Housing credit plumbs record lows

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith is an economist and has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

Comments

  1. Failed Baby BoomerMEMBER

    mmmmm I suspect Keeno will be updating his cliff face for housing prices.

  2. Perhaps it’s dawning on property buyers that the lower m ortgage rates go; the less they can fall; the more the chance they will rise. Houses are really nominally expensive at the moment (if the counter measure is cash – which is historically cheap). So one of two things could happen: (1) houses get nominally cheaper or (2) cash gets more expensive ( rates rise.) Neither is good for the property market, although I expect it to take a few more months of ‘stability’ before the reality finally settles in – for the longer haul.

  3. Mortgage rates have only declined modestly compared to the cost of living increases which confront most homeowners or potential buyers.

  4. Think this once again shows the most important factor in driving housing market activity – the expectation of future price growth.

    When positive, drives both demand and supply (credit).

    When negative, even cheaper money won’t entice people in, and why would it? Theres nothing “cheap” about seeing a chunk of your capital wiped out in the first few months of ownership, even if it is just on paper.

    • Agree 100%. This is why I ignore the RBA or other spruikers looking at employment rates etc. It is not that homeowners are being forced to sell, it is that investors are not buying since there is no capital gains to be had. Housing has well and truly become a speculative asset class.

    • A+

      Some panic merchants sprout all kinds of disaster scenarios with lower rates leading to a renewed buying frenzy. Lower rates now will put more downward pressure on the $A and lead to debt reduction IMO. Good outcomes IMO

    • You’re describing Deflationary Mindset – i remain to be convinced that we’re there yet, honestly – people are still responding to price reductions, as far as I can see. (I have a BurbWatch Index to support this contention!).

      In fact, they’re generally more responsive to price reductions this year than they have been in 2011 – mind you, that’s also possibly because the prices are actually lower….

      Nonetheless, I am yet to be convinced that people, on the whole, have Deflationary Mindset yet.

      My 2c

      • It doesnt need to be universal, but it seems enough people are of that mindset to cause prices to drop. Take your point though, I dont think its crashing, its more that monetary easing is not having the expected impact.

      • I agree with you about the lack of a deflationary mindset. When the average deluded house buyer and seller finally reach that point is when we will see a real correction in prices. Sellers will realise that there is no recovery on the horizon and meet the market with prices. The houses that have been pulled off the market waiting for a recovery will magically appear with realistic pricing.

  5. The trend is down, so the slow melt continues.

    I notice a lot of US analysts are saying they are at or near the bottom in housing, but is that the case with many more foreclosures about to hit the market? I’ve been watching the lumber futures, and there has been a trend up, but it looks mainly like a financialisation play if your looking at new build trends. The trend now is down. I think the US has a while longer to see upside.

  6. I’ve said it many times over the past couple of months, the Great Australian Property Boom is over.

    When both owner occupiers and investors are not responding to credit stimulus (I’m not only referring to the recent cuts in May and June but also the cuts late last year) the only option left is direct stimulus (i.e. first home buyer grants) and neither the federal nor state governments can continue to give away free money to young (dumb?) property buyers.

    • The question is, in this time of belt tightening when will they cut off the supply free money for negative gearing?

      • Phil the engineer

        Also, will the states switch emphasis from stamp duty to land tax due to low turnover?

        • Ted of Melbourne is facing a yawning gap in Stamp Duty receipts. The state monthly data will be plastered with red flags and the demon words DEFICIT and STATE BORROWINGS with no end in sight.

          If Victoria’s Premier found the resolve to switch to Land Value Tax as innumerable state tax reviews have recommended, economic activity would pick up immediately.

          The L/NP state government has read Australia’s Future Tax System. They know most of the 125 taxes slated for removal are state imposts. They would like to blame the ALP for forcing their hand, but deflecting blame onto the property downturn is magisterial enough.

          Man up, Ted!

      • Mining BoganMEMBER

        I hope they keep it. For now. I don’t want the specufestors pointing at the removal of NG as the reason for prices falling for the next ten years.

        I want them to realise they lost money because they made a stupid bloody investment.

    • Don’t be too sure about State and Federal govts not being able to or willing to throw some petrol on the fire.

      Betting against bad policy from desperate pollies sounds very risky.

      Just imagine if Swan has been reading up MMT on the magic of being the monopoly issuer of a fiat currency. Printing a few billion as tasty treats for FHB would be a sinch. But then no need for that – a bit of fresh carbon tax would do the trick.

      • Carbon tax revenue has already been factored into federal budget estimates and the structural federal budget surplus is locked in for FY13. So, unless Swanny gets a windfall gain from somewhere, no chance of direct stimulus until May/June next year at the earliest (if at all).

        • I hope you are right of course, but a politician that cannot find a pretext to escape from being ‘locked in’, ‘committed’ ‘L-A-W’ is a rare beast.

          Remember we are talking about the foundation of the Australian way of life being at risk – ‘Equity maaaaate’.

          The RBA is, despite speeches to the contrary, doing its best with interest rates. If they don’t work and they don’t look like it so far, the MSM peanut gallery will switch their attention to direct action without hesitation.

          The speculators will not go quietly.

          • I think you make a valid point. the vested interests are very vested on this issue. Should a housing bust really start growing legs, I will be surprised if the federal govt didn’t intervene with some sort of direct stimulus.

            Also, I think the failure of recent interest rate cuts on their own to boost prices and activity, show the potent effect of those direct cash handouts.

  7. Understanding the sectorial balances teaches us it is silly to look at housing credit in isolation.

    In 2009 / 2010, housing credit growth was well below historic averages, yet house prices rose strongly.

    The Federal Government continues to run monthly cash deficits, increasing private savings. In addition, the private capex boom has increased household savings too. This diminishes the need for household credit relative to the 1990’s and 2000’s.

      • Perhaps you mean that capital expenditure in the form of property renovations increases potential selling price of the property (added value, in other words?). But alas. If so, that’s not ‘household savings’ that increase but merely household real expenditure (a reduction in savings or an increase in debt) balanced with an anticipated capital gain. What that gain or loss may be at some future time is anyone’s guess! But it certainly isn’t ‘savings’.

      • How does “the private capex boom… increased household savings”?
        —–

        After one takes into account the external (currenct account) and government sectors (fiscal balances), the private sector “net savings” can be calculated (for more on this, please google Wynn Godleys’s sectorial balances).

        Within the private sector there is business and households. Now, if business decides to invest heavily, the business sector runs a financial deficit (CAPEX > OP PROFITS)- this deficit neccesarily accreates as a surplus to households.

        All very technical I know. Would love more space and time to discuss further. I have actually offered to write some guest posts on these issues but have been turned down.

        • It’s not technical…it’s rubbish! Capex by business doesn’t automatically translate into household savings! IF anything business Capex translates into lower wage packets or more lay-offs, as the expenditure is recouped or mitigated against lower costs. I’d have another Google about if I were you.

          • When a business decides to invest, (say a new factory), they will employ workers to build such factory.

            For example, a business will borrow $100 to build such a factory. The $100 is used to pay the builders income to construct such a factory.

            The result?
            Net private savings is zero. Buiness Investment = $100
            Household income = $100

            Now if we already know households are savings (because of governmetn deficts ect), then this investment decision adds to such savings.

            The new factory may (or may not) increase employment or wages. That is a seperate issue. Wages are important, but not relevant to the point I raised.

            Please try to keep and open mind.

    • “Understanding the sectorial balances teaches us it is silly to look at housing credit in isolation.”

      OK. Then try these other metrics out for size, which paint a similar picture:

      1. Housing transactions at lowest level since 1997;
      2. Number of homes for sale nationally 50% above ‘normal levels’ and twice 2010 levels;
      3. Number of days taken to sell a home elevated;
      4. Average vendor discount elevated;
      5. Average number of years that owners stay in homes highest ever recorded;
      6. Number of finance commitments (ex-refi) near decade lows.

      I could go on, but you get the drift….

      • and prices have been rising during the month of may / June despite the latest credit data….do you get that drift?….
        http://www.christopherjoye.blogspot.com.au/search?updated-max=2012-06-23T12:50:00%2B10:00&max-results=30

        It is silly looking at one part of any equation and drawing conclusions. The fact of the matter is houeholds demand for credit is a function of much more than demand for housing. One must also take into account private investment, external accounts and the government underlying cash deficit.

        Analysing housing credit growth alone in 2009, one would have concluded housing was dead, and prices were in free fall. There were plenty of people who made such a prediction and ended with egg on their face.

        I’m just trying to help.

        • “and prices have been rising during the month of may / June despite the latest credit data….do you get that drift?…”

          Umm yeah, I report on the RP Data indices every Wednesday in case you didn’t know.

          • I know – which is why I find it interesting this title of this post was..

            “housing credit remains depressed, but prices have recently increased…why?”

          • Strange there was an increase in prices when credit reach record lows.

            Perhaps it is worth investing the validity of my comments.

          • Wrong. Home prices fell as credit fell during the GFC. They only bounced later when credit growth rose, assisted of course by the generous FHB bribes and the temporary relaxation of foreign ownership rules.

          • “Strange there was an increase in prices when credit reach record lows.”

            Higher prices on lower volumes? It happens, and not just in real estate.

          • yes – but credit grwoth was way below long term average in 2009.

            Those who looked at credit growth in 2009 would have called housing wrong…and there were plenty of those.

        • I followed the link in your post but couldn’t find the price rise post you were referring to. I did, however, find this:
          http://www.christopherjoye.blogspot.com.au/2012/06/aussie-banks-most-profitable-in-world.html

          Which is so woefully and hilariously wrong* that I think it is pointless to look for the other post.

          I would suggest that you never link to Christopher Joye’s blog as a reference to support your position, because it just undermines it.

          Just trying to help.

          * Look at the graph in that post and see if you can find the simpleton errors of fact and conclusion in the post above it.
          I also find it very telling that you can’t leave comments on that blog. Broadcast propaganda at it’s finest.

      • Well you are basing that on just one month. Growth is still growth, just because the chart gives the impression that lending levels are falling, doesn’t mean that total lending has reversed.

        And you know that loans are not written the day after a rate cut, it will take time. Certainly late June numbers do seem to have increased, but I think even more time is needed.

          • Trolls also have a Macrobusiness titled Reddit account dedicated to directing traffic to their site. Unfortunately their are no followers, so it be declared an unmitigated fail.

            Their mock twitter feed is also looking incredibly shrill, uncontained and bordering on harassment. However, he or she as admitted to having a brain injury. providing a possible explanation as to why the obsession continues.

            Also note that PF has advertising to his Brisbane finance site on the Australian Puppet Forum frontpage.

            It seems like an odd choice to make given the questionable character of the site as revealed by Bullion Baron, Bubblepedia etc.

        • What about the rush to get in before FHB offer cuts off… I know of about 6 clients we have who are stupid enough to be lured in by that alone.

          Seriously, between b_b and PF we have two of the biggest verbal sh*t talkers there are in the spruiking world.

          • Sorry Christiaan, but you know not what ye speak.
            Why do you think that most of the lenders are snowed under now, but they weren’t on the 2nd of May.
            A little thinking before you babble away might save you a lot of embarrassment later.

          • Embarrassment!!!

            Come back to me with that when you’ve lost your job and your reduced to doing bookwork for your local RSL.

            Your days are numbered cochise!

          • Seriously, between b_b and PF we have two of the biggest verbal sh*t talkers there are in the spruiking world.
            —–
            Christiaan,

            If you can not frame an argument, you should not stoop to personel attacks. Either read and learn, or ignore and remain ignorant.

          • b_b – Christiaan is probably thinking in terms of Victoria, who are withdrawing a FHOB boost for construction loans, but that effects land sales and construction, and only effects the sales volumes of units. In contrast NSW are introducing a FHOG boost for constructions loans, whilst withdrawing the Grant for existing home sales, whilst Qld is re-instating a stamp duty discount. How he hopes to easily interpret the net effect of those changes is difficult to say the least, but I guess from his narrow perspective he will have formed his narrow view. It’s a mistake that any non-deep thinker would make.

          • Your right on one account, why argue with two obviously vested interests who spruik any uptick in the market no matter how minor.

            What will happen will happen.

    • So your point is that looking at data is silly?

      I think its silly not to be able to understand the effect that FHOGs had on house prices

      • Phil the engineer

        Was it UE that posted a chart overlaying periods of stimulus on the australian house price index? Seems obvious to me that the current trend (with peaks and troughs along the way) wont change without interference.

        • So your point is that looking at data is silly?
          —-
          I did not write that. Please re-read my post. If you wish to quote me, do so accurately.

          Data is very important. But it must be used correctly.

  8. Scary, scary charts.

    Interesting that the period between 1994 and 2008 isn’t marked by tear-away growth (in credit growth), just persistent high levels. Compared to the eighties at least.

    Also the slide in housing isn’t a noisy dip but a definite trend away from the relatively stable 8-20% range. See how it remained above 10% during the early 90s recession? That’s the difference this time.

  9. Not sure if its the end of the world yet. Annual housing credit growth is probably not yet at inflation adjusted lows, its still a tad above nominal GDP and business credit looks like it is accelerating to c10% p.a. Looks very much like a soft landing so far. You might even want to listen to Dr Debelle to get some idea of what the score of well qualified economists in the RBA who have more data than the average commentator on this blog have concluded about the direction of housing.

    • Adjusted for inflation, annual housing credit growth is tracking at the same level as the GFC low. In fact, you would have to go all the way back to 1987 to find these inflation-adjusted growth rates.

      • In fact, you would have to go all the way back to 1987 to find these inflation-adjusted growth rates
        —–
        yes after 4 years of sustained federal government deficits equal to about 10% of GDP….funny that.

      • Actually not even in the lowest decile of inflation adjusted growth, but lets not nitpick.
        Why not look at it from the viewpoint non hysterical policy makers. We’ve had a c10% fall in prices plus some inflation, so we’re already 15% down in real terms. We try and repeat what happened in the 90s where there was no nominal house price growth for 5 years. Everyone adjusts slowly, banks avoid major systemic issuea, you get some economic growth and everything gets back to more normal levels: ie house prices fall another 25% in real terms, affordability as a % of income increases by about 30%. If prices look like they going either up or down by unreasonable amounts we adjust policy levers again
        Or do we all still think that Steve Keen will be right after being comprehensively wrong for the past 5 years.
        Even all the “experts” here have to give some credit to the RBA for avoiding the worst of the US housing bubble (ie 50% in 2-3 years) by their use of monetary policy

        • Even all the “experts” here have to give some credit to the RBA for avoiding the worst of the US housing bubble (ie 50% in 2-3 years) by their use of monetary policy
          —–
          The RBA has nothing to do with it. House prices can not collapse when;
          – there is no excess supply (ie: we have had strong rental growth) and;
          – prices < replacement cost

          The RBA reacts to these issues – they do not lead them.

          • Lol – I was interested in what you had to say, that was until this…

            – there is no excess supply (ie: we have had strong rental growth)

            Except that there is a huge* oversupply of vacant dwellings that are either a) not for sale, or b) not for lease. What will happen when the owners wake up and say, “shit, what the hell am I doing with these vacant apartments!?”

            * source: RBA

            – prices < replacement cost

            You're missing a term in the equation: Prices < (Land + replacement cost). The Land component has been the driver of price rises. If that evaporates (say 90% down?) median prices will drop like a stone.

          • dumb_non_economist

            B_B, SK’s blog shows US prices at 2.5 yrs as down 30% and at 6 yrs 45%, so there is still time yet for the RBA to be tested.

        • Certainly the RBA are doing their best to bury the body of poor policy as quietly and as painlessly as possible with the help of the govt.

          Any wonder they are acting cool like the Fonz and advising all ‘nothing to see move along’.

          Prof Keen is noting the existence of the carcass.

          The unknown in whether it gets buried before it starts to rot and the vultures move in.

        • I don’t think RBA gets much credit for that. I thought it was pretty much consensus, even amongst spruikers that it was the first home bribes that kicked the 2008 can down to today

    • “You might even want to listen to Dr Debelle to get some idea of what the score of well qualified economists in the RBA who have more data than the average commentator on this blog have concluded about the direction of housing.”

      Would those be the ones with investment properties?

    • And perhaps we should have listened to Alan Greenspan and his well qualified economists who also had more data than the average commentator on this blog?

      • Or the Central Bank of Ireland, which argued that home prices were sound just before they collapsed… Central bankers have a very poor record in this area and typically take a bullish stance in order to promote/maintain confidence.

        • There’s a great quote from a 2005 NYT article talking about what happens after housing bubbles burst.

          http://www.nytimes.com/2005/12/25/business/yourmoney/25japan.html?pagewanted=all

          “The biggest lesson from Japan is not to fall into the same state of denial that existed here,” said Yukio Noguchi, a finance professor at Waseda University in Tokyo who is perhaps the leading authority on the Japanese bubble.

          “During a bubble, people don’t believe that prices will fall,” he said. “This has been proven wrong so many times in the past. But there’s something in human nature that makes us unable to learn from history.”

          • McPaddyMEMBER

            Good article. A very good reply to those commenters in the MSM who insist that today’s yoof should just move out to the burbs for a couple of years till they can afford to live where they want. That little “starter home” can end up as a millstone if the market turns bad.

          • McPaddy, only thing I can say to that (in Sydney at least) is ‘moving to the burbs’ is not affordable for anyone on regular incomes either. $250,000 for a little block of land on the periphery I’m sure is one of the main factors behind these record low housing credit figures.

            People earning $50-60k a year really can’t afford to buy that, then stick a house on it, and have kids. Not to mention with rents having risen sharply over the last few years, saving a deposit got a lot harder as well.

        • Like this from July 2007?

          http://www.centralbanking.com/central-banking/news/1408916/central-bank-soft-landing-irish-housing

          With Ireland’s economy set fair, the property market is heading for a soft landing, says John Hurley, the governor of Ireland’s central bank.

          Speaking at the publication of the Irish central bank’s annual report, the governor noted that this time last year the central bank was very concerned about the acceleration in house prices. However: “Current developments are more consistent with stability in the market,” he said.

          The major underlying factors supporting the demand for housing are employment growth, increases in incomes, demographics and social changes, the prospects for which were favourable. “We continue to believe that the most likely scenario is a soft landing for the housing market,” he said.

      • surely at this point whenever someone hears a central banker utter the words ‘houses are supported by fundamentals and we should not see a reduction prices’ alarms bells should start ringing.

        As soon as they have said this in most countries prices have cratered

        • Some self-reflection in Ireland.

          http://www.businessandfinance.ie/bf/2011/6/intsfeatsjune2011/propertyunfaircommentnybergand

          The articles which unwittingly supported the mania during this period relied on information from the very bankers and analysts that were making the mistakes. In this way they were mirroring and perpetuating the fallacies these institutions had erroneously embraced, rather than creating a narrative.

          O’Donoghue said of her time at the helm of the Independent’s property supplement: “One of the things I was disappointed with is that I did follow the line the Central Bank and others were issuing.

          “I’m sorry I didn’t see beyond that, but I think very few people could see beyond that. I would need to have needed multiple degrees in finance to be able to take on Central Bank, the regulator, and everybody else.” Curren said: “A lot of the commentary from the professional analysts, the rating agencies, supported the narrative. It would have required journalists to get hold of material that was possibly buried in Central Bank reports, but they were saying it’s all fine.”

  10. Owner Occuper credit demand is in the tank big time. The slowest OO credit growth months in history are May 2012 (0.30%) and March 2012 (0.31%), split by the April 2012 0.35% growth figure (top 10 slowest). The 3 month annualised OO credit growth figure is only 3.84%pa!

    And as pointed out above that’s with OCR cuts.

  11. These charts pretty well identify the future course of credit and therefore asset prices.

    Personal credit maps the path for Retail.

    Without these conditions changing, house prices have nowhere to go but lower. I would also venture that the decline in personal credit is pointing to lower hours and more job loss in the Retail sector , from where much of Australia’s 2nd household wage is derived. A difficult trading environment is getting worse.

  12. this is more good news, perhaps contradicts the idea that the market is stabilising as per RP Data figures over the last month. I reckon vendors are just being a bit stubborn which may arrest the fall somewhat – but you can’t get past the obvuis, stock levels are at all time highs (esp Melbourne), clearance rates at all time lows, and little appettite from new investors / fhbs to buy into a market they now know is at best a poor investment, at worst financial suicide. The writing is on the wall!!

  13. I dont know what bb is talking about , because from this graph , there was a credit growth spike in 2009 for housing loans.

    http://blog.lvrg.org.au/2012/05/home-lending-q1-trends-are-confirmed.html

    His theory is that you cant have a new build for less than 500 600k so that keeps the floor on house prices, because of structural costs that stops developers from making a profit. These structural costs are not coming down according to him. However the balance sheet of Australand and stockland looks healthy to me.

  14. anonysubscribe

    if only real estate racketeers were not such great pissers in the wind, we would not be sprayed by them in our wanderings in the desert of truth.