Home buyer confidence etc.

I was going to ignore today’s Genworth Home Buyer Confidence Survey. I saw the press release this morning and it was so loaded with positive spin that I didn’t think it credible enough to report upon. However, I’ve noticed that both Bloomberg and Fairfax are now running the release so I thought I’d better take a look at the longer survey presentation.

As some may know, Genworth is one of Australia’s two dominant LMIs. It commissions this survey from independent research firm, RFi. There are 1250 respondents, which is big enough to provide results within a reasonable margin for error for the nation but not especially large for a survey that purports to drill down to the state level.

The survey’s headline results were:

The national Index fell (2%) from March 2011 however overall sentiment was buoyed by a return to confidence in Queensland.

And here’s the shift in selected state attitudes over time:

The survey noted three material shifts in sentiment. A big bounce in QLD and big falls in WA and VIC.  The survey ascribes these shifts to the waning impact of floods in QLD, the effect of carbon and mining taxes in WA and the impact of mortgage stress in VIC.

Perhaps, but I wonder if a more simple explanation is that VIC prices are now stratospheric, whereas QLD prices have fallen towards more affordable levels. WA is a mystery but I don’t know anyone that is put off buying a house because of largely irrelevant taxes.  The survey’s headline result is derived from five questions:

1) Proportion of monthly income currently used to service debts
2) Maximum LVR comfortable in borrowing
3) Last 12 months repayment history
4) Next 12 months repayment ability
5) Whether it is a good time to buy a home.

But if we isolate the last question, the theory that cheaper prices improves sentiment is also born out in WA:

You could argue too that because NSW prices have risen the least in the past 8 years, it is also affordability that has it positioned well on this chart. Then again, I feel rather like I’m running on the spot.

Anyways, here are the five question results:

We already know sentiment is down from diminishing sales. But the more recent Westpac consumer confidence survey showed a big jump in September:

The chart is from The Westpac Red Book, which is out today (find it below), in which Westpac agrees with my summation that it is affordability that drives sentiment:

― The sub-index tracking views on ‘time to buy a dwelling’ posted a surprisingly strong 15.1% rise in Sep that also takes the index to a surprisingly strong level. At 131.9, it is 9.7% above its long term average and at its highest since Sep 2009.
― Somewhat incredibly the Sep reading is also the highest reading since Mar 2002 (excluding the 2008-09 period when mortgage rates were sub-6% and generous first home buyer incentives were being rolled out). The state detail shows a broad-based improvement, but would-be buyers in Qld and Vic are the most upbeat (by their own historical standards) with the latter recording a particularly large rise in Sep.
― While this is positive heading into the Spring selling season, we caution that it does not guarantee an upturn. The index often says more about aff ordability than market prospects, i.e. the Sep rise may have more to do with softer prices and shifting rate views. A similar series for the US did not capture the extent of the slump there and has shown strong buyer sentiment since Feb 2009. US housing has yet to recover.
― For Australia, this measure is best used in conjunction with unemployment expectations. Taken together they point to a net softening in demand conditions rather than a pick-up.

A I’ve said elsewhere, I am expecting a small bounce in mortgage issuance but I agree with Westpac that the rise in sentiment will not translate into sustainable gains. Until the threat of a Western recession lifts, this looks like a bull trap for housing.

Genworth Streets Ahead GHCI Sept 2011_FINAL

WestpacRedBookSeptember2011

David Llewellyn-Smith
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Comments

      • Love the scepticism about “subprime insurance”. Nice to see others who understand the implications of this stuff.

    • Forgive me for being dense, but will Prince Or PhilBest please elaborate on the subprime comments. Since none of the big Australian lenders admit that subprime mortgage lending exists in Australia, I can’t find a reference to it in the GNW or the WBC piece. Are the comments in reference to WBC making subprime loans or GNW insuring subprime loans … or both? WBC’s high LTV loans are insured by QBE, for the record.
      For what it’s worth, I would equate the most aggressive 1/3rd of Australian mortgage lending to what was/is called “Alt-A” in US (implication isn’t much better than true subprime).

  1. “Increases in living costs have seen mortgage stress rise to 25% from 21% in March. The majority (85%) of borrowers surveyed experiencing mortgage stress say that despite struggling they are not behind on repayments.”

    The biggest living cost is housing so this statement is circular in its logic.

    Presumably if “the majority” 85% of borrowers are NOT behind on payments then 15% of all borrowers ARE BEHIND on payments.

    That fits with the RBA & ABS AFG refinancing data…

    i.e. Most borrowers (40% of all new loans) are still making interest payments by refinancing (capitalizing their interest) whereas 15% have run out of income and ‘its equity mate’

  2. Are the 5 questions asked of each person and the answers to all questions recorded in the data. If so, then the whole survey does not make sense. The relevance of the answers are clearly dependent on whether, the respondent has a mortgage or not or whether they own a house or not.

    Besides that as the largest mortgage insurer in Australia, why get an independent survey? Dont they have a massive data base of customers to survey or extract information?

  3. Anyone pick through this piece of spin?

    http://www.businessspectator.com.au/bs.nsf/Article/property-Australian-house-prices-interest-rates-ec-pd20110920-LV3A6?OpenDocument&src=sph

    I like this para “The final chart shows weekly auction clearance rates for Sydney, Melbourne and a weighted-average of all capital cities (noting that the auction sales mechanism is more common in the two biggest conurbations). What we can draw from this is that since the second quarter of 2011, clearance rates have stabilised at slightly above 50 per cent in Sydney and Melbourne, and slightly below this level across the combined capital cities. That is, there is no sign of a continued deterioration.”

    No mention of the reporting of results being massaged by the agents/industry bodies, plus prices are down a little, and importantly that sale volume is proportionately down more than the the clearance decline % would indicate.

  4. Anyone read Joye’s drivel at Business Spec? I read the intro primer and skipped it.

    “The housing market may be fast approaching a base on the back of softer rate expectations, meaning prices should soon trend higher once more.”

    The shit is hitting the fan globally and Australia is about to wear a face full AS WELL AS the bubble bursting of its own volition and that is written. Credibility no longer an asymptote to zero. Its there.

  5. hmmm

    self-plug.

    that genworth chart has some similarities to my Deflationary Mindset chart on BurbWatch – Australia, chart 16.

    Nice to know there’s some other quasi-validation of my analysis

    😉

  6. Not clear in this thread is Sub-Prime are mortgage repayments that consume over 30% of income.

    Yes, Australia has sub-prime mortgages.

    Yes, the fools who lied and begged the banks to lend them more than they could afford are now looking for someone to blame.

    Yes, Genworth and QBE are on the hook to make good many of these dud mortgages.

    The failures here are merely another source of supply into our over-supplied market.

    Don’t Buy Now!