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.