Housing supply and demand state by state

Last week I put together a few charts comparing ABS owner occupier finance data to AFG‘s data on mortgage applications. As H&H mentioned yesterday the ABS has updated their 5617 dataset which allows me to update the charts with investor finance data for September.

The left hand side(LHS) data of the charts below is created by taking the dollar value of the owner occupier finance for existing housing from the ABS 5609 dataset and adding it to the “Purchase of Real Property; Dwellings for rent/resale (by Individuals)” from the ABS 5671 dataset. Although not perfect because the investor data isn’t broken down quite far enough, this does give a fairly good estimate of the amount of finance going towards the purchase of existing dwellings which is the main driver for house prices on the demand side.

The right hand side(RHS) data is simply the volume of AFG mortgage applications which, as the charts show, seems to be a very good leading indicator for trend in the ABS data. The reason the AFG data is useful is because it appears 6-8 weeks before the ABS data is released and therefore provides a bit of a chance to front run the data.

I have also provided the corresponding supply side chart for each of the regions via SQM research‘s stock on market service. Again this isn’t perfect because, except for the national data, it is capital city on the supply side versus whole of state on the demand side but again it does provide a relatively good estimate.

It must also be noted that all of this data is raw and unadjusted for population growth and inflation.

So to the data..

At a national level the credit data (demand) looks relatively flat while the supply side looks to be rising suggesting falling prices will continue in aggregate.

At a state level New South Wales demand looks to be picking up slightly,  but so is the supply which overall suggests flat prices.

 

Victorian credit demand appears relatively flat and in no way is it matching the massive supply side growth. I previously made the following comments about this market which all still hold.

This is now a big concern. There is nothing in the credit data to suggest that we are going see the magnitude of demand required to offset this supply side surge, and it will be well known to Melbournians that there is a large amount of new stock yet to enter the market (the peak in building approvals was only a year ago and they remain elevated). Unless there is some slowdown in supply, Melbourne is heading for a bust.

People with an interest in other markets may not be too concerned but it must be remembered that Melbourne is a very large market, it is therefore possible that any problems in Melbourne will lead to contagion. The last thing Australia needs at a time of global instability is for one of its major city’s housing markets to send tremors through the financial system.

 

Queensland’s credit demand continues to flounder at low levels and the long term trend continues downwards even in the face of population growth and inflation. The supply side seems to have stabilised over recent months, albeit at a high level, but the lack of change in the credit data suggests this is due to vendors removing houses from the market rather than a renewed round of selling. The leading indicator suggests that demand will fall again in the short term.

In my opinion this data supports the continuation of the slow price melt, but I will be watching closely for an uptick in the next round of AFG data on the back of the interest rate cut. Unemployment will play a big part in deciding the direction of this market into the new year as it will determine whether vendors can afford to continue to “hold and wait for a better time to sell”.

 

Western Australian credit demand appears to be following a similar trend to Queensland, however the supply side looks in better shape. As with Queensland there is no evidence of a new round of selling suggesting that the lower stock numbers are a result of vendors removing their houses from the market. Everything else I said about Queensland also holds for WA.

I hope those charts give you a good overview of where the major markets sit. The next release of AFG data will be in the first week of December and will include the first glimpse of the markets response to the recent 0.25% rate cut.

Comments

  1. “….Unless there is some slowdown in supply, Melbourne is heading for a bust.
    People with an interest in other markets may not be too concerned but it must be remembered that Melbourne is a very large market, it is therefore possible that any problems in Melbourne will lead to contagion. The last thing Australia needs at a time of global instability is for one of its major city’s housing markets to send tremors through the financial system…..”

    This is like saying that the last thing a drug addict needs is “cold turkey” treatment. It is too LATE now to AVOID the ONE THING that ANY NATION needs LEAST – which is a bubble in urban property prices. The choices you face once you have one, is “how to manage the pain”, not “whether to have pain”.

    Inflated urban land prices themselves contain the mechanism to drag an economy down to collapse – in its productivity, its debt, its household discretionary spending, its social issues, its costs of production, its labour force cost pressures, its international competitiveness – etc.

    “Just accepting inflated urban property prices” as a new status quo is like saying a drug addict can stay on his habit AND maintain his income and his care of his family.

    • +1.

      Re labour force pressures, the breadth of industrial disputation at present hasn’t been seen since the 70s.

      Naturally, the elephant in the room, being inflated urban land prices never gets mentioned. This is the risk you run as successive Governments chose to dampen this data within CPI. Sooner or later the years of 2.5% CPI based pay rises become so divergent from the real cost of living that we end up with this crunch point.

      Something has to give. It’s either asset prices or modern corporate governance which rewards labour cost cutting with hefty bonuses. Somehow I don’t see the elite foregoing bonuses.

    • “The last thing Australia needs at a time of global instability is for one of its major city’s housing markets to send tremors through the financial system…”

      Well given the amazing economic decade we’ve just been through has resulted in nothing but a horrendous housing bubble, this is EXACTLY what Australia needs.

      Affordable housing is so important on so many levels (financially, emotionally, etc) and if this is the way it is achieved then that is fantastic. The sooner the better. Keep those wonderful statistics coming!

  2. I would be interested to see the building approvals for Melbourne, I expect they have or will soon fall off a cliff, it is such a big risk now to subdivide and build in Melbourne, you could be a long way under water by the time it is ready to sell.

  3. Hugh PavletichMEMBER

    it sure would be interesting to see what Australia’s build / consent rate per thousand population has been this past 10 years, in comparison with the normal affordable markets of Texas.

    Noting too – the respective population growth rates.

      • Just had a look at that Rav, and I think it warrants further exploration, as there doesn’t seem to be strong correlation between bubble prices and build rates at a glance, even when you compare them to total population, not just new arrivals. They seem to be a bit all over the place.

        The other interesting thing is the variation in occupancy rates, with Texas being quite high. Could this be a demographic thing, as Florida, noted for being a retirement area, has a very low occupancy rate, so maybe a high growth area like Texas has lots of families.

        It also suggests that fears of uncontrolled sprawl will result from removing planning controls are also unwarranted. It would clearly need more study, but I’m betting the level of sprawl is far more correlated with population growth than planning controls. I also wonder if stopping ‘downzoning’ would be far more effective in reducing the sprawl of a city than growth boundaries.

        • Nice pickup there Hamish.
          Shortage-deniers will often misuse statistics like occupancy rate in order to deny a shortage.
          Texas with easily obtainable housing is a magnet for large young families, whereas expensive places like San Francisco are a magnet for exclusive rich couples – often with two incomes and a sexual orientation not slanted toward reproduction.
          Shortage-deniers will ignore the obvious truth and use the average statistic to claim that Texas must have housing shortage whereas SanFran has oversupply.

          • for your information Texas has lower household size than California, so Californian oversupply is higher relative to TX.

            NSW has high household size (larger than other states e.g. VIC, WA or in USA: NV, AZ, FL) – this just means that less new homes are needed per 1000 new residents in NSW , so oversupply is even higher than what it looks

          • Raveswei,
            For your information if I put my head in the oven and my feet in a bucket of ice, on average, I will be quite comfortable.
            Erroneous conclusion.

  4. DE said – ” it will be well known to Melbournians that there is a large amount of new stock yet to enter the market (the peak in building approvals was only a year ago and they remain elevated). Unless there is some slowdown in supply, Melbourne is heading for a bust.”

    It is also my opinion that property prices in Melbourne will be very brittle for some time until that surplus supply has been worked through.

    Interestingly, I was talking with a Mezzanine funder from Melbourne yesterday. When I mentioned my concerns about the excess supply he claimed that very few new developments are going ahead in Melbourne, and he was adament that supply of new builds in 2013 would be tight. This was a high end boutique development not a large highrise.

    He was possibly referring to just the high end boutique builds, I’m not sure on that, but Mezz funders know the market.

    [Mezzanine funders for those who are curious are top up funders used only by developers. Short term second mortgage funds for the “soft costs’ that senior debt funders won’t cover.]

    • I would note the EXISTENCE of “Mezzanine funding” in a property market, as yet another piece of evidence that there is a serious bubble in process. I very much doubt that such things are necessary in genuine undistorted free markets.

      Show me some evidence of Mezzanine funding existing in Houston and I will eat my words.

      • Phil – don’t venture outside your comfort zone in future.

        The fact that you don’t know about it is not proof of anything, a bubble or otherwise.

        How developers fund their construction costs really doesn’t involve or need to involve the average person. Building an 80 storey tower development is just not like a house construction where lenders lend against the end value. Development finance is about hard cost lending for senior lenders, not end value lending. So Mezzanine funders are sometimes used for the soft costs and top ups.

        There will be Mezzanine funding in Texas – you can bank on it.

        Just accept the fact that there is a difference.

    • Yes ofcourse.
      The oversupply is in the FHB suburbs of
      Point Cook
      Tarneit
      Taylors Hill
      Melton
      Craigieburn
      Pakenham
      Cranbourne
      Frankston

      There are some high rise supply coming into the market , but this no way matches the over supply of Houses in the First Home Buyer areas

      • Thanks for that Indo. I am a Melbournian and the eldest of many siblngs (10!), the youngest three each have purchased in one of the above areas. I’m out of touch with the Melbourne market, having been away here in Perth and OS for many years. I am not one wishing for collapse of the property market, ignorant of the ‘human’ factor – I feel for my younger siblings, good kids, trying their best and raising young children. Do you think these areas will be hard hit? I do hope not.

  5. Diogenes the CynicMEMBER

    The Perth market is weak. As for supply my local newspaper is bulging with advertisements for homes on the market mostly premium but they are all set date sales with most having no price listed. It is a new development, the no price sale. It seems pathetic to me, but perhaps the vendors and agents are so worried about discounting by buyers that they want to keep the situation opaque. The Buyers have the power. Note auctions are a very small part of the market here.

    Friends would like to move as their kids are coming up in age for schools. They put their house on the market with a price and attracted interest but the potential buyers all wanted massive cuts to the listed price in negotiation. They have given up and taken their house off market.

  6. > This is now a big concern. There is
    > nothing in the credit data to suggest
    > that we are going see the magnitude of demand required to offset this supply
    > side surge,

    A big concern for retiring home owners or property speculator but not for younger generations who aspire to own a place to live in at some stage. As someone who has kids about 20 y.o. I am more concerned about the bubble being revived than bursting. Obviously the consequences of the burst are not going to be nice but it will ultimately lead to more focus on productive investment options and create better foundations for our economic future. Hopefully it will also force our state governments to relax their planning regulations.

  7. There seems to be a big delay between submitting a post and when it appears. I thought that my first post has gone missing and came up with a similar one 15 minutes later but when I submitted it the old one just cropped up on my screen.

  8. There doesn’t seem to be a lot of correlation between the stock on the market and finance.

    Does anyone else see more in it?

    I’m sure there must be an impact, but Brisbane has had massive fluctuations in stock levels and yet I can see almost nothing in the finance. Do people just put their house on the market hoping and then take it off if they don’t get any interest? Is there not enough downward price pressure when stock is high?

    • During the recession of the nineties, it was difficult to sell in Brisbane. If people don’t need to sell, they don’t sell – they stay put and sit.

      There are some great buys around in that enviroment, but because buyers are scared to commit, they don’t buy and price indexes only move a little.

      I’m expecting the same to happen this time. One upbeat note – a fall in interest rates changed all of that in the nineties, and today a number of lenders are offering 3 year fixed loans at below 6%, so effectively the real lending rates have fallen from about 7.2% to 6.00%.

      I just don’t think it will provide the same impetus that the larger fall in the nineties provided, but it just might provide some stimulus.

      Lower rates also take the pressure off homeowners who might wish to sell for economic reasons, hence less homes on the market.

      The post Xmas period will be very interesting.

        • touche. I remember my dad bitching about the 18% rates he worked through in the early ninties (as a fairly recent divorcee trying to keep the family home) and how he “didn’t understand all the fuss nowadays”

          I broke out the calculator, pencil and newspaper and showed him how a large interest rate on a small mortage (compared to annual salary) was miles ahead of a small interest rate on a mortgage my children will still be paying off (comparing the cost of his house then vs now).

          He’s an engineer, you’d think he’s understand maths. Guess it goes to show how much the average citizen takes their “news” (cough) on face value and doesn’t stop to analyse the actual event and/or the numbers.

          • Doing a bit of simple maths proves that it is far more costly to the mortgagee and far more profitable for the banks, if interest rates are low and house prices high; rather than the other way around.

            Baby boomers grizzle that they went through periods of mortgage interest rates of 18 to 23 percent. So what. It was still far cheaper for them to get a house at 3x a single income, financed at 20%, than it is for the young today to get a house at 6X a double income, financed at 6.5%.

            When interest rates were 20%, inflation – and rises in incomes – were of course something like 15% to 18% per annum. So after a few years your mortgage did not look like much, did it? PLUS, interest rates came DOWN since then and these moaning, ignorant hypocrites had the lot paid off in only a few more short years.

            NOW, our young couple with a mortgage several times bigger relative to their incomes, have no such chance that interest rates will be LOWER for any significant part of the time during their lifetimes; in fact we are in such volatile times that a few percent points increase in interest rates and the bankruptcy of nearly every young household who bought their first home since about 2003, is actually quite likely.