Fujitsu skewers, ANZ boosts housing

You’re no doubt more used hearing from Fujitsu about air conditioners. But it’s a little known fact that they run a small financial services consulting unit which today, in conjunction with J.P. Morgan, released a pretty bearish assessment of the prospects for Australian housing.

The semi regular Australian Mortgage Industry report concludes:

…that the biggest driver of housing credit growth in the 15 year period between 1992 and 2006 was more households taking on debt as they adjusted to lower interest rates. This dynamic accounted for nearly half the average 15.2% p.a. housing credit growth during the period with income growth (3.9% p.a.) and higher gearing tolerance (3.9% p.a.) much less significant. From 2007 onwards, despite income growth accounting for ~4% p.a. housing credit growth, the proportion of new households taking on debt has more than halved to 3.3% p.a. and higher gearing tolerance is absent (and actually negative in the last two years).

Looking forward through 2012 and beyond, we note that the recent re-calibration of risk settings (by borrowers, lenders and regulators) means it is unlikely these historical drivers will re-emerge to drive housing credit growth beyond ‘mid-single digits’ in the short to medium term. Going forward, we expect future housing credit growth to reflect fundamental factors, including normalised LVR’s, modest investor housing credit growth and tighter, more expensive funding for commercial real estate purposes, which will keep new housing starts under pressure.

A structural shift in other words. Exactly right.

The strength of this report is its detailed assessment of the various demographic cohorts that drove the expansion of credit and the fading prospects of them continuing to do so:

This report is a must read. We’ll have more on it in the next few days.

Presumably by coincidence, ANZ also released a new housing report today drawing the opposite conclusion that:

A pro-active policy response in the wake of the global financial crisis provided significant support to the Australian housing market and arguably pushed house prices above ‘fair’ value. The removal/reversal of explicit policy support in 2010 combined with a sharp rise in mortgage rates saw house prices partially retrace earlier gains. Nonetheless, unlike many developed economies (US, Ireland, Spain etc), Australian house prices remain significantly above pre-crisis levels. A combination of moderate declines in price, lower mortgage rates and rising household incomes has returned prices to ‘reasonable value’. Tightening fundamentals and improved affordability should see the market find a floor in 2012.

…While we expect prices to ease further in 2012, we maintain a cautiously optimistic medium term house
price view supported by a robust economic outlook, low unemployment, falling mortgage rates, improved affordability and a further tightening of the housing demand/supply balance.

Interesting that the two reports use the identical language and reasoning for the run up in house prices. I always find this rationale a little bizarre. After all, all bubbles are underpinned by a departure from trend in credit growth. My own view is it is quite reasonable to posit that until perhaps 98/99 the run up in house prices could be justified. Not by the falling price of credit mind you, but by a powerful near decade run in productivity gains, which raised incomes and the standard of living.

Beyond that period we really entered bubble territory, helped along by some very short-sighted tax changes by the Howard government in 1999. The income growth since then has been the result of that bubble, as well as the wonders of the terms of trade. So to my mind the ANZ argument about income growth justifying house prices is circular. The following chart from the Unconventional Economist says it all:

Moreover, the housing shortage argument also assumes its own conclusion given it rests on the assumption that demand for housing is fixed. That is, it couldn’t possibly fall, even if population were to grow faster than supply, which is absurd. If housing stays on the nose long enough, and income growth is limited, then more people will live together.

So, to my mind, even though the two reports use the same frame of reference, one is more solidly argued.

Mortgage Report Vol 15

ANZ Pan-Regional Housing Outlook June 2012 (1)

Houses and Holes
Latest posts by Houses and Holes (see all)


  1. reusachtigeMEMBER

    Wow, they’ve seen the elephant in the room and have even focused on it – credit/debt dynamics. I’m actually impressed.

    • reusachtigeMEMBER

      By they, I mean Fujitsu, not the mob still trying desperately to find angles to spruik their market.

    • I’m actually impressed.

      I was impressed when Steve Keen called it years ago. Now I’m a little irritated when it’s reported as a new insight.

      • Actually when Martin North was writing these and he did for a long time e was calling this around the same time as Steve Keen I have been subscribed to the Fujitsu emails for ages.

        As much as like your comments Revert2Mean in this case your not 100% on the money.


        North, Martin


        to Martin

        Today Fujitsu released its latest Mortgage Stress-O-Meter Update.


        and older!

          • Oh for gods sake – the point is that there is no patent on thought and no one person does or should own ideas.

            Come on people this is a good thing that others are\were writing about this. …

            Stop being sycophants please.

            I am sure SK would agree that debate and discourse about this is geat. … Not a point for me first actually we need ‘me too’s’!!!

  2. ” If housing stays on the nose long enough, and income growth is limited, then more people will live together.”

    This is very true recently I bumped into an old school friend he is a battler (nice guy though) and I was shocked when he told me that he and his girlfriend lived in a house with ten other people! Two of the other couples had babies, he was thrilled to be in a room next to the quiet baby. Point is there is demand destruction with everything even houses. If people cant afford to live on their own they will do whatever it takes to stay of the street.

      • I wish was. He told me two couples had a baby so that’s 8 people including him and the missus and another couple I suppose. I did not want to dig into this unusually arrangement. But it goes to show the price mechanism still works even in housing I’m sure he and the young lovely he was with would like to be on their own but at current prices they just can’t.

        • To be fair I know people who live together with kids in a commune style accommodation and pay $50-$100 a week with ten people 6 k’s from central Melbourne GPO in a 15 million dollar property. With a waiting list as long as your arm and its filled with high profile academics, business people, politicians, etc.

          The biggest trend modern progressive societies(not in moronic, backwards Australia of course) is to reintegrate into social housing. Its one of the prime buzzwords in sustainable development.

          Might want to re-think your conservative agenda there Steve – I know plenty of people who viewed my living arrangements in a similar fashion to you, could see the sunburn in their nostrils as looked down – fact of the matter is I was earning triple their salary and having the best possible lifestyle.

          Article on here only yesterday regarding the fact that %25 of Australian households are occupied by singles – yes, people are living incredibly boring, isolated, depressing lives chasing status and consumerism.

          Trust me – the people living in the above mentioned commune could easily purchase 3 bedroom townhouse in Fitzroy……a lot of them are grown up hippies, a lot more of them are their kids, and even more are wanna be “hipsters” –

    • It’s not uncommon in my area of inner city Sydney. 5 people share a small two bedroom flat in my building.
      The only people affording bigger rents are group shares around here. Poor buggers, but they aren’t as sensitive to rents as they split so many ways..

  3. Page 9 has interesting tidbits, reiterating the inter generational wealth transfer that is taking place.

    As noted above, accommodative monetary policy between 2002 and 2006 saw strong levels of household income growth reflected in elevated gearing levels. As detailed in Figure 3, whereas national house prices took 12 years to double between 1988 and 2000 they only took a further 7 years to double again between 2000 and 2007 (from ~A$230k to A$460k). During this 7 year period, housing outstandings (i.e., mortgages) as a proportion of GDP increased from 50% to 80%.

    It is widely acknowledged that the ‘baby boomer’ generation was the primary beneficiary of this steep house price appreciation and, therefore, the ‘free deposit’ that came with already being on the property ladder to then re-gear into a new home without having to save.

    • I think Peter Fraser demonstrated amply with his arithmatic prowess yesterday there has been no intergenerational wealth transfer.

      -1 to Fujitsu.

  4. I believe they’ve since taken them down but in 2009/2010 Fujitsu/JPM were producing a regular first home buyers report, it was the data and results from these reports that really triggered my fear for the sustainability of the housing market. For example this graph showing that over 30% of FHBs in early 2009 were borrowing at an LVR 95% or higher (with interest rates at historical lows): <- Chart was used in support for one of my first blog posts:

    As I recall they were surveying around 25,000 mortgagees, so their report was probably one of the most comprehensive of its kind, shame it didn't continue. Rather than measuring mortgage stress by the percentage of income spent they were instead asking a comprehensive set of questions relating to the spending habits of those with a mortgage and measured the change over time (at least that is as I recall). Bring it back Fujitsu 🙂

  5. I’m shocked to read the high % of interest only loans. Not so much for investors (~50%) but for owner-occupiers (was 10%, now ~30% of all new loans)! Not hard to see how the risk of negative equity has grown!

  6. “maintain a cautiously optimistic medium term house price view supported by a robust economic outlook, low unemployment, falling mortgage rates,”

    ????????? I’ll have what they’re smoking!

    • Surely the last point is at complete cognitive dissonance with the first points.

      How does a robust econimic outlook and low unemployment go hand in hand with falling mortgage rates? Especially when inflation is not below 2%, and the AUD looks like it will weaken?