RP Data’s Tim Lawless has today published a good blog post examining why the current housing recovery has been weak relative to the post-GFC mini boom:
Capital city dwelling values increased by 14% over the first thirteen months of the 2009/10 cycle compared with a 3.8% lift in dwelling values over the same period in the current cycle.
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Lawless goes on to explain how some factors, such as auction clearance rates and average selling times, are similar this time around compared with the previous price cycle. However, there are also some key differences that are weighing on price growth:
Firstly, looking at the average loan size we can see that there hasn’t been anywhere near the same level of uplift in the value of home loans being committed to which helps to confirms the lower rate of dwelling value growth. One point to make though is that the average loan size didn’t really start to escalate swiftly until the eight months into the previous growth phase (see second graph below, ‘Average loan size (indexed). We haven’t seen anything like that in the current phase to date.
The number of first home buyers in the market currently is also radically different, as is the level of market stimulus for first home buyers. Back in the early phases of the 2009/10 growth phase first time buyers were taking advantage of the First Home Buyers Grant Boost as well as stamp duty concessions and low interest rates. Over the first eleven months of the current growth phase, according to ABS housing finance data, there were just under 83,500 first home buyer housing finance commitments. Over the same period of the 2009/10 growth phase there were nearly 176,000 first home buyer commitments. That’s a big difference. Arguably, first home buyers tend to push prices higher, not just because of the grants that were/are available, but also because their behaviour can be more emotional than other segments of the market.
First home buyers currently represent just 14.3% of the overall market compared with 24.8% at the same stage of the 2009/10 recovery phase.
Investors, on the other hand, are currently showing a larger presence in the housing market compared with the same stage of the cycle during the previous growth phase. The value of investor loans is currently higher than what was recorded at the same stage of the market back in 2009/10. Counter to first home buyer behaviour, investors tend to be more clinical in their purchasing and less emotional which is potentially another reason for the restrained level of value appreciation in the current cycle.
There is also the factor of fewer active buyers. Looking at the number of house and unit sales in the market, although there has been a decent uplift in numbers over the past year or so, there were substantially more home sales taking place at the same stage of the previous growth phase. That additional level of buyer demand was also likely to be one of the factors that was pushing values higher at a faster rate compared with the current cycle.
Overall, many of the indicators are quite similar in the current market conditions when compared with the market at the same stage of the previous growth cycle. The most significant difference is the more subdued rate of growth which can probably be attributed to lower overall demand, fewer first home buyers, more investors and less appetite for debt.
Broadly, Lawless’ analysis looks on the money. And with commodity prices and mining capital expenditures likely to continue falling, reducing national income growth and raising unemployment, chances are that the house price recovery will remain muted, with downside risks further down the track should the unwinding of the mining boom become disorderly.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
