

  9. Will be interesting to see what (if any) impact the NSW changes in stamp duty have. They’ve scrapped the FHB stamp duty exemption for existing dwellings (which must be the vast majority?) but not until 1 Jan 2012 – so maybe an FHB rush to beat that, then a plunge?

  10. If you guys had been watching the BurbWatch metrics for QLD (via the QLD and Australia pages), you’d be ahead of the curve a little more 😉

    QLD has been “recovering” (ie. bouncing) since May.

    I’ve got some experimental “over/under pressure” charts that I’ll post on BurbWatch for the next update – they seem to have some predictive capabilities 😉

    Just ringing my own bell!


    • re: sale and rental listings, we can also notice that it is probably “due time” for the sale-rent listings ratio to start increasing again! (sale-rent listings ratio appears to be cyclic…)

      Fits in with what people say they are now seeing in the way of changing listings profiles in their areas…

  11. The newspapers will love it, but it’s due to a lack of seasonal adjustment in these numbers.

    I built a model last month which uses the number weekdays (excl. public holidays) and the date (for trend and monthly seasonality), which has a pretty good match to the actual data. Financing is only done when the banks are active, right? So it’s weekdays that counts for this, as opposed to weekends for actual sales.

    Simply using the number of weekdays in August (23) accounts for 60% of the increase in volume from July! BTW, the last time there were 23 weekdays in a month was July 2009, when volumes were 7021, slightly below the 7198 for this month.

    The jump is a bit higher than my model predicts, but not by more than could be explained by random variation (0.7 standard deviations, usual threshold is 2 SDs.)

    • That’s interesting.

      Do the actual sales get reported on weekends, or do they settle on weekdays?

      I must profess to some ignorance on the detail.

      • Good point – I confess that I don’t have a model of sales. I assumed that the weekends would be significant for sales. This is probably more relevant to Auctions, but maybe it’s counted from settlement date? I’m pretty sure that RP Data use the actual sales date, which would be weekends for Auctions, but could be any day for private treaty.

        My point was more that this data (financing, not sales) depends on the number of weekdays (p-value < 0.0001 for anyone that cares).

        Prediction: It's all downhill from here until Jan 2012, with some slight bumps, before an enormous bounce in February, and a declaration from AFG that the bottom has been reached, and another jump in March seeming to confirming AFG's proclamation. Don't believe it! That's simply based on the number of weekdays in each month and the seasonality of the data, but AFG don't get that.

        • I see your point, and it is quite interesting.

          So they would say that December is flat due to ‘holidays’ but when it comes to March and the Easter holidays, its a ‘boom’?

          Just a quick look at the calendar tells me that January 2011 has 22 weekdays, Feb has 21 and March has 23. Not much of a change? Or is it the proportion of weekends to weekdays for that month? Perhaps i’m not getting it.

          • Actually, thanks for questioning this as I can see that I’ve made a couple of mistakes and have since corrected them – a better model hopefully.

            For the dates, I’ve got 19, 20, and 23 respectively for Jan – Mar 2011. That’s different to your numbers due to *national* public holidays. I’ve only removed national public holidays, plus Queen’s Birthday (as it’s almost national in the same month).

            Secondly, each workday adds just over 300 transactions. So 3 extra weekdays would add nearly 1000. The actual difference was 1071.

            The actual model uses the following terms:

            1. Constant = 48350

            This is the base value (the ‘b’ in the standard linear equation of y = mx + b)

            2. # Weekdays = 317/weekday

            So this accounts for 643 of the jump from July 2011 to August 2011, as there are two extra weekdays.

            3. date = -1.2 * (excel’s value for start of the month.)

            4. Month of year = 0 for most months, but -1009 for December, -1483 for January, and -682 for July. This is to account for the seasonality in the data. I’m not sure why July is so different, but historically that’s what has happened.

    • Brilliant!

      Nice work pulling apart the misleading headline numbers!

      That explains what I was saying above about the value of the properties selling is low due to high numbers of loans not high value loans.

  12. Bear in mind that the jump in the ABS July loan numbers was mostly refis and investors.

    First Home buyer numbers this Spring will be THE key to the market’s performance. Without new money flowing in to replace the slump in housing equity then sales volumes will remain low (except probably in Sydney).

    IF would be FHBs have been applying for loans in August in greater numbers due to expectations of mortgage rate cuts then I expect September to see a reversal as the RBA sits on its hands.

    • There aren’t any FHB’s I know currently applying for loans. I know of three potential FHB’s who each have at least $50,000 in deposit. All have said that they are going to wait and see how the next six months plays out.

      My suspicion is that so long as there is talk in MSM about price declines (as there is at the moment), FHB’s would rather save further deposit and wait for prices to come down further.

      There’s a double benefit to this. They get to build more equity as they are not paying off bank interest. They also may benefit from an equity perspective from lower prices and lower leverage.

      So long as the MSM remains bearish on house prices, then FHB’s should remain at current levels.

      • That’s my wife and I exactly. Over 100k in the bank @ 6.51%. Sitting on our hands watching house prices coming down by approx $800 per week. Not really feeling that rush to get into the market quick or miss out anymore.

        Friends and family all in the market, many with IP, stopped pressuring us to get in about 8 months ago. Now if we raise the topic with them the subject is discretely changed. Denial stage right? No one wants to talk housing anymore. Except everyone here on MB.