Victoria continues to deleverage

By Leith van Onselen

The Victorian Department of Sustainability & Environment (DSE) released transfer and mortgage data for the month of August, which shows continued weakness in the number of housing transfers and finance commitments.

First, below is a chart showing the rolling annual number of housing transfers from February 2003 to May 2012:

According to the DSE, the annual number of Victorian home transfers fell slightly over the month – from 171,495 in July 2012 to 170,862 in August – 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 (193,138) has again exceeded the number of mortgage lodgements (191,278), meaning that -1,860 mortgages were lost in the State of Victoria in the 12-months to August. This compares to the average of around 13,291 annual net mortgage creations since the series began in 2002. It was the sixth straight month that annual mortgage discharges have exceeded mortgage lodgements.

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 August 2012, however, the number of mortgages lodged has slipped just below the number of mortgages discharged, signalling that Victorians are deleveraging.

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.

Leith van Onselen


  1. I guess this is what happens when the wealthy and government create policies that create speculation bubbles. And with the sub-prime starting to bite into main stream media MSM it sets the future for one big crash. Who would agree ? and better yet, who can list the most negative things in these comments on what will make things crash, i will start

    1. Sub-prime is NO.1 in my books
    2. Retiring folk off-loading property for cash maybe
    3. Foreign investors may ditch properties
    4. Poor superannuation investments
    5. Distressed mortgages (isn’t 1/3 of all mortgages now ?)

    who can think of more

    • Right now there is still the belief that houses will rebound and ‘investors’ will get those great returns that they got up to the end of the last decade. The price drops are seen as a blip in the market and not the result of a massive change in market dynamics.

      What this means is that prices drop and people go out and ‘bargain hunt’ for houses that are 40% overvalued instead of being 50% over valued. Once this belief is gone, it’s game over for the property bubble. If nobody is buying and everyone is selling then prices are going to come down very quickly.

      • Once you’ve bought that little gem for 40% off, two things happen. (1) It gets a new value for the next re-mortgage/sale and (2) the next buyer knows what you paid and is reluctant to give you your profit! The place I rent sold in 2006 for $600k; sold in 2009 for $395k. The landlord now wants $500k. Do you think I will give it to him?

      • “Right now there is still the belief that houses will rebound and ‘investors’ will get those great returns that they got up to the end of the last decade”

        agree with this which is why we arent anywhere near the bottom yet. For the brianwashed property believers there has been 2 belief systems. Only one of which has been shattered so far.

        1. House prices always go up. This has been smashed to peices and anyone who actually believed in this garbage is looking like a real idiot but hasnt stopped the belief in the endless gifts from the property gods. The denial has set in though and many are now questioning their beleif but now they cling to….

        2. Interest rate cuts will stop further falls, turn the market and see it start rising again.

        As we are seeing now, just like everywhere else, interest rate cuts are having no impact.

        Once this last strand of hope that property bulls now desperately cling to is thrown in the bin with “house prices always go up” thats when the real panic selling will begin and prices will crash as people will realise they have been played for fools by vested interest property spruikers and “confidence” in properties never ending gains will be shattered. I’d give it a few more months. the crash will be a 2013 story

          • As much as I would like to see this happen soon and quickly, this is the real estate market. It won’t happen soon or quickly. It is slow moving by its nature and the added regulatory and policy hurdles it needs to deal with.

            It’s worth noting that when this happen (it is not a question of if for me anymore) we will feel the pinch. Prepare for a contraction in the economy and thus job uncertainty. It will not be fun for anyone, but it will be horrible for some real estate “investors”.


    • Let’s ask Christopher Joye eh? He’d no doubt tell us the data proves:
      1. Victorians have done a brilliant job of tightening their belts and have paid off their mortgages, setting up the next wave of purchases that will drive prices higher.
      2. Negative gearers who kept their investment property empty and holiday home home owners are now renting out their properties in a heartfelt act of self sacrifice to end the housing shortage
      3. Hardly one needs a mortgage any more in Victoria because all the properties are being bought by cashed up Chinese

      Instead we all recognise the truth. Fewer and fewer can afford to get into the ridiculous level of debt to buy property (or have wised up to the reality of debt servitude and the existence of a serious housing bubble)

      • When a Mortgage Insurer goes bust and or when the authorities step in to prevent the poor punters accessing their Superannuation to bail out the Insurance Companies from the top end risk.

        Didn’t we just see evidence of more and more Australians accessing their Superannuation balances early under hardship rules.

        Well check this out, Australia’s largest mortgage insurer has a “Hardship” help desk, a team of dedicated professionals who can assist borrowers who fall behind on their mortgage payments. I wonder whether early access to Superannuation is one of those remedies.

        • Iron HorseMEMBER

          I like that they are helping ‘…upwards of 100 families…’

          So, is that 101 families or 10,000 families?

  2. In my corner of Melbourne (south east) there is a big chunk of stock about to hit the market. Current stock seems to be doing quite well, but I dont think the market can absorb whats coming and clearance rates will be back in the low 50s before long.

    This is structural IMO. And it will get a lot worse as boomers start to try to cash in their chips.

  3. The net discharge of mortgages is a fascinating development. Many with debt are paying it off as fast as they can. Sadly, the tide of falling land prices is coming in faster than they can run.

    Don’t Buy Now!

    • It is fascinating. I wonder how many Boomers will retire, and use their super to pay off the mortgage on their rental properties? When there is no more income, negative gearing is worthless, and that generation believes completely in the God of property. So, could there be a flood of cheap rentals appearing over the next few years?

      • You’ve made some good points Mr X. I am one of the boomers retiring next year and yes I will use my super to pay off the remaining mortgage on my property rentals. As you said, negative gearing will be worthless from next year so may as well pay off the mortgages. As for the flood of cheap rentals goes they won’t be coming from me. I intend to keep all of mine as the major source of income and hope to be kept occupied renovating some of them in between tenants.

        • Still a bet on capital gains really? below cash yield with a taxable income. I think quite a few holders might be tempted to get better yields elsewhere with franked gains?

          • Betting NO , hoping YES.
            Better yields come with bigger risks and seeing my small share portfolio getting smaller put me off from chasing higher yields and allowing my hard earned money to be controlled by fund managers and company CEOs. They are only in it for themselves so why trust a stranger with my money ? Maybe I’m old fashioned but with property I can see what I invested the money in and even if it burns down there is the value in land that will always be there. Rental returns may be modest but so is the risk and over time the returns continue to increase in line with inflation and population growth. Any future capital gains are just a bonus. 😉

          • No problem with that. Especially the bit on the companies. But it’s still a trade, and there’s a lot of Japanese, Americans and Spanish that might suggest its a bad one.

            A bird in the hand… Good luck with the bet.

        • As an unpropertied 30-something this is what worries me. Boomer investors will work until they have enought super to pay off their investment properties and then hold them and accept below par yields during retirement. While they may eventually be forced to sell when ever rising costs of living catch up with them and the rent from their properties no longer supports anything but subsistence living that could be years into the future and it’s unlikely to cause a sudden flood of properties on the market all at once (more a steady trickle). Where does the trigger for a major housing price correction come from under that scenario?

          • thomickersMEMBER

            You have forgotten about the other reason why boomers can become forced selling of your property.

            Many people are unable to continue working due to medical conditions/chronic injuries/wear & tear.

            tradies/builders start fading out between 55-60.

            office workers 60-70 (depression makes you retire earlier).

            Smokers: @ age 50 – 55 you become useless if your job requires hard toiling (trades/construction).

            Although many indebted boomers have set targets of 70, many people are unable to get past their bodies to do work past age 65.

          • “office workers 60-70 (depression makes you retire earlier).”

            Bit of a lurker this one.

            Starting to see more of it.

          • That is one possible scenario. Unlikely as investor behaviour is a lot less resilient when the “on paper” value starts to fade away. Let’s say that investors do settle for below par yields – that’s yet another reason to avoid the asset, and makes renting an even better decision. …if we see a slow trickle instead of a rush, it will just mean that more people are losing more money over a longer period of time. Australia’s residential property/land market is, by any other name, quite simply a bad investment** (**of course there will be some pockets that might still have some blue sky; though to find it is difficult as every suburban real estate agent will tell you it’s their patch!)

  4. What you are seeing is more Victorians are now working in WA mines and paying off their mortgage a lot sooner then they used to do. I should know, 7 out of my 15 co-workers are from Victoria which makes over 50% of the team Victorians. 😉
    The others are 3 Kiwis, 3 South Australians and one indigenous guy from QLD. Keep an eye on South Australians deleveraging next.

    • You will have no choice but to lower your rental’s if everyone else is forced to, otherwise no one will rent your apartment. And we will see more available rentals as people lose their jobs and move back in with family. You have also not included the big Sub-prime problem that will crash this market for sure. It’s already been in the senate and now there is a push for a Royal commission. It’s believed that 100,000 families could be caught up in this. And this is worth 60 Billion and the 400 applications they have checked so far have all been fraud. These people are under water and because its fraud can most likely just walk out of their mortgage without having to pay for it. I can only see banks offloading property fast if this happens So, your nest egg is certainly in one basket.

      • Good point but once I retire I am no longer looking to increase my wealth trough savings. Whatever money I earn will go back into the economy so lower rents will mean taxman gets less tax, eating out less, cutting down on unnecessary purchases,etc. As log as people need a roof over their head I will still receive some income and this will go up in line with cost of living, land price and the cost of constructing new dwellings. Not sure we have a “big Sub-prime problem” in Australia but lets say you are right. The 400 applications that you say are fraudulent will allow the applicants to walk away from their mortgages and lets say that they owe more then the property is worth and walk away, then what ? The banks still own the properties and either become landlords or sell the properties and the 400 families will have to find 400 properties to rent.
        You also have to look at increasing population, increasing building costs and decreasing numbers of property investors as some of the major factors in future rent increases. As some of you are pointing out currently renting is cheaper then buying and the prospect of any capital gains is minimal so why would new property investors enter the market now ? Nothing wrong with having most of your eggs in one basket if YOU watch that basket.

  5. “…..signalling that Victorians are deleveraging.”

    A classic example of a non-sequitur. This is not analysis… is opinion.

      • Exactly as it is. More payouts than new mortgages. Unless you know the motivation behind the action (on both sides), no conclusions can be drawn.

        I agree that households are deleveraging (no arguments there), but this statement cannot be supported by the Victorian mortgage data.

        • Of course he can make a conclsion; perhaps he just needs to add another premise or two to qualify the argument as logically valid, but of course he can make a conclusion.

          Additionally, if he is implying by omission that the significance of the data is self-evident, then this would be invalid, but I don’t think he is saying that.

          Maybe another premise or two, but of course he can make a conclusion!

          My 2c

      • Hi UE. Even though I don’t agree with StephenM on his point (or the way he’s making it) I’d say you cannot conclude Victorians are deleveraging by the data provided in this post.

        Most mortgages have a period of 30 years. The average mortgage is paid within 7 years. That means the mortgages discharged are for house prices 7 years ago (on average) and the ones committed are based on prices today.

        The data that will show Victorians are deleveraging is the total ammount owing. The agregate of the principals of all mortgages in Victoria must be shown to shrink. I have seen no data so far that supports Australia is deleveraging at the state or national levels.

        It is therefore, incorrect, in my opinion, to say Victorians are deleveraging. As much as I would like that to be the case, I don’t think the data shown in this post supports that conclusion.



        • I should say “I have seen no data so far that supports Australia is deleveraging at the state or national levels, by shrinking mortgage debt.”

          There is evidence at the national level to support deleveraging of personal debt.

        • I presume the data in the tables don’t include refinancings either? (I presume refis – up or down – would also be relevant to an analysis of deleveraging)

        • Most mortgages have a period of 30 years. The average mortgage is paid within 7 years. That means the mortgages discharged are for house prices 7 years ago (on average) and the ones committed are based on prices today.

          Somehow I doubt the average mortgage has really been “paid” in 7 years for quite a while.

          Swapped for another one on a property trade-up, maybe, but not “paid”.