ABS Data Released - National prices rise 20%

[.toe]

Hey great thread WW

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.

Agreed WW it is interesting. I hope I'm not going off on a tangent next but we all seem to be concerned about how the poor old recent purchaser is going to pay his/her mortgage when rates rise.

I wonder how all the data would look if we knew more detail. For example we worry about the ratio of house prices to wages. Perhaps instead we should look at house prices to wages of home buyers? Or if investors make up 44% of bank lending, perhaps we should look at house prices to investors total income? We may get more of an idea of how sustainable (or not) this bubble is?

 

[whatever123]

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.

A few things come to mind.
Fewer renters per dwelling since 1991.
More empty dwellings ie investors purchasing "investment" holiday homes.
Increasing property prices.

Aren't those kind of increases typical in a speculative property boom?

 

[WinstonWolfe]

Perhaps instead we should look at house prices to wages of home buyers? Or if investors make up 44% of bank lending, perhaps we should look at house prices to investors total income? We may get more of an idea of how sustainable (or not) this bubble is?

Doubt there's any stats like that.
Probably there's 3 stats pertinent here (charts at bottom):

Household Debt Servicing Ratio.
Household Savings Ratio
Household Debt to Disposable Income Ratio


DSR
has basically doubled in the last 10 years. The GFC inspired drop in rates pulled us back a bit, but economists like Westpac's Bill Evans, expect the rate to be back at an historical high by end of year with further rate rises and property growth.

Some argue we can cope with the higher rate because we're paid more now, so there's more left over after paying for staples. Unfortunately this argument doesn't apply as strongly to the lowest earning quartile who make up a large chunk of renters and FHBs. And FHBs will have a higher DSR as a group, as they are the ones taking on higher mortgages on lower wages. Non FHBs generally have higher equity which reduces DSR if they aren't upgrading all the time.

HSR
From this, one can infer unused household debt serviceability.
Currently, it is around 2.5%. however, it is extremely sensitive to rate rises, and it's possible if rates go over 7.5%, HSR will be back in negative territory where it was in 2002-2008.

Some argue low HSR isn't a bad thing, because people are 'investing' their disposable income rather than 'saving', in things like houses and shares. However, the problem with negative savings is that banks then have to look elsewhere for funds to lend......generally offshore. And higher foreign debt is a bad thing in the long run, especially when it is just used to bid up house prices. Nevertheless, a negative HSR is likely to mean less bank funds available to lend, and banks putting rates up beyond RBA cash rate hikes, so they can pay more competitive rates on cash deposits.


Household Debt
This is a controversial ratio. It's quadrupled since 1990. Some argue this isn't a bad thing as we carried low debt compared to OECD nations back then. See chart. However, one has to be careful comparing Australian hh debt to others. Ultimately what counts is debt serviceability, and Australia usually has higher rates than others.

But obviously higher debt loads like this mean a reduced std of living for many. Rather than travel overseas, private schooling, time out for an MBA, and time out of work for busy Mums, disposable income is being eaten up by debt servicing. Some argue everyone has choice, but do they???




IMHO, HSR is a sound medium to long term leading indicator of remaining property growth potential.

Sources:

ABS : Household Gross Disposable Income
5206.0 Australian National Accounts: National Income, Expenditure and Product
Table 14. Household Income Account, Current prices

Household Finances: Selected Ratios
RBA: B21

Comparative Household Debt
Bank for International Settlements
"Household Debt in Australia"

Aust Parliamentary Library - Monthly Statistical Bulletin

 

[HiEquity]

Hi WW

As to your riddle, I would argue the bulk of investor debt is in CIPs rather than RIPs. The capital growth of CBD office blocks, industrial estates, farms and other forms of premium property has been phenomenal over those years - IMO significantly greater than metropolitan RIPs. Their values are higher and some REITs would have formed a large proportion of those figures with all their historical borrowings. Many owners have leveraged against this growth into further investment, maintaining their leverage ratios as prices rise.

The ABS definition of what constitutes business borrowing or investor borrowing depends on whether the loan is secured by a property or a balance sheet IIRC so all CIP secured loans should fall under the "investor" banner.

 

[Dazz]

That "investor line" taking off into the stratosphere almost corresponds exactly with when big Kev over in Qld started up his TIC.

Now they have over 10,000 members I believe, with all of them trying to get to that elusive 7 or 8 property mark, so they can start 'harvesting' their equity like Kev does.

Also corresponds with when Jan Somers stopped doing her talks / seminars. Who knows....

 

[WinstonWolfe]

The ABS definition of what constitutes business borrowing or investor borrowing depends on whether the loan is secured by a property or a balance sheet IIRC so all CIP secured loans should fall under the "investor" banner.

Actually, I can't see CIPs making up such a large % HE.....
Below are the RBA notes for the D05 data source.

But maybe you are on the right track, in that the LOCs being taken out against property equity (that manifested out of thin air), are classified as 'investor', no matter whether it was spent on REITs, shares, holidays, cars, breast implants etc.


For ‘Lending to government’, ‘Other’ includes credit cards.

‘Persons’ refers to individuals who conduct their affairs with the bank on a non-business basis.

‘Housing – Owner-occupiers’ excludes housing loans of the former trading banks prior to January 1989.

‘Housing – Investors’ refers to loans to individuals for investment (i.e. non owner-occupied) housing, and finance for the purchase of land where construction of a dwelling for non-owner occupation is expected. Figures not separately identified prior to January 1990; previously included mainly in fixed personal and commercial loans and owner-occupied housing. Prior to November 1993, includes some investment housing lending to business enterprises.

‘Commercial lending’ refers to loans to banks, NBFIs and trading companies, both government and private, unincorporated enterprises and non-profit organisations for use in connection with the business carried on by them.

 

[HiEquity]

Actually, I can't see CIPs making up such a large % HE.....

Yes those definitions make it pretty hard to pin down where CIP lending is actually counted... if at all. Maybe Dazz has hit the nail on the head! Or maybe it was Steve McKnight with his 350+ properties?

 

[WinstonWolfe]

Yes those definitions make it pretty hard to pin down where CIP lending is actually counted... if at all. Maybe Dazz has hit the nail on the head! Or maybe it was Steve McKnight with his 350+ properties?

Hard to reconcile Dazz's point with % renters not going up significantly.
I'm sort of firming up on the blow out in LOCs used for anything. Banks rarely confirm what you spend it on.

Maybe the phenomenon can be explained by many IPs being liquidated by long term Frugals/Baby Boomers investors over the last 10 years, who thought they'd cash out at the peak of the cycle. My mother and Uncle certainly did that. Their properties were all debt free, so these transactions would have triggered new investing loans.