Mortgage surge bullish for house prices

Yesterday’s new mortgages data from the Australian Bureau of Statistics (ABS) contained more bullish news for Australian house prices with both owner-occupied and investor mortgage demand lifting in December, continuing the strong rebound that began in mid-2019 following the federal election:

As shown in the next chart, there is a very strong correlation between new mortgage growth and the growth in dwelling values, with mortgages typically the leading indicator:

Therefore, the ongoing rebound in mortgage demand should propel dwelling values higher over the immediate horizon.

As we know, Sydney and Melbourne are the primary drivers of Australia’s house price rebound, both recording quarterly growth or around 5%:

Not surprisingly, then, mortgage demand has also surged across both jurisdictions:

By contrast, the other major jurisdictions have experienced smaller mortgage rebounds and, therefore, lower price growth, as shown below:

Our base case is for the rebound in mortgage demand to continue over the near term, with house prices likely to rise through 2020, but to stall towards the end of the year.

Leith van Onselen
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  1. What’s interesting is that the rebound after the election was based on the retention of NG and CGT which would lead you to think the recovery would be investor based. However, it has turned out to be driven by OOs and FHBs. I suspect that there has been a push by FHBs in the second half of last year to get in before the FHB deposit scheme kicked in so they wouldn’t be competing with those buyers in the new year. Now we have had an over subscribed uptake of the FHB deposit scheme which is going to taper off quickly if not supported further. Perhaps alot of underlying demand pulled forward the last 6 months which could fall away quite quickly.

      • Same – we had a 33% deposit too w/o super saver/government guarantees etc.
        LVR now ~59%, feels good man

        • ING, partially fixed and partially variable (w/offset account). I believe rates were 2.8% for fixed and 3.14% for variable from memory.

          I went variable because I thought rates may go lower. I wanted offset facility also. We are only borrowing less than 20% of purchase price, so I guess it’s viewed as very low risk for ING, hence we got rock. bottom rates at the time.

          I also went with ING because I believe they are less evil than the Big 4, I was a dedicated Westpac customer for the last 30 years nearly. All they have done is gouge me for fees at every opportunity. Plus the RC highlighted how much I hate the big 4.

          So I would have paid more with ING just to be aware from the Big 4, but it turns out ING offered some of the best rates. Would recommend.

          • Any reason why the offset with a small value loan? I can understand your love of ING, we were/are with them for our private banking. I was a bit pissed off with them changing the rules RE: maximum interest in savings account, requiring 5 transactions, but I get around that by putting through 5 $0.01 transactions at woolies/coles when i go. I love their app and the international fee free stuff is great, but I currently have a bankwest world MC which does the same thing.

            We went with a subsidiary to NAB (connective home loans), @ 3.05% variable, but is a bargain basement loan (ie no offset), but there is no ongoing costs and no leaving fee etc. Partly why we went with them is we had a 30 day settlement and basically had to turn around finance in 7 days and it was able to be done.

            I’d like to move to another bank soon with offset facilities. Currently ING is 3.07, but I’ve also found online providers like Tic:Toc who are 2.79 variable, with an offset for $10 a month and are backed by Adelaide bank. Hard not to make that move really.

          • Offset and variable portion was because I wanted to pay down more than minimum amount without penalty. I kind of want to smash the loan out ASAP. But I also thought I may need to access funds to do an extension/garage soon. I am stuck with ING for now while I relocate and look for a new job role in Melbourne. I will continue to make sure I have a competitive offer as I go.

            I plan to dump Westpac completely soon.

            I was with Rabo for savings and they were really great, but I just emptied my savings accounts with them for my house deposit.

    • If housing is higher from here Feb 2020 in a years time, I’ll change my name from bcnich to Reusasbitch

    • We have a faux housing recovery. Tourism is tanking, those businesses that export to china no find there is no demand, education tanks, demand for commodities will fall as China slows. I expect the virus will take hold in India at some point and those people could not organise a piss up in a brewery.

    • reusachtigeMEMBER

      Meh. Winners and losers. Investors need the pool of renters to grow. That’s the circle of life.

    • Red Economist
      This will be the least of peoples problems in 12-18 months.
      There is plenty of housing.
      As we head into depression H2 20
      The worries will be how to buy food, what to do for a job to pay for essential items to survive.
      Do the housing shortage on bedrooms not individual housing. there is plenty of free bedrooms, there will be housing glut.
      I spoke to an 80 year old in Mel and he said in the 50’s early 60’s it was rare the average aussie starting out would have their own home. People starting off out of home boarded B&B was standard.
      There is going to be a MAJOR flip between tenants or rent payers versus landlords.
      Land lords will be desperate to get any money in.
      As people are forced to share, shops (commercial RE) will be empty with a glut of housing.
      The focus will be on shortages of
      Heating (Electricity & Gas)
      Housing will not be an issue moving forward as owners will need to rent out bedrooms, families moving back together.
      Housing will be much cheaper, noone will even give a shxx about buying a home when they have no food and are trying to stay warm.
      You wait RED, housing will not even be discussed or considered as an issue.

      I’d even go further, check out all those units on busy streets being built, they will not be able to get a tenant and I’d say left empty, you’ll see squatters everywhere just breaking in to live, I think commercial RE will get boarded up to stop people breaking in for shelter. Roof over your head, don;t worry, we have built so many fckn houses and units to last us for a century,

    • Last night’s (part 2) episode was cringeworthy. Junkyard journalism.
      And that Brendan Coates is a knob. He makes this generalised statement that renting is a strong indicator of financial hardhip. WTF? Then they cut to a dero mother of four, complaining about just how hard life is, just to make that absurd point stick.
      730 Report is no better than a Current Affair, IMO.

      • Steve
        Move along, a problem of the past.
        Let’s start discussing the real future issue
        Food shortages (famine)
        Heating issues
        How to protect yourself from disease
        How you can barter – what skill or resource you have to pay for food.

        The girl in the video above with the puppy dog, looking for a place with a massage room and hairdresser… just one of the things we will look back at to say that was the top. How did we not seeing it coming when they are so many warning signs right in front of us now.

        There are so many examples of things that signify we are at the top…………we are now moving away from luxury to reality…….

        The “Ponzi Circus” is at the end of the line

      • Well FMD
        We’re about to rent after selling house whilst we try and flush out a seller where we want to buy

        Cash in the [email protected] 2.25%, saving $30 fuel a week from not mowing 3 acres, more time for cycling golf and time with kids and surfing. Yep, totally slumming it.

    • Had a water bill, small household but bill shows 2.5x average use?! Called and told legislatively required to put that on the bill but due to high number of vacant homes it is way off what you would expect for an average household. I was dumbstruck. How many empty homes are out there? This is a broken market.

      • Yay, you stumbled across the 500,000 empties.

        So where were they all along? I’m dying to know!

        • Arthur Schopenhauer

          There are quite a few in my neighbourhood.Unkept, with no lights on at night. Eventually they get knocked down, sit around as an empty block for 6 to 18 months, and then the townhouses begin. QED.

          An Edwardian or mid-century modern left to rot. Then replaced with 12 shvtboxes.

  2. And yet some are demanding that the RBA cut the target rate.

    What a strange place is Australia.

    Faced with a monetary model that is broken and has a record of failure we demand more of the same.

    • Not just more of the same. As much more of the same as possible.

      As an aside, we’ve had little discussion here about effects of deposit interest rates (apart from the occasional rant about happy clappy angels of death). I do believe they are like 0.2% now, which is rather an absurd number. I mean, it begins with a 0!

      I have been starting to wonder how this is impacting behaviour, especially on a psychological level – seeing 0.xx% deposit earnings.

      There must also be some financial calculations which would give unusual results where the opportunity cost of deposit interest forgone is effectively nil….

      • I’m interested in the answer to that question too. It does seem like people are not raiding their term deposits to buy crap, tho. On the other hand, oldies living off interest must be getting sick of rice and beans by now.

    • Yeah it’s strange isn’t it. I guess going off the current prevailing theory (religion) the RBA should cut rates. But, in reality, it is complete stupidity unmatched by any other form of stupidity. It is so incredibly obvious that it is destroying (along with mass immigration, corruption, etc.) what little society we have left, I’m surprised (even in despite of the prevailing lower the rate theory) anyone outside of the RBA would even suggest it.

      I guess I should of been born in a more enlightened age.

        • bjw678,

          If lowering rates makes things worse and raising rates makes things worse that suggests something else should be done.

          Keep in mind that the purpose of lower rates is to support private bank credit creation and the reason for doing that is that private bank credit creation is the largest part of the money supply.

          Supporting a privatized model of the money supply is the entire point of the exercise. If private credit creation fails deflation is on the way.

          The solution therefore is quite simple – providing you are not obsessed with a privatised money supply.

          Increase the role of the central bank balance sheet beyond notes, coins and private bank deposits (reserves).

          The central bank balance sheet is not dependent on private bank credit creation and is logically the best and simplest solution to the instability of a privatised money supply.

          Step 1 is to allow everyone who wants one to open an account at the central bank as this will create a form of ‘deposits’ that are entirely safe and also independent of private bank credit creation. These accounts will pay no interest. Risk free should mean no interest.

          Step 2 – cut taxes and monetise the resulting deficit.

          A significant portion of the tax cuts might well be saved by the public into their central bank accounts but plenty will be deposited into their private bank accounts and/or spent into the economy. This additional supply of deposits will help limit interest rate rises.

          At the end of the day – trying to run an economy on deregulated credit creation by private banks is a monumental failure.

          Those calling for interest rate cuts are just simply ignoring the elephant in the room.

          Oh and don’t pay attention to the panic merchants /bank apologists who think that we cannot manage a larger central bank balance sheet. Anyone would think that a money supply built around private bank balance sheets was anything other than unstable, unproductive and mostly useless.

          • Well said. The next question is why private credit creation was handed over to the banks in the first place. Is it because governments couldn’t be trusted to limit their spending or just the biggest rort in history?
            Strange how the machinations of bank lending have only recently been revealed to the general public.

          • elastic,

            It wasn’t handed over. It was more a case of a bad solution to the problem of systematic bank fraud.

            The whole idea that a bank accepts an “unsecured at call investment” (deposit) and then lends it out at term is a fraud as they can only “honour” that agreement if only a fraction of customers who are owed that obligation request that is honoured at any one time. Not surprisingly banks crash the moment more than that fraction of customers demanded that the promise of repayment at call be honoured.

            Solving that problem is not difficult. Simply require a bank to always match in aggregate the terms of its obligations to its investors (including depositors) with the terms of their loans. If people want funds to be available at call the bank simply cannot lend those funds out.

            Customers may still be interested in an account at call that charges fees and pays no interest because it gives them access to the banks payment network.

            Term depositors and buyers of bank bonds invest in a bank on precisely that basis. They commit their funds to the bank for a period and earn a higher return for doing so. It is the unsecured at call investors that are the problem.

            If you wish a return you need to invest at term so the bank is able to lend out your funds and earn a return which they then split with you.

            But instead of that simple solution, the banks proposed (not surprisingly) that we introduce Central Banks and effectively give the banks easier access to liquidity for those days when they are skating to close to the line. That central bank / private bank cartel model lead to the development of the “interest rate” lever of economic control and that has provided extremely addictive to those with a tendency to centralised economic control.

            In effect the deal is simple – the banks get their fraudulent business model underwritten and the control freaks of public administration get to ‘control’ a major lever of economic management.

            And we wonder why we are in such a mess.

    • It’s the only thing they know. Cut teh rates!

      If Fraudenberg wants to balance the budget he could fire everyone at the RBA – that would save a few bil and monetary policy could be run by an algorithm instead. Why the need to pay for hordes of worthless people whose religious adherence to faulty economic theory is wrecking this country?

      • The same reason any major organisation contracts out anything. So responsibility can be palmed of on an external entity.

        • That may be the case, but can’t we hire someone on minimum wage instead ? My taxes go to pay those useless &%$##’s salaries!

        • I am sure they will have the name on the building and earning $1M but they will be a waste of tax payers money.
          What are they going to do, RBA cash rate will never be able to be lifted once we hit zero bound wherever that may be and then what can they do, just keep printing money.
          RBA are close enough to done now

    • @Pfh007

      We demand more of the same, because until the system is absolutely, irrefutably broken, there is no chance it will be fixed. Right now, most people don’t know the system is broken, they assume the various issues are no more that minor inconveniences.

  3. Goldstandard1MEMBER

    Yes it does seem like the calm before the storm to be honest.
    Markets haven’t reacted to corona virus reality information yet. People are believing that it’s contained when point six in the “how to handle an epidemic” is that markets panicking and mass hysteria need to be contained as long as possible via media.
    This on top of a very brittle economy. Besides property prices which is ill informed people borrowing cheap money, there is not a lot of good news and with China shrinking soon, only direction is down from here unfortunately.
    Be vigilant people.

  4. They have to cut rates to suck in a new wave of borrowers as its the only way to continue the bubble. There is an end point to this when rates become negative.