Victorian deleveraging accelerates

By Leith van Onselen

The Victorian Department of Sustainability and Environment (DSE) earlier this week released data on the number of housing transfers and mortgage lodgements/discharges.

Like the Queensland Department of Environment and Resource Management (DERM) data, which was analysed yesterday, the Victorian DSE statistics are current to June 2012, so they lead the Australian Bureau of Statistics (ABS) Housing Finance data, which is due to release figures for May later this morning, by one month. On the other hand, DSE records transactions at settlement date, not sale date, so would lag the signing of the contracts of sale (Section 32′s) by the settlement time, typically between 30 and 90 days.

According to DSE, the number of housing transfers (15,804) and mortgage lodgements (17,342) fell by -2% and -1% respectively over the month. And like in Queensland, they were also the lowest June figures in the series’ 10-year history.

The below chart shows the rolling annual number of housing transfers from June 2003 to June 2012:

The annual number of Victorian home transfers fell slightly over the month – from 172,524 in May 2012 to 171,074 in June – which is the lowest level reached in the series’ history and 13% below average levels.

The DSE’s mortgage finance statistics are unique in that they provide data on both mortgage lodgements (i.e. new mortgages) and mortgage discharges (i.e. mortgages repaid in-full). Below is a chart showing both series on a rolling 12-month basis:

And below is the number of net new mortgages created, calculated by subtracting mortgage discharges from mortgage lodgements:

According to the DSE, the annual number of mortgages discharged (191,577) exceeded the number of mortgage lodgements (190,088), meaning that -1,489 mortgages were lost in the State of Victoria in the 12-months to June. This compares to the average of around 13,500 annual net mortgage creations since the series began in 2002.

And below is a similar chart showing that the ratio of mortgages lodged to mortgages discharged:

Between 2003 and 2005, there were around 11 mortgages created for every 10 mortgages discharged. In the 12-months to June 2012, however, the number of mortgages lodged has slipped further below the number of mortgages discharged, signalling that Victorians continue to deleverage.

Overall, the weakness of the DSE data suggests that Melbourne home prices will continue to deflate. The release of the ABS Housing Finance figures for May later this morning should provide more colour.

Twitter: Leith van Onselen. He 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.


  1. I think ANZ bank was talking about a shortage of mortgages in VIC, not houses. Somehow, that got lost in translation.

    I wish we had similar numbers for NSW.

    • reusachtigeMEMBER

      I am totally jealous of the Victorian/Melbourne situation. They’re outdoing us yet again! Grrrrr!!

      • russellsmith55

        Lol probably the first thing us Victorians may actually do better than our friends north of the border 😀

  2. Incredible that it has taken almost 4 years for the number of new mortgages to fall below the number of extinguished mortgages.

    Just goes to show that when you dealing with changing the attitudes of the vast mass of people who dont read the business section, blogs like this or any other financial info ( including the annual report for their super) is takes a LONG LONG time.

    But then people who were lived through or were born in the depression remained skeptical about debt for the rest of their lives.

    • The very rapid jump in the savings rate suggests that your contention that it takes a long time to change attitudes is wrong.

      What takes a long time is for somebody who is deeply in debt to start significantly reducing their principal on their debt (when interest servicing takes up 30%+ of their income).

      • Actually I think you are both right. It’s a tipping point; so it looks “slow slow slow” and then one day “fast!”. I think human physiologically is at play here. Check out this article…

        “Scientists at Rensselaer Polytechnic Institute have found that when just 10 percent of the population holds an unshakable belief, their belief will always be adopted by the majority of the society.”

        It takes forever to reach that 10%, but once you do, LOOK OUT!

        • JamesRickMEMBER

          This is the most important bit of information in knowing whats going to happen in the next phase of our ‘readjustment’…I asked this same question a few days back. Just trying to figure out what the tipping point was going to be in the behavior of general public.

          I thought it would be higher, as in 2 or 3 out of ten people changing their mind to affect the herd…Hard to believe that only one out of ten needs to wake up before everybody else smells the smoke.

          • We are all idiots various certain aspects of our lives. Some people are good workers, good drivers and bad parents; some are crap at work but great with the kids and the youth soccer team they coach on the weekends… So this “10%” figure doesn’t surprise me too much.

            We tend to “outsource” aspects of our lives to those around us we trust. I personally have an interest in macroeconomics, so some of my family and friends hold my opinion in high regard as they have outsourced that aspect of their lives to me. So when I start to get passionate about housing prices, they tend to listen (eventually).

            Now… despite this outsourcing, they don’t listen to me from day one, but they do take my opinion in over time. They still follow the group-think, but my opinion has a tendency to either erode the group-think, or they find another individual to outsource their opinion to. If that new outsourcer ends up being wrong, I get them back with a higher level of trust in my opinion on the subject (and thus faster buy-in).

            And I believe it is this dynamic that builds “slow slow slow” and then one day “fast!”. I don’t hold too much in the “10%” as a hard-n-fast figure, but as a rule of thumb I think there is a lot of wisdom in the linked study.

            So, think about it for yourself; who do you outsource to? Do you take those multivitamins on faith that your wife has done the research? Do you eat that Lite-n-Easy meal on the faith that some nutritionist somewhere did the sums and that 1000’s of others like you must not be wrong? Did you take your Vioxx because you had faith in your doctor that it would make you better and not kill you (

        • Certainly interesting findings. I would like to see a study done with people rather than computer models, however.

          Also, what happens when 10% have an unshakeable belief, but another 10% have an unshakeable belief in the opposite direction?

          It would be quite interesting to see the results of a human study.

      • Good point about the surge in the savings rate indicating a fast response on that front. I think that makes even more surprising that the net mortgage took longer to turn as a mortgage can be extinguished very quickly if you sell the asset securing the mortgage.

        It appears that while people quickly started saving it too longer to form a view about debt secured by property.

        That 10% idea is very interesting – thanks for the link. If the tipping point concept has got application then the future will be interesting to say the least.

    • That’s weird, my landlord cut my rent last month too – very unexpectedly. He must know something that I don’t!

      • Where? I live bayside (Albert Park) and I suspect the landlord will bump the price especially as he has to pay for handy men to come out and fix the place

        • Armadale. It was only a small cut but I suspect he’s worried about the huge number of brand new apartments coming onto the market around here… we get flyers in our letterbox inviting us to inspect for rent on a regular basis now (he would be getting the same flyers!).

          • I signed a new lease in Balaclava about 2 months ago, no rental increase in 2.5 years.

            Maybe I should have asked for a cut!

            The managing agents appear to be nicer now as well. I guess there is more motivation to keep tenants happy at the moment.

        • thomickersMEMBER


          if you really want the rental cut use the “i’ve been cut back from 5 days/wk to 4 days/wk trick.”

          In reality jobs have been cut back from 5 to 4 days/wk in almost every bank head quarter/branch.

  3. I have a couple of friends who work for estate agents in Melbourne, well one is a receptionist, what is the outlook for them?

    • Better ask her to buy a Fluro jacket, a hard hat and head out west to the mines. I hear they have a boom going on….so far..

      • One thing that amazed me about Melbourne was that everywhere you look you see for lease signs yet they are still building offices, it’s like trying to put a fire out with petrol.
        Are you all suggesting Melbourne is turning into Ireland or Spain with a lot of empty homes and no real industry to justify it? I will have to be very sensitive round my friends then they still have fingers in their ears in denial type stage.

        • Why not pass the message sensitively to your in-denial friends by being in tune with their concerns!

          “I do hope the current slump in property prices is just a passing phase!”

          “I would be worried about the way properties are losing value, except that a real estate agent told me it’s still a great time to buy – and sell!”

          “I’m worried by this talk about rising costs of living, but at least houses are getting cheaper”!

          • “I think building more offices and homes when there is already an oversupply is a good thing, it means people have more of a choice”

            “Melbourne has an obvious booming industry for real estate people, they can buy and sell properties to each other”

            Seriously though, what is the main industry in Melbourne? It isn’t tourism, retail or manufacturing or mining. Coffee drinking foodie hipster is not a sufficient industry.

        • Aristophrenia

          I have noticed the vacancies boards as being ridiculous as of Saturday.

          Drove down Victoria st Richmond, we counted 30-40 for lease signs. Was simply astonishing.

          In the end it was just “oh my god – look at them all”.

          Yes it is “little Vietnam”, however it was quite astonishing.

    • thomickersMEMBER

      the skills of a receptionist are easily transferable to similar jobs in other industries.

  4. Turnover is a real worry for the State Government, Stamp Duty all over the country has been falling and this just shows that it’s getting worse. I’m expecting a mini-budget here in Vic later this year because of the sustained drop in revenue.

    The problem is that there’s no capacity for people to take on any new debt, full stop, even with the 100 percent finance deals still on offer (I saw yesterday) to build a house in the urban fringe. Short of increasing the FHB grants again I’d expect that nothing will reverse the current trend.

  5. If it is sentiment that drives markets then look out.

    Debt is way out of fashion and asset prices are deflating accordingly.

  6. Are we sure this isn’t just a symptom of the baby boomers putting their residence and investment mortgages to bed ahead of their retirements?

    Also, where are the payments no longer going to the mortgage going? surely those should be flushing through in other parts of the economy? (at the very least, in the deposits – or have I missed the extent of this?)

    • Some of the $ is disappering into thin air their inflated assets and super devalue.

      • Yes as Steve Keen asserts banks lend money into existance and then when it is repaid it disappears again. But that is when things are going well …… for banks.

        • I’d say the interest differential doesn’t disappear – it shows up as bank profits – but where are the mortgage repayments going? The $1500, $2000/month and more that is the instrument of deleveraging. Now that liability is no longer there, surely they’re not just going out and eating $2000 extra a month, or putting that into the share market… That part of income has to show up somewhere.

          • My parents don’t seem to have any trouble spending what ever they have at a great rate of knots. Mind you, their incomes have fallen.
            Medical expenses?

  7. I’m note sure that this is either a good thing or a bad thing. For example, if we are seeing a net discharge of mortgages, then one could argue that the level of outright ownership is increasing (after drecreasing for a decade). This may be a “good” thing as outright owners are perceived as having less sensitivity to price variations as leveraged (read mortgaged owners).

    Moreover, the slowdown in turnover is also commensurate with other information that we see coming through in the data for the economy overall. Net saving up near 10% must rear its head in other statistics and a reduction in mortgage balances is one of these – households are repairing balance sheets.

    My bigger concern is the economic activity associated with given level of housing activity. In 2003 and 2004 we saw substantive declines in blue collar related employment (in south west Sydney….unemployment in SW Sydeny doubled during this time)due to weaker house prices and an associated slowing in rsidential investment. It seems to me that slow turnover and weaker prices will impcat investment and this will be disruptive to the local economies.

    Just a few thoughts for the poy and please not that I have a vested interest in the mortgage market.

    • Please diregard the extensive typos in the previous comment. I’m a mere male and therefore cannot multitask.

  8. and as with all the numbers showing historically low volumes, it does not adjust it for the additional number of households in Victoria (perhaps 20-25% more than when records began 10 years ago). This makes it quite a lot worse in real terms. YUP – victoria is in a death spiral, HOORAY!! And it stands to reason with 1) lowest yields of all cap cities in a country with obscene prices across the boards and 2) 2 speed economy and 3) world events. I dont see a way out of this for Melbourne. Slow melt or big fall, its all down.

  9. Not sure if Australia will reach the level Spain is at, employment is still a lot better than Spain plus you have got some useful dirt. I have friends out here in Oz and I wouldn’t want them to go through the Spain thing. As long as real estate, telecoms, engineering and banks don’t get hit they should be fine.

      • Engineering? I was drinking with the engineers last night, I pointed out they have a universal skill they can take anywhere and get good moolah but they seemed uninterested in going to China for projects, I am amazed so many international banks, telecoms etc are still in australia given the fx rates. Are you guys seriously suggesting a biblical crash on a Spanish level, that would be awful.

          • How big do you see the Aussie crash being? Like I say I have a few friends out here most of whom appear oblivious to the economic troubles of high household debt, unrealistic house prices and a xenophobicly high exchange rate. It was only the engineers who seemed to have a grasp of what was going on. I remember 10 years ago when the Celtic tiger ruled the world…

          • inigma, there’s a price on quality of life that’s hard to match… and this is from spending 6 weeks in HK on a temporary role. I can only imagine what being inland in Beijing would be.

        • I’m not going to waste more than 20secs going over this again. Unemployment initially LAGS real estate corrections and then feeds the crash in a feedback loop.

          • agree re the feedback loop. Although its a case of “chicken or egg” as to what comes first. Falling prices feed tighter credit, less spending, higher unemployment, pessimism. Tighter credit feeds less spending, higher unemployment, pessimism, falling prices. Higher unemployment feeds falling prices, tighter credit etc etc etc. We only need one to occur for the unraveling to commence. This time I think it is stagnating prices that are feeding tighter credit, pessimism and employment (but news from oversease is independant of our prices, and this is feeding pessimism) … who knows, except to say we are on the way down, hooray!!