Housing Finance Commitments Up Strongly

boz said:
For Australia, what is the neutral interest rate if commodity prices goes up 20% a year and what is the neutral rate if they drop 20%? also, what is the neutral rate if home prices rise 10% and what if they fall 10%?
Click to expand...

Very good point, boz. "Neutral" settings to cool off house price inflation will not necessarily be a good setting for the wider economy. I'm with Graemsay in so far as noticing the pitiful business lending "growth." From where I sit there is definitely no exuberance in the manufacturing sector. I saw in The Age this morning that it's become extremely difficult for job seekers in Victoria. I've heard before that small business is the "economic engine" of the community. Its optimism is a precondition of employment growth and other than the blip before the year end tax concession, business is not borrowing.

I don't know how much of this still due to lack of credit. I suspect it's largely due to caution and rightly so. You'd want to see a strong return of demand before even considering upping your gearing in this climate. The media has been way too quick to overplay the "business confidence returns" polls. 12 months ago business owners thought they were about to fall off a cliff. Compared with that of course a great percentage of them will now be "more" optimistic. But there's a long continuum between "fall off a cliff" and "gear up for extreme growth." We're not in Kansas yet.
 
Unfortunately RBA interest rate settings are a blunt policy weapon, its unable to target specific sectors of the economy.

But in simplistic terms look at one of the reasons why we were able to get through the financial crisis:
Our interest rates were much higher going into the crisis, so when they were significantly lowered the expansionary benefit was huge.

Now just imagine if we keep interest rates low and then there is a problem in the future. It will be harder to drop interest rates from an already low rate, and any drop will have less impact because its from an 'already low rate'.

There is no mention at this stage about restrictive monetary policy, only neutral which i think is appropriate.

In regards to business lending, yes its a potential problem. But people forget that before the GFC, business lending was actually inappropriate in many cases, it wasnt allocated based on sufficient risk (ie it was too lax).

So the failure to increase current business lending is not totally a bad thing.

To many people want to keep giving alcohol to the drunks at the party, just to keep the party going.
 
Ms Jade said:
Very good point, boz. "Neutral" settings to cool off house price inflation will not necessarily be a good setting for the wider economy. I'm with Graemsay in so far as noticing the pitiful business lending "growth." From where I sit there is definitely no exuberance in the manufacturing sector. I saw in The Age this morning that it's become extremely difficult for job seekers in Victoria. I've heard before that small business is the "economic engine" of the community. Its optimism is a precondition of employment growth and other than the blip before the year end tax concession, business is not borrowing.

I don't know how much of this still due to lack of credit. I suspect it's largely due to caution and rightly so. You'd want to see a strong return of demand before even considering upping your gearing in this climate. The media has been way too quick to overplay the "business confidence returns" polls. 12 months ago business owners thought they were about to fall off a cliff. Compared with that of course a great percentage of them will now be "more" optimistic. But there's a long continuum between "fall off a cliff" and "gear up for extreme growth." We're not in Kansas yet.
Click to expand...

I don't know exactly how those business loans are measured in the RBA spreadsheet (I am just a trader). I know that the big business like big mining company gets their money more on the market and through deals with clients and through capital injections. This was also pointed out by the RBA that is not worried about business credit and that businesses have access to capitals, this is valid world wide with junk bond sales at a very high point, even higher then before the GFC.
So could be that the business drop in lending is just a change of the way business get finance, the fact that business confidence is high, retail sales and GDP is good and unemployment is low somewhat prove that.
I am not too worried about small business and the avilability of money. As I said before, the key at the bottom is commodity and resource prices (including farming product), any change in the price of those (on worldwide markets) will have a great consequence on Australia (and our living standard)
 
Actually boz, i wasnt trying to 'have a go at you'.
I dont personally disagree with a number of your posts.
But personal opinions and reality often dont go hand in hand. Just like the increased importance of 'whisper numbers' in regards to analysts concensus, attention must be given to fed speak. Thats the nature of the game, and we are all just participants.
 
Boz, I'd agree that you should be able to pull a certain amount out of these numbers with pretty elementary maths.

On second thoughts what struck me was:
  1. The amount borrowed for housing by owner occupiers seems to be growing at a constant rate.
  2. But I can't see it continuing to grow at 10% plus over the long term when wages are growing by 3% to 4%.
  3. Investor borrowing is much more volatile, and seems to track house price movements better.
  4. I'd have expected investors to be more counter-cyclical. The chart suggests that they don't buy in the dips, but when the market is growing.
  5. Housing credit is still growing, which is interesting given the comments on this board about things tightening. Perhaps that's more a reflection of the experience for businesses.
 
Latest RBA financial aggregate data.

Overall credit growth accelerating again, with property investors leading the charge.

Business credit still looking shaky.

FinancialAggregatesMay10.jpg
 
Shadow said:
Latest RBA financial aggregate data.

Overall credit growth accelerating again, with property investors leading the charge.

Business credit still looking shaky.

FinancialAggregatesMay10.jpg
Click to expand...

Yes i saw those figures,
but here is something for you to dwell upon,

please explain the relationship between those figures and bank share prices?
something is out of kilt??????
the two don't gell together.
 
Shadow said:
Latest RBA financial aggregate data.

Overall credit growth accelerating again, with property investors leading the charge.

Business credit still looking shaky.
Click to expand...

I think from those figures you wouldn't expect any house price drop, but it might be a lagging indicator as it takes time to settle a home sale and get the loan. I was expecting a lower housing credit figure
 
Shadow said:
Well, the rental vacancy rate in Sydney is 1%, which is incredibly low.

But hey, if that bastion of truth, Ten News, says there's a glut, who am I to argue?
Click to expand...

was talking perth .. but dont believe the 1% .. my g/f owns inner melb .
no rent rise this year ..

i live in 4km from perth city i can count 4 to lease signs in the 100 metre walk to the pub.. on one corner one block been split 3 ways and 2 on the other corners for sale also then the next corner has one for sale ..

i get around ind its the same in many areas i go too .
dont believe ten news naaa i dont .. but then again see alot of links to main stream news in here ..

oh i forgot australia aint in the world economic chain
 
urbanprospector said:
dont believe the 1% .. my g/f owns inner melb .
no rent rise this year
Click to expand...

Ah - that is the vital bit of information I was missing. In that case there is no way the rental vacancy rate in Sydney could be 1%... I mean, if your girlfriend owns in Melbourne, and she hasn't had a rent rise... what was I thinking! You are a font of knowledge urbanprospector, we need more people like you here.
 
Well im going to throw a spanner in the works for both you guys. My granny flat in the shoalhaven is going from $130 to $175.

Thats 35% increase in NSW regional boys. yeehaa. Booming baby booming.
 
Sell, Sell, Run, Run!

Oh, and I just put the rents up on my former PPOR by $30 a week to $780 now too. Could have squeezed more but happy with my current rent. I only paid $650K for it in 2002.

Cheers,
Michael
 
Shadow said:
Housing finance commitments continue to rise strongly. The March data was released today.

http://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/5609.0Mar 2009?OpenDocument

I have charted the trend below.

The recent uptick in housing finance commitments follows the sharp decline during 2008. History shows that this first uptick is always a precursor to an extended period of further growth. In all six of the previous six major housing finance downturn events over 34 years, the first uptick has been a precursor to an extended period of growth. We are now at number seven. This is a good sign for the property market.

ABSHousingFinanceMar09.jpg


Cheers,

Shadow.
Click to expand...

Any chance of an update of the original chart you posted? just to see how things are moving. Cheers.
 
MichaelW said:
Oh, and I just put the rents up on my former PPOR by $30 a week to $780 now too. Could have squeezed more but happy with my current rent. I only paid $650K for it in 2002.
Click to expand...

Putting my bear hat on for a minute, it strikes me that a 2010 rent is yielding around 6.2% on the 2002 purchasing price, which is still lower than the interest costs on a mortgage at current rates.

Assuming that the cost of renting and buying should be broadly similar, then that suggests there's been a discrepancy between the two for the last eight years (in that house's location).

If things are to balance out then I'd expect rents to rise relative to prices. Or prices to fall relative to rents.

That said, I'm guessing that capital gains on Michael's property have put him a long way ahead.
 
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