ANZ’s rosy housing report

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Yesterday ANZ released its latest housing snapshot report (available below) which appears to be a mix of realistic analysis of the present and optimistic hopes for the future.

Despite extreme volatility in global financial markets and plunging equity prices, Australia’s medium-term economic outlook remains favourable, largely due to our exposure to the fast- growing Asian region. Heightened concerns of a Greek default and European banking crisis will keep markets on edge and growth in Europe, the US and Japan will be anaemic. However, the Asian growth story remains intact and the outlook for Australian resource investment and profitability are still positive. The risk of further RBA rate hikes has dissipated and the market is priced for substantial rate cuts. Reduced estimates of the near- term momentum in core-inflation, soft retail spending, retail discounting and falling import prices have reduced the urgency for further rate hikes. Moreover, recent global volatility and a slowing labour market have opened the door for ‘insurance’ interest rate cuts in the 6 months ahead.

Housing market sentiment continues to soften and prices have drifted lower in most capital cities. Declining auction clearance rates and rising days on market reflect the mis-match between buyer and vendor expectations. However, the absence of wide-scale ‘forced’ selling has, to date, protected measured price outcomes. Flattening employment growth and rising unemployment present clear risks to loan delinquencies and house prices. Weak sentiment will see house prices continue to drift sideways to lower over the coming 6-12 months.

I am not 100% sure that the “Asian growth story” has remained “intact” at this point given the estimation and assumptions many people and organisations made over the last 18 months about the strength of China, but overall these are fair points. Yes, there is a total lack of discussion about long term trends in credit issuance and the changing demographics of Australia, but given this is a bank report I think this is a fair assessment of the current situation.

The assessment of the future is however… well … fairly optimistic.

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Nevertheless, a rebound in economic growth in 2012 and 2013 should limit the fallout. Moreover, housing market fundamentals continue to tighten and near record low vacancy rates will eventually drive a renewed acceleration in rents that should encourage investors and first home buyers back into the property market.

Umm… rebound next year? From where ? And what’s with the language? Surely there should be a “if we see ” at the beginning of that first sentence. As far as I am aware we have a Europe fumbling with a plan to avert complete economic collapse, and recession is already the base case. The US is looking a little better but Europe is sure to unsettle it, and China, although not looking terrible isn’t exactly inspiring confidence in renewed boom. Obviously Australia is starting in a better economic place than many of these nations but “rebound” is a big call in my opinion given what we have seen in the macro-economic environment over the last 12 months.

Also of note is the fact that ANZ’s predictions of rental vacancies are already off to a bad start in light of  SQM research’s latest data. It’s chart of rising rents across the nation is debunked by the superior work of the Unconentional Economist and the page dedicated to the prospects for Melbourne is rosy to the point of silliness. In fact, the single greatest weakness of the report is that it sees the housing market as one national beast, set to recover uniformly. Perhaps that was true in the past when credit was free and easy. Now, however, fundamentals are reasserting and the divergences in prices we have already seen will continue.

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I’ll leave you to read the rest of the report.