ABS Data Released - National prices rise 20%

[Shadow]

Sydney up 21% and Melbourne up 28% over the year.

http://www.abs.gov.au/ausstats/[email protected]/mf/6416.0

So much for the gloomer predictions of a massive crash...

 

[WinstonWolfe]

last year's performance won't tell much about this year's.
the chart below might be a better predictor of things to come.

to borrow from equities technical analysis, let's hope volume doesn't precede price.


Number of Owner Occupied Dwellings Financed Excluding Refinancing (Tables 1 & 2)

$m's in loan outstandings is increasing at 1% per month, against reduced total finance.

 

[Nathan]

WW what about the investor loans they have taken out the fall in OO loans, but once again only a certain number of investors out there too,...

 

[warrenkh]

re

Regardless of what this year may be, this is astronomical growth for our properties. I am amazed to say the least.

Good news for my existing properties, bad news for my future investment which definately had become more difficult now. May be had to look to the regional areas now.

Warrenkh.2010

 

[Aaron Sice]

sorry - WTF does your chart represent there WW?

 

[mary&mat]

last year's performance won't tell much about this year's.
the chart below might be a better predictor of things to come.

to borrow from equities technical analysis, let's hope volume doesn't precede price.


Number of Owner Occupied Dwellings Financed Excluding Refinancing (Tables 1 & 2)

$m's in loan outstandings is increasing at 1% per month, against reduced total finance.

Hi WW,

Could you please explain the chart to me in really simple terms?

Does it mean tha lending for new loans is down for OO dwellings & therefore this is good for investors b/c demand is still stronger than supply at the moment?

Thanks

 

[WinstonWolfe]

The ABS chart above is the number of housing finance commitments by owner occupiers per month. i.e. the number of loans taken out by oo's to finance house purchases, whether existing or new.......and excludes loans to refinance.

As for investors stepping in where oo's are falling off, I can't find any ABS or RBA stats series for the number of loans taken out by investors.

The RBA gives a series for bank finance for housing, split between oo's and pi'ers, below. As the chart reveals, the investor percentage of total bank housing finance has diminished from a 34.5% high in december 2004 to 30.4% in mar2010.

source : RBA Bank Lending by Sector - D5

 

[WinstonWolfe]

Below is the monthly change in $s of bank lending for housing, to March2010.

Since the november 2007 high, there's been lower highs and lower lows, a downward trend.

This is only possible in the face of higher median prices if volume of homes financed decreases.

 

[Aaron Sice]

i wouldn't call the actions of a ~13% drop in finance by investors as "diminishing"....

 

[WinstonWolfe]

i wouldn't call the actions of a ~13% drop in finance by investors as "diminishing"....

It's not actually a 13% drop in $s borrowed. It is a reduced portion of total $s borrowed from banks for housing. Total $s borrowed for housing is still going up, albeit at a slowing pace, as per the 2nd chart....

Nevertheless, the charts can be interpreted thus:

- owner occupier purchases have decreased by 21% from the 2009 high.
- the portion of total bank finance by owner occupiers has increased.

therefore, the volume of houses bought by investors has decreased.

The only contrary interpretation to this inference is if the median purchase price paid by investors is dropping....as that would allow for a higher volume on reduced share of $s lent.

 

[WinstonWolfe]

BTW, here's some further revelations, to my mind anyways

As median prices climb, and rental yields are constrained by av household income, fewer investors will be prepared to take the risk of building new stock, because rental returns will be comparatively weak.

In fact what is happening now, is that site acquisition cost has grown so high, that construction costs make it not worthwhile to build new supply.....UNLESS density is increased.

The only way to make housing more affordable, (and by affordable I mean DSRs with acceptable risk profiles to banks), is to stimulate new supply.

And the only way to stimulate affordable new supply, is to increase density (so as to drop the relative cost of site acquisition).

To me, the acquisition of sites likely to be rezoned sooner, is sensible, as the pressure to rezone will grow significantly in the next 5 years.

 

[WinstonWolfe]

to borrow from equities technical analysis, let's hope volume doesn't precede price.

Chris Zappone in The Age today, raises the paradox of home loan volume being down in the face of rising house prices. One explanation he offers is an increased number of foreign buyers using non mainstream bank loan sources, like cash.

Home prices surge record 20%


Property puzzle

Analysts, however, said the sharp rise in home prices remains puzzling following five consecutive months of declining home-loan volumes.

Mr Scutt said the March quarter price rises, viewed against the slump in home loans, ''adds support to the foreign ownership talk that had been persistent over previous months''.

.............

''The crucial issue in gauging the price outlook from here is how we resolve the growing discrepancy between depressed home-loan demand and frothy dwelling prices and market activity,'' JP Morgan economist Ben Jarman said.

Either foreign demand for homes had boosted prices, or a smaller number of home buyers were continuing to borrow sizeable amounts, he said.

 

[WinstonWolfe]

Decided to have a closer look at the RBA stats on Bank Lending via Sector, and I must admit I have had my socks blown off.

The chart below expresses the growth of bank lending using January 1991 as a base.

• Lending to owner occupiers has grown by a factor of 11.5
• Stunningly, lending to property investors has grown by a factor of 33, or three times as fast as owner occupiers.
• Lending to business has retracted since 2008.
• Personal loans and credit card debt has increased at the same rate as owner occupier lending.
• Govt lending has increased significantly since GFC.

If anyone wants to explain how investors have increased their bank lending three times faster than owner occupiers, while the % of people renting has remained similar (30%), I'm all ears.

Some possible explanations for the change in PI:OO bank loan ratio.

• Investors were borrowing moreso from non bank sources before (credit unions, etc)
• Owner occupiers are borrowing moreso from non bank sources now.

The PI:OO bank loan ratio in 1990 was 16.2%
In 2010 it is 44%.

I've never seen these figures expressed in a chart before, and think it would fuel a lot of anti-investor sentiment......

One thing is for sure though, house lending cannot grow at a higher rate than business lending for long, unless businesses borrow from or are bought by foreigners.



....................

 

[boz]

Hey WW, are you trying to show the REAL fundamental to property bulls?
I have been saying the same thing for quite sometime and bulls are still right and home prices are still rising.
About the puzzle, like you said home lending is up (loans are NOT paid off) but loans number down, that is probably from less new home sold due to FHgrant

 

[Graemsay]

How are the numbers of properties for sale holding up?

In the UK we're just coming out of the worst recession since the Great Depression, unemployment is rising, mortgages are hard to come by, and FHBs are pretty much locked out of the market. Yet property prices have increased by just over 10% in the last 12 months, which is highly counterintuitive.

What appears to have been happening is that there's a real shortage of good properties on the market, and more buyers for these than there are sellers.

Could there be a similar skew in Australia?

 

[Player]

How are the numbers of properties for sale holding up?

In the UK we're just coming out of the worst recession since the Great Depression, unemployment is rising, mortgages are hard to come by, and FHBs are pretty much locked out of the market. Yet property prices have increased by just over 10% in the last 12 months, which is highly counterintuitive.

What appears to have been happening is that there's a real shortage of good properties on the market, and more buyers for these than there are sellers.

Could there be a similar skew in Australia?

Here, there's not only a shortage of "good properties"....there is a shortage of property in a general sense compared to buyers that seek such properties.

There will be some exceptions based on regional versus capital cities, however when demand overtakes supply, pressure forces those prices upward.

People are still worried they'll miss out. That's the feeling I get on the streets.

 

[craigb]

Decided to have a closer look at the RBA stats on Bank Lending via Sector, and I must admit I have had my socks blown off.

The chart below expresses the growth of bank lending using January 1991 as a base.

• Lending to owner occupiers has grown by a factor of 11.5
• Stunningly, lending to property investors has grown by a factor of 33, or three times as fast as owner occupiers.
• Lending to business has retracted since 2008.
• Personal loans and credit card debt has increased at the same rate as owner occupier lending.
• Govt lending has increased significantly since GFC.

If anyone wants to explain how investors have increased their bank lending three times faster than owner occupiers, while the % of people renting has remained similar (30%), I'm all ears.

Some possible explanations for the change in PI:OO bank loan ratio.

• Investors were borrowing moreso from non bank sources before (credit unions, etc)
• Owner occupiers are borrowing moreso from non bank sources now.

The PI:OO bank loan ratio in 1990 was 16.2%
In 2010 it is 44%.

I've never seen these figures expressed in a chart before, and think it would fuel a lot of anti-investor sentiment......

One thing is for sure though, house lending cannot grow at a higher rate than business lending for long, unless businesses borrow from or are bought by foreigners.



....................

hey WW could all those lending numbers be coalated with population increse,

 

[.toe]

If anyone wants to explain how investors have increased their bank lending three times faster than owner occupiers, while the % of people renting has remained similar (30%), I'm all ears.

Perhaps investors are purchasing more expensive property (ie land value).

Volumes being way down yet prices up is an odd supply/demand issue. The numbers of sellers are now exhausting. However the numbers of buyers has not exhausted.

Interest rates rises and other factors might change that tune in future, but there are a lot more buyers than sellers out there even if volumes drop. It seems to me that it'll be a long time before the number of wannabe sellers is equal to wannabe buyers

 

[truong]

Volume is down while price is up. Well, these are characteristics of a phenomenon called scarcity.

A normal scarcity situation may be solved by lowering demand (eg by raising interest rate). But because shelter is a life necessity, you cannot artificially lower demand.

Same with food. If food is scarce, price will go up regardless.

It’s been a long time since Australia had a shortage of anything (except for bananas a few years back), so people are surprised by a phenomenon that was well known in more frugal times.

 

[WinstonWolfe]

Perhaps investors are purchasing more expensive property (ie land value).

Volume is down while price is up. Well, these are characteristics of a phenomenon called scarcity.

I still can't nut out why investors increased their share of bank lending from 15% to 44% from 1991 to 2010.....while the portion of Aussies renting has remained much the same at ~30%.

On face value, it'd appear investors are buying more expensive property as toe mentions.

I suppose the data cannot be taken for granted either. Just because someone registered a mortgage for a PPR, doesn't mean it isn't used as an IP now.