Housing finance falls in May

By Leith van Onselen

The ABS has just released housing finance data for the month of May, which registered a -1.2% fall in the number of owner-occupied housing finance commitments, well below the consensus forecast of a 0.8% rise.

Arguably, the most important figure in the release is the number of owner-occupied housing finance commitments excluding refinancings, which registered an -0.8% fall over the month and remains some -14% below the five-year moving average level:

When viewed along side the RBA credit aggregates data for May, which registered the equal second weakest housing credit growth in the series’ 35-year history, it is clear that Australian’s demand for mortgage credit remains highly subdued, suggesting home prices nationally will continue to soften.

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

Comments

  1. reusachtigeMEMBER

    I like how you use one of the msm’s favourite words “soften”. lol – what does that mean, seriously?

    • Yeah, can we ban “soften” and “subdued”?

      Btw Leith, I like your new job title. Very impressive.

      • reusachtigeMEMBER

        What happens when house prices “harden”? It just doesn’t make any sense!

        • Tulip Flipper

          They’re insurance market terms, where a ‘hard market’ is self explanatory; one lacking in capacity resulting in hardship when trying to risk transfer (read: expensive and/or not possible).

          No idea how they apply to house prices, really. A hardening and softening market for house prices really could be used interchangeably… LOL, it’s ‘harder’ to get credit to buy a house in a ‘soft’ market!

          • MsSolarFelineAU

            “…..Australian’s demand for mortgage credit remains highly subdued, suggesting home prices nationally will continue to soften.”

            We are not commiting ourselves to debt-slavery as much as we were.

            There ya go! Plain English!!

  2. It’d be interesting to see these numbers compared to other nations that suffered collapses.

    It’s a bit more informative than Steve Keen’s graphs. Are there stats on US housing finance?

    Could we reasonably predict the immediate trajectory based on their graphs?

    • “Could we reasonably predict the immediate trajectory based on their graphs?”

      I just thought I would point out the irony of that comment just after mentioning Steve Keen… 😉

      Unfortunately, we can’t really predict trajectory, as the powers that be can intervene in incredible ways to significantly distort and even prolong a potential trajectory – as Steve Keen found out first-hand.

      Personally, I still think he is right – but his short-term (forced) “bet” was “wrong” due to exactly this sort of market-distorting intervention.

      My 2c

      • Off topic, but do you know whats happened to refindhouesprices Burbwatcher? Went on today to have a look and it’s got zero data in there..

  3. Variable Mortgage rates are approximately 270 bps over cash vs 150 in the prior 10 years or so. In a 0 inflation / deflationary environment is that any surprise ?

    This is the point in the cycle where Australians will seriously pay for having an uncompetitive and protected banking sector.

    • thomickersMEMBER

      I would disagree with

      The higher mortgage to cash rate spreads are due to mortgage volumes getting slaughtered (economies of scale but in reverse) and the banks being unable to refinance cheaply with “wholesale offshore funding”

      • thomickersMEMBER

        sorry forgot to complete first line:

        “i would disagree with the idea that the higher spreads are due to non-competitiveness”

  4. Does this demonstrate that recent interest rate cuts have NOT increased property-buyer interest (contrary to the loud claims of real estate agents)?

    Or is it too soon to say?

    • Arrow2 – I think that it’s fair to say that the cuts in both May and June have not made the impact on the market that was expected. I did see a lift (but perhaps that’s just me) and then it failed to reach the level anticipated.

      You can expect June to be soft as well.

      Actually it’s hard to get a read on the market at the moment. Brisbane is edging down while Melbourne is edging up – completely the opposite of what everyone expected, and whilst properties seem to be moving more quickly, the numbers don’t seem to reflect that.

      • I’m with you, Pete – not sure what to think on exact points; my own sales data showed a very obvious pickup over the last 2 months or so, with a signficant slowing down occurring in some states over the last 2 weeks.

        I’m getting a kind of “bringing-foward-of-demand-from-a-small-group-of-would-be-buyers” kinda vibe.

        I’ll produce some charts on that one day…lol!!

        • I would like to see your relevant graphs if you get time. I am having some difficulty picking a direction at the moment.
          I also worry about a major undersupply in the next few years. I don’t buy the oversupply meme except in all of the wrong areas, so your views and graphs on that would be welcome as well.

          Cheers.

      • “cuts in both May and June have not made the impact on the market that was expected”

        Expected by who Peter?

        If I recall I had this same discussion with you months ago… you were implying that there is a pool of buyers out there waiting to buy when interest rates drop (at least that is what was implied). There isn’t. Without something that triggers demand (e.g. changes to grants/concessions) I doubt we will get much of a turnaround in the property market until prices drop far enough that they represent reasonable value.

        • Well perhaps you turned out to be the better judge of the market – there has been a lift though and we were talking about a 1% drop – that still is a little way away for borrowers.

          I’m giving you an honest assessment – take it or leave it.

  5. Sounds like a bad moon rising.

    It would be good if we could provide an exit strategy for some unfortunate recent owner occupiers of new housing.

    Perhaps they could be allowed to sell a ‘general rates’ income stream to the government or superfunds.

    It could work like this.

    1. Home owner sells the right to charge rates of $X dollars per quarter to the govt ( or perhaps a superfund).

    2. Home owner gets a lump sum they must use to pay down their mortgage.

    3. The lump sum is set at a level to produce say a 5% return to the purchaser.

    4. The income stream can be onsold.

    5. The income stream is secured by the land.

    6. Subsequent purchasers of the land are bound to pay the income stream.

    Result

    Home owner gets lump sum to pay down mortgage

    Value of house falls to reflect the ongoing income stream payments each quarter for 20 years.

    Land without income stream payments retain value.

    Local councils can start a similar system for new land releases ( per the texas approach)

    Superfunds have a nice stable investment (and could also fund new subdivisions.)

    • O.o

      That’s equivalent to paying the mortgage with a credit card. Or taking out a second-ranking mortgage (to pay the first). ..what happens if homeowner fails to pay the rates?!

      If too much borrowing in the first place is the problem, more borrowing can not possibly be the answer.

      • I understand the horrified reaction. Essentially the objective is to move to a system where the land development costs are paid for out of a levy (high rates) rather than an upfront lump that gets stuck on the mortgage (the texas approach).

        The proposal above is nothing more than extending the concept to recent purchasers of new homes.

        Essentially they are getting back the upfront development costs with those costs then recovered from the higher rates. Yes the higher rates would rank ahead of any mortgage.

        By forcing anyone wishing to make use of this proposal to pay down their mortgage, they are simply going to be in the position of owing less on a less valuable property.

    • Or we could have them mentally scarred for life, so that in the future they will never opt to become a negatively gearing infestor that outbids future young people on property, so the young people themselves don’t have to make a choice of a lifetime of debt servitude.

      • Yes – owner occupiers only of new housing. Speculators should be left to enjoy the risk.

  6. > It would be good if we could provide an exit strategy for some unfortunate recent owner occupiers of new housing.

    We already have market based exit strategies i.e. you can’t afford your mortgage you declare bankruptcy or sell and absorb the loss. Keep the government out of the housing market. They have already done enough damage.

    • It’s simple – allow first home buyers to use their superannuation balances to be used as a mortgage offset account.

      Obviously, it would require some rules such as maximum amount and cannot be used as security for the loan. Perhaps,also limit the timeframe that the offset can be in place.

      Either way, any sensible financial plan for those mortgaged to the hilt would involve paying down as quickly as possible.

      By using superannuation balances to reduce the interest burden the borrowers are in fact getting a guaranteed return as opposed to chancing the ever increasing volatility of the stock markets to deliver returns.

      Some might say that this would fuel further house prices, but if the conditions to the arrangement were structured properly and the arrangement was only available to first home buyers for a fixed duration then it might provide some much needed relief.

      • That’s not such a bad idea Mitch. Your super could also buy a portion of the house like an EFM and in any sale the achieved sale price could be divided accordingly – there are many ways to structure that.

        Good thinking though.

        • PF, Instead, why dont you just send me your account details? I will transfer my super directly into your account. We don’t need such roundabout methods for stealing our future.

          Seriously, isn’t it enough that we already have a generation of highly indebted Gen X/Y, who only got into that debt so baby boomers could fund their retirement? Now you want to steal what little is left in their super as well?

          • Peter, you and Mitch both made suggestions. Yours is the one which would allow buyers to push prices higher… Mitch’s would only allow buyers to reduce costs after purchase.

          • The dealers are trying to help their broke junkie clients pay for another hit.
            Have you sold that ring your mum gave you?
            How about the presents you got for the baby?
            No?
            Well theres a servo down the road that should be easy. The attendant is on his own and I know he doesnt keep a gun under the counter.
            If you knock it over tonite i’ll have as much smack as you want.You know I’ll get you the best price.
            Thanks for the tip guys. Its like you’re the only mates we’ve got left and you really care about us.

          • Bullion Baron – surely you know that FTB’s generally won’t have substantial super funds – the appropriate time is towards the end of some ones working life – there are limiting factors built into the system.
            All I discussed with mitch was an alternative structure.
            Think first – post second.

          • What rubbish Peter. Your suggestion while similar in one way to Mitch’s (using super to assist with housing costs), is still very different. An EFM product would allow the buyer to push into price ranges not otherwise accessible to them. It is not an “alternative structure” to the proposal from Mitch to offset interest costs.

            You have proven time and again here that you are the one who should read and think before posting. A recent example where you kept trying to tell me that year to date figures are rolling daily comes to mind…

      • More house price drops, more likely! As those who off-set their dtressed indebtedness find that with a falling stock market ( their superannuation funds used as an offset?,or do they liquidate their holdings to ensure a stable collateral?) fall even further into the mire, and have no other choice but to sell. Besides, superannuation has an intended purpose. Mortgage off-set is not it.

      • I don’t agree with Peter’s suggestion that they should be able to use their superannuation to leverage their purchasing power, but Mitch that’s a good idea if they could use Super funds to offset interest from the loan via depositing in the offset account (obviously with limitations they aren’t able to withdraw it).

      • Superannuation balance as an aoffset?

        Don’t you need cash specifically as the offsetting asset?

        So what you’re saying is for the duration of this mortgage, peoples asset selection is limited to cash, AND they won’t receive the compounding interest of being in cash, thus diminishing their preervation amont come retirement.

        Really, isn’t the answer to have PROPER priced housing, instead of half-assed methods of justifying high prices?

        • russellsmith55

          Of course not! I know I’d rather gamble my superannuation on buying overpriced housing, than be able to buy a house at sensible median income multiple.

        • Folks,

          All I am suggesting is that at the end of the day “Houston we have a problem” Our young aspirational Aussies have been fed a pipe dream. Sadly the pipe dream is now turning ugly.

          If we neglect any solution to this problem of high household debt our equity markets are stuffed in any event.

          We need to turn our superannuation savings into a solution.

          Banks make up 35% of the All Ords – what happens if our Banks turn out to be like every other Bank in the world and fall on bad mortgage lending practices – a distinct possibility.

          So lets get prepared to turn say $100b of our Trillion Dollar Super Savings into cash backed mortgage offsets.

          Rules a plenty perhaps but at least we have a back up plan unlike every other western world nation which let its banks finance a housing bubble.

          • Why bother throwing good money after bad, the market is correcting? The correction is obviously impacting you somehow.

            If you reckon finding another source of cheap money to throw at an unproductive investment scheme won’t distort the market you’ve either got a short memory, a deep vested interest or are completely naive.

          • The Patrician

            +1

            I love how these free marketeers fall over themselves rationalising self-interested intervention.

            Follow your own advice, get out of the way and let thing correct itself

          • Keatings vision re super was to create a pool of savings that would offset our need to borrow funds from overseas and be used to develop the country. The last thing this country needs is to further erode the super system by making it a backstop to the housing politico complex. Super is already being used that way to a large extent via the SMSF system as well as the major banks now have nil admin fees for cash and term deposits.
            The dearth of quality investment for super funds is an issue, but again things like Princes idea for R&D equity hybrid bonds orperhaps improving our collective intellingence and making us a more productive nation rather than continuing to have the dubious honour for the most expensive housing in the world with the lowest population density.
            The purpose of super is to provide for retirement.

    • I have no problems with the traditional approach but bleeding “young working families” have a bad habit of inducing policy daftness from both the Govt and the RBA.

      By converting part of their asset (the front loaded subdivision costs) into what it always should have been, a higher level of rates over an extended period, it may reduce the volume of defaults and thus bad policy knee jerks.

  7. Odin Hammer! It’s like a mass psychosis!

    The constant pulpit sermonising that the property market “NEEDS” saving, those poor investors who “bought the story” that property doubles in value blah blah blah, sounds just like religious zealotry by another name.

    The amount of intellectualisation that goes into trying to avoid the destruction of mal-investment in Australian Property, if refocused, could solve the mystery of cold fusion in about 10 minutes!

    You’re an investor, a good one or a bad one, but you made a decision & it didn’t work out. Tough cookies.

    What’s next? Refunding the cost of every MBA graduate that didn’t get a 100% pay increase on their next job?

    Rant over.

    • JunkyardMEMBER

      There is no known theoretical mechanism for Cold Fusion and there never will be.

      I’ts like saying they will solve the mystery of the tooth fairy.

      Now that’s my rant over 🙂