A confidence hit to housing construction

By Leith van Onselen

Yesterday’s unexpected fall in the Westpac-Melbourne Institute Consumer Sentiment Index, from 104.3 in November to 100.0 in December (see below chart), has dealt a potential blow to the RBA’s plans for housing construction to fill the void as the mining boom unwinds.

As discussed by Houses & Holes yesterday, there is a strong correlation between the Consumer Sentiment Index and both real house prices and housing finance approvals. More importantly from the RBA’s perspective, however, there is also a very strong correlation between the Consumer Sentiment Index and dwelling approvals:

While one month is not enough, we can observe that the Consumer Sentiment Index is now at a lower level than when interest rates were first cut by 0.25% in November 2011, which runs counter to the four prior interest rate-cutting cycles commencing in 1990, 1996, 2001 and 2008 (see next chart).

There is at least a gentle up trend in place from around 9 months ago, but consumer’s weak response to the latest round of interest rate cuts is further indication that monetary policy has lost much of its potency, and suggests that the RBA is indeed ‘pushing on a string‘.

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.



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  1. reusachtigeMEMBER

    I’m happy to see that our interest rate cuts are working US and Ireland style now. Thanks idiots for calling them down, it is working!

    • Housing is coming back in the USA along with the rest of the economy, and despite a lack of policy stimulous in Ireland price falls have stopped with some very small gains in Dublin over recent months.

      • your Right, by my business I have direct access to a quite statically significant numbers of US small businesses’ financials and I can tell you it s not booming yet but it s becoming really good there.

        USA is back in force, 2013 will be a great year ( and i guess the of the whole decade as well, especially for the property sector ).

        some should drop the gloom when the US booms, everything boom, Iron ore will skyrocket next year for sure

        • So, maybe its much better to buy property in the US now as the return’s will be much better than here. Many more people in Australia should invest in the US housing market as this market seems to have peaked.

          • Aussie who have invested in US the last few years (and they are quite a # of them) are now making an absolute killing, they are setup for life.

            I think you have to be there or local to invest, I would not dare doing it but I still buy properties here, it s a very nice market to be in, pretty much a sure bet with the full gov support/population growth/public infrastructure investments.

        • Yes they seem to have their mojo back. I would be cautious about getting over optimistic, but it’s time to move out of the 2010 time warp groove that many are still stuck in.

          Thanks for your insight.

      • personally I find it hard to believe that the US coming back when they’ve just announced QE4. This isn’t the signal they give when the economy is recovering.

        • Absolutely right, they are desperately trying to keep things going, and despite the rubbish mentioned above about an impending ‘recovery’, everything I’m reading points to a protracted decline of historical proportions. So I’m betting along those lines.

        • Paper Economy and Calculated Risk provide excellent stats on US housing, employment and economic activity as does DShort.

          Focus not on unemployment rates but on trend in employment growth. The US has much faster employment growth than most people realise. Employment growth = GDP growth almost without fail. Many housing markets in the US probably have less downside than Australian cities.

          Also we need to understand that refinancing to lower rates in the US is a much slower process than in Australia because most are long term rate mortgages that require a tedious refinancing process. It is not like the (partial) automatic flow through within 8 weeks that most Australian mortgagors enjoy. So there are still people refinancing to lower rates in the US and thereby increasing there borrowing/spending power. The growth in student loans is however a potential concern and they don’t get written off in bankruptcy.

        • A US recovery does not mean Australia avoids the pain. Who will fund our offshore debt at low interest rates and a high AUD, if capital can invest in a once again healthy US?


        • Maybe but I don’t think so. We should escape that crash and naturally we won’t see a sharp upturn – just a period of flat prices.

          If you disbelieve me then you should opt for the “slow melt” theory put forward here rather than “put the house” on a crash. I’m not a subscriber here, but you would be well advised to pay for professional advice rather than use your own hunch – most here don’t seem to have solid financial literacy and they have no past experience in these markets – note I said most.

          A small investment in good information could save you thousands. I’m not trying to sound like a plug, but I’m sure that you will know that it’s true.

          There is grave danger in being stuck in a 2010 time zone, the world keeps changing.

          • Good information is hard to come by, for example, you wouldn’t want to get that advice from anyone that has something to gain from property because that is a vested interest.

            As for using hunches PF, well you seem to be using hunches all the time. You like everyone else has no idea how the world markets are going to play out because there are just to many variables involved.

            But, to play it safe one can sit on the side lines as property in Mel has started to decline in value and will continue to do so. If you also have people walking out of deposits on developers and increasing mortgage stress then there is nothing to loss.

            One other thing, the economy will nose dive in 2013, and this will also impact the RE market as more loss jobs and struggle with repayments, and who wants to take out slave debt in a crap economy ?

            Lets take a look t the EU, Italy may bailout of the EU it has nothing to loose by doing so, Greece’s social standing is destabilizing and I doubt they can keep going the way they are.

            The US is in debt up to its eye balls, if they keep printing money how does that affect global oil supplies etc… or what ever else is pegged to their dollar.

            Better to wait PF, its just a HUNCH.

          • “but you would be well advised to pay for professional advice rather than use your own hunch – most here don’t seem to have solid financial literacy……”

            Rubbish Peter and you should know it…….are you advocating paying for advice like you peddle ? You do advise people don’t you ?

            It is not hard to sail your own boat in this world, we now have the internet to help us all open our eyes, relying on mainstream financial advice right now for our invesment decisions is akin to financial suicide. It is not worth the risk at present.

            And your comment does stink a little bit of delusions of self grandeur does it not ? Most of the Macrobusiness crowd just really do not get it do we Peter ?

          • bskerr2 and Bob, I don’t sell advice at all, I really don’t care where you seek it, that’s up to you.

            It’s quite obvious to me that there are a high number of well educated public servants, academics, teachers, doctors, lawyers, dentists etc here. I’m sorry guys but the history of that group as financial managers is just abysmal, only their relatively high income prevents them from failing completely as financial managers. Most of them struggle with basics that your average Greek Fruit and Veg retailer understands instinctively.

            If you don’t want to pay for good advice, ask your fruit and veg retailer for advice. He will know more than you do.

          • “If you don’t want to pay for good advice, ask your fruit and veg retailer for advice. He will know more than you do.”

            Totally full of yourself Peter.

            Jumping to those conclusions really does make you appear a total numpty.

            Good for a laugh tho !

          • Mining BoganMEMBER

            Twice now today I’ve seen PF question the financial acumen of those disputing his hunches.

            Seems like a bit of a diversionary tactic starting here…


          • Twice now today I’ve seen PF question the financial acumen of those disputing his hunches.

            You should see when he gets all conflicted about it.

            I once stated that in terms of theoretical knowledge of economics, he knows less than most here.

            I thought it was a fair statement, he often chimes that theory isn’t that useful as far as he is concerend, and that more weight should be placed with his anecdotes and hunches.

            As I siad, i thought that was fair, but you should have seen the toys come flying out of the cot.

      • Positive demographics in the USA. They do not have the bell shape population pyramid we do nor the increasing dependency ratios.

      • PF, that’s a ridiculous statement and probably the worst example of cherry picking I’ve seen from you. How on earth can you hold up the US and Dublin as positive stories for property prices/policy? If we’re to follow those examples we will end up with something far more devastating for prices than a slow melt, as you’re aware. Seriously, have you missed your morning coffee today? There’s usually a bit more superficial plausibility to your statements.

        • McPaddy I didn’t hold up Ireland as success stories, I mentioned that property prices appear to have found a bottom in Dublin and have shown some slight gains. That ws to show that the market keeps shifting. What may have been the right thinging some years ago may not be right in the future.

          The USA is different, they have been a success story for over 100 years, a lot more really when you consider their beginnings.

          However we aren’t following either of those nations, just as other countries rich in natural resources haven’t.

          Exactly how is that cherry picking? I’m keen for an explanation of that accusation.

          • The original comment was: “I’m happy to see that our interest rate cuts are working US and Ireland style now.” To which you replied that Ireland and the US actually don’t look like they’re doing too badly at the moment. I call that cherry picking because they have only stabilised after a huge leg down. I read your comment as implying that the Irish/US policies weren’t all that bad after all because of what’s currently happening in those markets. But surely the fact that each of them has gone through a massive correction and Australia is yet to do so means that it is not a fair comparison. By “cherry picking” I mean looking at the last few months (relatively good) data rather than the last 5 years. Make sense?

          • McPaddy – you didn’t quote me, you quoted your interpretation. What I said was “Housing is coming back in the USA along with the rest of the economy”

  2. And many now know that Australia in 2013 is going to be a very different place with the peak of the mining boom and then a big slow down. This will zap consumer confidence even more, which by the theories of todays articles would mean housing is going to nose dive even more.

    On top of that I would say there is going to be a wage drop, there would be a choice, sooner or later this will have to happen if it has not already started, and this in itself will make people pull back on spending.

    • Spot on! The is going to be a wages drop..and not only in real terms, either…Ask any banker, for instance, if they would accept 80% of their current wage or the 0% that accompanies retrenchment. What was it we saw about Australian productivity today? Not good! Lower wages can help fix that.

      • thomickersMEMBER

        i know a couple of people who have taken a voluntary redundancy package equivalent to 1 year salary and then getting re-hired to do 3-4 days/week

      • Getting rid of some of the stupid laws and regulations would help fix it, get the exchange rate down to a level where we no longer run a CAD…then worry about wage levels!

        I guess it depends on whose wage levels? Lawyers bankers, overpaid execs, overpaid powerful unions, et al…go right ahead. Cut the hell out of it but I just can’t figure out how that would be done. It’s always the weak that get it in the neck…like SME’s and their employees, farmers etc

      • Hi Janet. I recommend a read of the report on productivity done by the McKell institute (progressive: code for Labor aligned) and UTS on productivity and how best to measure it.

        Also a bit of reading on how the mining /resource processing investment negatively skews productivity in that industry until the relevant revenues come on stream and the capex winds down. The mining investment boom is the main source of the apparent (not necessarily real) poor productivity.

  3. PF you sir could be the biggest tool out here and with 3D kicking around that’s some achievement.

    If and I do mean if, the US RE market is re-inflating I doubt its from their own population buying in again.

    The high $AU gives us a huge advantage to buy up and price out people who need a home. You and dam are little more than vultures. Business is business you will cry, but its behavior like this that puts me at ease with ripping up NG and resting all the pain of a correction on property speculators.


    What would we do if a nation used their stronger currency to price hardworking Aussie families out of ever owning a home. Doubtless you and your like would rub your hands together in glee and buy shares in BCF to cover both sides of the bet.

    Don’t ever confuse what legal with what’s right. Australia home of the fair go……… Not with PF and his mates here.


      • Yes – last time I looked towards the USA they still had a national debt well in excess of 16 trillion, unfunded liabilities in excess of 100 trillion and a Federal Reserve buying up mortgage debt and US Treasuries at a frightening pace.

        We all know deep down that you cannot fix a massive debt problem with more of the same ad infinitum. It is still forms the basis of Einsteins theory of insanity.

        Mathematically the USA is properly stuffed, they will never be able to grow their way out of the current hole they find themselves stuck in. That hole will grow forever deeper until they either hyperinflate or default. They are headed down the same road the Japan took more than 20 years ago.

        The USA is a spent force being ground into the dirt by the current crop of political incompetents.

        • LOL – guys you really should start a comedy trio act.

          So the USA has run out of dollars and all their real estate is being bought by Australian with our high dollars.

          Amazing stuff.

          • No – just pointing out that without the printing press the USA is bankrupt.

            What is so funny about that ?

          • “Without the printing press the USA is bankrupt.”

            Great observation.

            It shows that the USA will never be bankrupt (as they have/can always make printing presses or their modern equivalent, electronic debits and credits) and the benefits of a fiat currency as opposed to gold or commodity based or a fixed exchange rate regime like Bretton-Woods which took 12 years to undo.

            Are you a modern monetarist realist/chartalist?

          • Yes – A simple Observation.

            However I would never go so far to say that they can avoid bankruptcy by simply printing their way out of the hole…….

            The Yanks are turning Japanese. Perhaps they should instead learn to keep their hands off it (the printing press that is) default, wipe the slate clean of the unsightly mess and then be in a position to start again hopefully having learned a valuable lesson in the process.

            But we know that will never happen, rather than default they will continue to inflate and default by stealth.

            The only way the world can learn from this current global fiat money experiment is to eventually take the pain, toughen up and start again hopefully with a ‘sounder’ system of money and finance.

            Expect the chaos to continue….

          • No PF – I have stated quite clearly that with or without a printing press the USA cannot avoid bankruptcy. The debt pile is just too enormous.

            And if you believe in the manufactured employment figures coming out of the USA then no doubt you also believe in Unicorns that Fart Candy Storms.

            If the unemployment situation in the USA is looking so rosy why then did the figures for those not in the labor force rise by a huge 542,000 ?

            Disgruntled workers dropping out of the labor pool. Yes, a sure sign the USA has turned the corner and from here on in all will be sunshine, lollipops and rising house prices.

            Back to the good old daze of unlimited credit and debt. We really have learnt nothing over the last 5 years haven’t we ?

          • Bob Sickle – I believe that the trend in US unemployment is favourable, I don’t particularly care about the numbers themselves, the trend is the importnat factor.

            Look you can kid yourself that I believe in Unicorn with unusual flatulence characteristics if you wish, but it’s not so, I’m very much a realist.

            As one of the global manufacturing powerhouses the USA has no trouble getting buyers for the $USD. If you choose to ignore information and believe that the USA is headed for the sewer, that’s fine by me.

            Best of Luck….

  4. FHB’s, the lifeblood of the market, are indifferent. Mortgagees are in a funk, paying down their towering debts. The interest rate cuts are now scaring people more than they change the equation.

    The USA had a major land price reset and are likely recovering after five hard, frightening years of price falls, personal bankruptcies and sales stagnation.

    If Oz has decades of nominal steady prices ahead, there is no incentive to buy while the rent/own balance so favors renting. Staving off a land price correction may simply not be worth doing.

    Inexpensive land ought to be an explicit national objective.

    Don’t Buy Now!

    • David,

      Do you have a view on the idea of rstricting new land sales to only those developers that can show that they have a landbank of less than 10yrs of supply?

      • Well that would really gum things up, Patrician. Lend Lease has ~33 years worth they should have worked down while prices were high (shareholders, be grumpy). And how do we define ‘developers’? Some are just landowners realizing windfall gains from rezoning.

        Even nominally steady prices and low volumes will be torture for developers, and they know it. DBN

          • Thanks Peter for responding on behalf of DC.

            Could you talk us through how it would effect the landbank of a developer like say.. Lend Lease.

            Lots held ~ 68,000
            Lots sold last year ~2000
            Years of supply ~33
            Before they could buy more land they would have to sell ~6800 lots this year.

            DC feel free to join in.

          • the Patrician – You probably really want Davids opinion, not mine and hopefully David will answer you.
            My thought is that if you restrict supply to 10 years, how can you actually tell anyway. How does any developer know for sure how much land is required an how many sales they will make?
            Your suggestion may be counter productive in the long run and it almost certainly would lead to higher prices. If you wanted to restrict supply then a land tax would be better, however I would be certain that the developers already pay a land tax. In any case why on earth would anyone want to restrict supply?
            A better response would be increasing supply, reducing contributions and statutory fees, reducing wait times for a DA, lesser EPA powers, less nimbyism, and more flexible policies from the levels of government involved.

          • Thanks Peter. It must be difficult to give a responsive answer.

            At least you had a go.

            Mr Collyer?

            Can you address the question using the Lend lease example?

            Why would this not result in an increase of supply i.e. 6000+ lots coming onto the market this year

        • TheRedEconomistMEMBER


          Just curious on where you get this information that Lend Lease approx 33 years of land in there “Land Bank”

          Is this info freely available?

          • It’s from their ASX company reports. All the REIT’s reveal ‘lots settled’, and ‘lots in development’. I simply divided one into the other and tra la. They also reveal an estimated end value etc. I hope for the REIT’s sake last year was a bumper sales year, which would have shortened years of supply. DBN

      • Land Banking is occasionally very high risk. The Sir Paul Strasser and Parkes Development story is a classic example of what happens to a land focussed developer when en globo land prices fall.

        Home Units of Australia is the similar story for getting caught with too many units under construction during a slump.

  5. The US labour market is not ‘recovering’. The participation rate is falling, the workforce is graying, the unemployment rate for young people is the highest it’s been for a long time, and jobs gained are part time rather than full time. So we have a labour force of ageing people that are hanging on for dear life because helicopter Ben has stuffed their retirement plans with ZIRP. This is all at the expense of their kids and future generations. Hardly grounds for an economic recovery. Ben and his MIT buddies are keeping rates artificially low because he knows if they pop up the housing market is cactus again. The fed has a good record blowing bubbles and watching them pop.

    • “Hardly grounds for an economic recovery.”

      Because it’s not. It’s the illusion of one however , which is all that matters and all that Ben has to deliver.

      If you take this scenario further out, the US is into a cycle of lowered personal wealth with rising poverty. Some sectors will survive through this well, while others will be up and down.

      Energy, Healthcare, Utilities, Food Production etc. All are areas of stable activity and demand in the US. But all the while US debt is climbing and now we will see direct monetisation of that – if I read the BB speech correct. It’s not much but every wedge has a thin end. The US is able to accomplish this through 3 things; 1. USD as Reserve Currency and 2. The US can print as much money as it needs – it cannot go bankrupt.3. Every major CB is buying USD to sell it’s own currency.

      It looks horribly like a mexican standoff.

  6. Correct. They are creating an illusion that everything is ok- frankly it is far from ok. As the private sector deleverages, central banks are filling the void with the monetization of debt. They are hoping that if they buy enough time the consumer will start borrowing again and we’ll be back where we were in 2007. The trouble is everyone is maxed out and therefore will not take on more debt. This means more debt in the US and more printing, as we are never going to return to levels Pre 2008 which was the greatest level of credit expansion achieved in human history. So we will see QE5, QE6 etc and reach the point where everyone is going to end up like Japan- filled with zombie entities that should have been purged Asutrian style instead of being socialised and back stopped by the taxpayer. At some point there will be a loss I confidence in QE, and en look out below risk assets. This is all one big experiment, and BB is seriously flying blind. We have two more bubble pops to go- US bonds and equities. BTW- the US is already in recession.

  7. Want to buy an ignore button for Peter the ego feckin Fraser.

    I’m not a fan of censorship but if I wanted to hear someone talk shite I’d fart.

    RE or PI know it all it would seem. His rhetoric is dull and predictable. He could be Joe HJockeys fatter cousin lol