Housing finance weak, but…

ABS housing Finance is out for October and is ugly:

OCTOBER KEY FIGURES

Trend estimates
Seasonally adjusted estimates
Oct 2011
Sep 2011 to Oct 2011
Oct 2011
Sep 2011 to Oct 2011

Value of dwelling commitments(a)(b)
$m
% change
$m
% change
Total dwellings
20 812
0.0
20 458
-2.5
Owner occupied housing
14 514
0.0
14 377
-1.2
Investment housing – fixed loans(c)
6 298
0.0
6 081
-5.5
Number of dwelling commitments(a)(b)
no.
% change
no.
% change
Owner occupied housing
51 831
0.7
51 981
0.7
Construction of dwellings
4 706
-0.5
4 646
-1.7
Purchase of new dwellings
2 219
0.4
2 210
0.1
Purchase of established dwellings
44 906
0.9
45 125
0.9

Here’s my first chart. Note especially the light blue line. Ex-refinancing, established housing finance is going nowhere (except down slowly):

By state, it’s a one man show:

By purpose, there’s nothing much going on either:

Some small upside can be found in a minor stirring amongst first home buyers with a jump from 16.4% to 17.9% of overall orignations:

But the average total loan size remains stalled:

In sum, this is a quite weak report. If not for the AFG data suggesting a big bounce in November following the rate cut, I’d be getting quite concerned. In that vein, the AFG report for October did forecast this weakness so that’s some confirmation about the indexes worth. As DE has said several times, we’re still waiting for confirmation of the AFG breakout in other indicators. Next month’s mortgage finance will be more important than this month.

Comments

  1. No argument from me, it was weak in October, and even with a jump in November it is still well below past years highs.

    Future months will probably show a continued weakness in finance, but the result here when compared to the USA will reflect the different lending capacity and policy of the two banking systems.

    Absolute similarities can’t be assumed.

    • Nothing new, media loves to quote data out of context.

      To quote Homer Simpson :
      Aw, people can come up with statistics to prove anything, Kent.
      Forfty percent of all people know that.

    • Interesting analysis: (emphasis added)

      “Now for some reason analysts get confused when interpreting this housing finance data. In respect of the future performance of the housing market, we don’t care much for purchases of newly developed homes, which are a small fraction (circa 5%) of the total, refinancings of existing loans, the share of owner-occupiers versus buyers, nor the ‘value’ of loans (where the latter is affected by a range of things including the value of the homes being purchased, the types of buyers in the market–eg, first timers acquiring cheaper homes–and the policies of lenders).

      The single best proxy for the demand-side of the housing market is the seasonally-adjusted number of new loans approved for the purchase of existing homes, which is around 20 times the size of the ‘new dwellings’ series.”

      i.e an admission that the housing market is kept elevated by selling existing properties to each other….

      • Prince – where did you get that quote from? TP: CJ

        It is new buyers and investors who set the market trends, upgrades are a by-product of that trend.

        A housing market can’t “churn” like an equities market, no one “day trades” homes for profit. (Yes I know I will now be given 10 examples, but really it would be very rare)

        The new builds aren’t important in the short term, but they certainly affect supply in the future, so I don’t understand that comment.

      • Hi Nomad – I hope you’re wrong – everytime it turns down – I get busier.

        Is it OK if I have a few days off over Xmas?

      • Its not the churn issue, which you are quite right about, its the admission that the entire market is based on selling existing dwellings to each other. Just like the stock market, this is how price discovery happens, not through fundamentals (e.g yield, risk, supply).

        Its all about demand and transactions. That’s a huge systemic risk for what is a consumable item.

      • Ah CJ – OK from what I can see he is referring to new buyers purchasing existing homes. Not quite what he actually said, but that is the only interpretation that makes sense to me.

        I know that you are philosophicaly against making homes tradeable commodities, but that is what they are. Exactly the same as other vital consumer items such as electricity, fuel, wheat, corn, chick peas, rice, pork bellies etc etc etc.

        What other effective method is there for a non-standard issue.

        All of the markets that we now use as the “model” for a better system will eventually run into trouble for a whole set of different reasons, and our current thinking will be again turned on it’s head after we have remodelled to a “better system”

        Every strength is a weakness, and every weakness a strength from an alternate perspective.

      • Fair point Peter, I agree they are consumable commodities – but not investments, which the market has all the hallmarks of – speculative secondary asset markets, like the share market. The pricing volatility is different, but the underlying factors are the same.

      • Yes they have become speculative assets. Really they were always so, but profits were lower before tax incentives on NG and CGT made them more attractive and accessible at exactly the same time as bank lending policy was changed to reflect easier access to credit.

        Like all changes, no one would have understood the long term cumulative effect at the time, and if there were any warnings they couldn’t be proven from examples that didn’t exist at that time. I have reservations about those who apportion blame, they would have done nothing different at the time given the circumstances.

        This is a good topic for discussion over a few reds late in the evening, but in life it is much harder to unwind the political and economic realities, than it is to reach concensus amongst friends on a little happy juice.

        So do you fight the system and hope for change, or do we change to meet the present system. That is really the choice buyers face.

        At least on a roulette table you know the rules and they won’t change during the game, but investing in houses comes with all sorts of unexpected rule changes that even Nostradamus would not see coming.

        Given that a smart investor factors in bad luck, but never good luck, what strategy should a prospective home buyer adopt?

      • +1 PF, Though I disagree with the comment about not seeing it coming. Hyman Minsky came up with his “financial instability hypothesis” way back in 1974.
        .
        It is just that banksters and policy makers wilfully ignored it and moved on with their financial de-regulation agenda, because that is where the short-term profits and bonuses are. You see, they had “mainstream” economist to back them up!!
        .
        Well, GFC should have discredited all these “mainstream” economists. But here they are, preaching the same stuff, as if nothing has happened.

  2. It looks as if refinancing has been helping the figures for a while. Now even that appears to have taken a turn downward.

  3. Do the state by state figures include refinancing?

    The increase in NSW means nothing unless we know the make up of the components.

  4. Doesn’t look like weak housing credit growth to me. From today’s release:

    Total credit – all residential housing – ADIs

    October 2010 – $1,034,456m
    September 2011 – $1,118,003m
    October 2011 – $1,123,858m

    That gives:

    YOY growth rate = 8.6%
    MOM growth rate = 0.5%

    Both growth rates exceed the combination of CPI and population growth.

      • The blog claims that finance is “weak” and “ugly”. No mention in the blog of house prices. Using your logic you would claim that a rise in finance of 30% was weak and ugly if house prices had not risen.

    • So very wrong. You need to look beyond the headline numbers as I’ve done. If you’d read the post you’d see that once refinancing is removed, established housing lending is running at around 1999 levels. If that’s your idea of strong I’ve got a cow pat I’ll sell you.

  5. From the ABS data, the average loan written in October was $282K, compared to the AFG report last week which was circa $400K. AFG supposedly capture 30% or so of the market. WTF?