Housing Finance Commitments Up Strongly

[Antom]

At a point in history where almost every other western country is experiencing asset price deflation due to a debt/credit crisis... who would 'hedge' their bets by purchasing rather expensive assets of the same class, especially with borrowed money.

It's better to sit on your hands some times.... difficult as that may be.

A fair point I reckon - something this guy seems to agree with

http://www.dailyreckoning.com.au/progressive-taxation-was-never-about-fairness/2009/05/13/

Interesting graph too!

In other budget news, the $21,000 first home buyer's grant for newly built properties has been extended past June 30th to September 30th. The $14,000 grant for existing homes has also been extended to September 30th. Between October 1st and December 31st, the grants will be reduced to $14,000 and $10,500 respectively. And next year, they will revert to measly $7,000 figure for each that John Howard set when he introduced the subsidy to the real estate and building industries in 2000.

Both the Howard and Rudd governments will rue the day they subsidised higher house prices with government handouts. It's going to impoverish a whole generation of Australians, making them house poor and mortgage-debt rich. Why?

House prices do fall. They don't double automatically every seven years. If we had a three-bedroom house for every time we heard that in 2004 we'd be incredibly house rich. In the U.S., the National Association of Realtors reported that median U.S. house prices fell 14% in the first quarter of 2009 compared to last year. Existing home sales also fell by 6.8%

It was the largest quarterly decline in U.S. house prices ever reported. Of the 152 metropolitan areas surveyed, prices fell in 134 of them. The price declines were especially shocking in places where the boom was greatest In the Cape Coral-Ft. Myers area of Florida, prices fell 59%. In Saginaw, Michigan they fell by 54%. In Akron, Ohio they fell by 48%. And in San Francisco, they fell by 43%.

There are people who tell you those sorts of declines could never happen in Australia. But those people are morons. A contraction in bank lending, a rise in unemployment, a restriction on immigration, and a rise in interest rates remove all the props that have supported the soaring Aussie property market up until now. If you don't think it can happen here, you're kidding yourself. And if you disagree, send us a note at [email protected] and tell us what you think of the chart below.



Source: www.whocrashedtheeconomy.com

 

[MichaelW]

Interesting graph too!

Not really...

Its linear, not log, so ignores the fact that inflation is a compound effect. Makes recent growth look exponential, which of course it is given its a compound return.

Just goes to illustrate how visual representations can be misleading to the human eye given the human brain's inability to extract the real information behind the image.

Dangerous scaremongery is what it is.

Cheers,
Michael

 

[Shadow]

Interesting graph too!

Hi Antom,

In addition to Michael's comments, please note that your graph is based on Stapledon's discredited data.

Nobody was actually collecting Australian median house price statistics in the 1800s and early 1900s. Stapledon’s methodology for collecting the statistics is described in his thesis at the link below.

http://unsworks.unsw.edu.au/vital/access/manager/Repository/unsworks:1435

Stapledon collected the data by visiting the library and reading one old Sydney newspaper for one day of each year from the 1800s. Then he looked at the advertised price of properties for sale in that paper. Then he extrapolated this out to create an Australia-wide house price index. He based the whole thing on a handful of advertised sale prices in one newspaper from one city on one day of each year, and somehow arrived at a house price index for Australia. He preformed no compositional adjustment and failed to recognise that one city in Australia may be booming while another is stagnant. In addition, Stapledon's measure of inflation in the 1800s bears no semblance to anything we would call CPI today, never mind the fact that houses were purchased using a completely different currency in the 1800s. Stapledon's data is meaningless when analysed critically.

Cheers,

Shadow.

 

[boz]

Not really...

Its linear, not log, so ignores the fact that inflation is a compound effect. Makes recent growth look exponential, which of course it is given its a compound return.

I think prices in real term take out the compounded effect of inflation, infact if you overaly the building cost in real term they are linear and not exponential. But the chart wouldn't consider the compounded effect of rental return and copounded effect of renovation/maintenence.

 

[rastus2]

Hi Antom,

In addition to Michael's comments, please note that your graph is based on Stapledon's discredited data.

Nobody was actually collecting Australian median house price statistics in the 1800s and early 1900s. Stapledon’s methodology for collecting the statistics is described in his thesis at the link below.

http://unsworks.unsw.edu.au/vital/access/manager/Repository/unsworks:1435

Stapledon collected the data by visiting the library and reading one old Sydney newspaper for one day of each year from the 1800s. Then he looked at the advertised price of properties for sale in that paper. Then he extrapolated this out to create an Australia-wide house price index. He based the whole thing on a handful of advertised sale prices in one newspaper from one city on one day of each year, and somehow arrived at a house price index for Australia. He preformed no compositional adjustment and failed to recognise that one city in Australia may be booming while another is stagnant. In addition, Stapledon's measure of inflation in the 1800s bears no semblance to anything we would call CPI today, never mind the fact that houses were purchased using a completely different currency in the 1800s. Stapledon's data is meaningless when analysed critically.

Cheers,

Shadow.

CHRISTOPHER JOYE: Property prices do fall. One of the stunning results that we found is that one in four Australian families loses money in real terms when they come to sell their home. So, you know, residential real estate is not the sure bet that many people would have us believe.


care to comment on that ?

 

[Shadow]

CHRISTOPHER JOYE: Property prices do fall. One of the stunning results that we found is that one in four Australian families loses money in real terms when they come to sell their home. So, you know, residential real estate is not the sure bet that many people would have us believe.

care to comment on that ?

Do I want to comment on Chris' statement that house prices can fall? That is a strange question to ask me!

I agree with the statement. Prices in Sydney for example are currently 20% below their last peak in real terms, and nothing in life is a sure bet (not even death and taxes).

Not sure what you're getting at? Or the relevance to Stapledon's work?

Cheers,

Shadow.

 

[RumpledElf]

CHRISTOPHER JOYE: Property prices do fall. One of the stunning results that we found is that one in four Australian families loses money in real terms when they come to sell their home. So, you know, residential real estate is not the sure bet that many people would have us believe.

This is an easy one - most people just assume that they bought their house for X and sell it for Y, the money they make (or lose) is the difference between X and Y. Not so. Your average joe doesn't take into account all the fees on purchase (stamp duty, bank application fees, conveyancer/solicitor fees etc) and then again on sale (agent's commission, bank early exit fees, solicitor again). And don't forget all the interest paid while they've got the loan, which is often more than renting in the same period for a recent purchase. Can take out an enormous percentage of any gain.

In real terms, if my house sells for what I've told the agent to list it for, after holding costs and all those fees, I think I'll be lucky to have 'made' $10-20k. Still a 60% return on what I've put into it over the last few years (need to break that into a compounded rate over 6 years of course) and I didn't have to pay rent in that time, but still, that's not exactly all kittens and roses. I guess I'll feel better seeing the cheque at the end though, since I've put all the reno money in with cash not a loan I'll at least get every cent I spent back. Had I borrowed it like most people do I'd just get the $10-20k, less interest ...

 

[turk]

CHRISTOPHER JOYE: Property prices do fall. One of the stunning results that we found is that one in four Australian families loses money in real terms when they come to sell their home. So, you know, residential real estate is not the sure bet that many people would have us believe.


care to comment on that ?

Hi Rastus2


This could be true, what are the criteria and time period for this research?

Do you believe this is correct, if so why?, if not, why?

Cheers

Pete

 

[BayView]

Antom
The price declines were especially shocking in places where the boom was greatest In the Cape Coral-Ft. Myers area of Florida, prices fell 59%. In Saginaw, Michigan they fell by 54%. In Akron, Ohio they fell by 48%. And in San Francisco, they fell by 43%.

One of the factors in this situation in the USA was the over-supply of housing in these areas.

When the boom was on and they were throwing money at (poorly qualified) people, the development was going dam-busters.

We have had that situation here in Aus - think back to the late '80's, early '90's in SEQ with their high-rise units.

But we don't have that problem now, and immigration is still happening apparently.

I think you'll find we have an under-supply currently, so demand exceeds supply - developers are sitting on their holdings until the storm passes, which adds to the squeeze.

My prediction is a slow-down for a year or maybe two, but not a massive plummet.

 

[Shadow]

Finance continues to grow.

Housing finance commitments still rising strongly in May.

 

[boz]

Yes, you are right Shadow,
home price would fare well during the winter as a consequence.
The data surprised me and I was expecting a worse number. report from bloomberg

July 8 (Bloomberg) -- Australian home-loan approvals rose in May for an eighth month as the lowest borrowing costs in half a century and government cash handouts bolstered demand among first-time buyers.

The number of loans granted to build or buy houses and apartments climbed 2.2 percent to 63,855 from April, when they advanced a revised 1.8 percent, the statistics bureau said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg was for a 1.3 percent gain.
......
First-home buyers accounted for 29.5 percent of dwellings that were financed in May, up from 28.6 percent in April and 17.2 percent a year earlier, the statistics bureau said.

so, first home buyer number are still strong, it doesn't quite match the real estate industry new home sales down 5.7% for may released a week ago, could be that extra debt taken on is fuelling home prices and not new home numbers (kind of match the RBA statement of home price rising)

 

[BayView]

The recovery is not 'on its way'. It is already here. The APM, Residex and RPData statistics show national median house prices increasing during the March quarter 2009, and especially strongly during the months of February and March.

If finance commitments were 'meaningless' as you suggest, then why would the ABS waste their time producing these statistics every month?

Plenty of evidence exists for a turnaround... high auction clearance rates, rising prices and rising finance commitments for a start!

The big wild card in all this is "qualified buyers".

In the USA, they ran out of them, so they started to "qualify" more who clearly shouldn't have been. Creative finance. Even now, they have obscenely low rates, and no-one is buying. Our L.A friends say the City is still tanking to a large degree.

Why? because no-one qualifies anymore, (and they are all still scared, but still consuming on credit like champions - neg savings).

Over here, we now see the Banks have closed one of their front doors, and the second one is half closed and someone has their finger on the light switch.

If our buyers learn from the USA mistakes, and start to provide genuine savings and decrease consumer debts, there will be more buyers who genuinely qualify and the demand will continue to meet the supply.

All those "upticks" mean is we have a FHB flurry and few cashed up people still not dead, but they will buy and we will be back to no buyers. What then? The Banks ain't gunna change their minds anytime soon; they are making the FHB's come up with genuine savings (as they should IMO).

So, I'm very interested to see how well us Aussies learn from our mirror communities' blunders (and don't kid yourself; we are the US of Aus) in our lifestyle.

If we don't; nothing will change and we will be out of buyers shortly for a fairly long period.

The next gen of kids are not being trained to save and/or think long term, or buy with cash, and the Banks don't want them to be either. C/C's are worth too much.

 

[Player]

..........The next gen of kids are not being trained to save and/or think long term, or buy with cash, and the Banks don't want them to be either. C/C's are worth too much.

Yep. The cash flow they receive from C/C debt (especially for discretionary items) is what the banks like and live for.

According to Robert Kiyosaki, the US is becoming like a third world country, where the midle class is being wiped out, leaving lower and upper class. By inference, greater numbers in the former.

Let's hope the US of Aus (I like that) doesn't follow suit to that degree.

Reminds me of a dear 90 year old man I was talking to in the late 80's (former Mayor of Prahran when it was its' own suburb/council in Melb) and we were leading into an election. He asked me who I thought was goign to win. I replied at that time that probably labor (Hawke era) however that they were probably all tarred with the same brush.

He replied, "that's right", with a twinkle in his eye....."they're all little Americans working for the big Americans."

Never fogot that line.

 

[BayView]

Let's hope the US of Aus (I like that) doesn't follow suit to that degree.

We are absolutely heading the same way from my observation.

The only thing that is delaying it IMO is our stronger union presence which keeps (lower end) wages at a reasonable level. Don't start me on the recent hold on minimum wages. How the hell can they do that when we see at every turn useless fat b@stard pollies (and corporates) taking pay rises far beyond the yearly CPI, and horrendous golden handshakes through super funds, pensions and pay outs after they vacate the building. Where's my AK47?

In the US, unless you have degrees and work in professional type jobs you are really earning bupkiss, and it's getting worse. From memory, the real terms minimum wage has not risen since about 1970. Anyone correct me if they know it's wrong.

In the US, the disparity between the professional employee and the unskilled labourer/shop assistant type worker is now enormous.

And, now that the pattern has been established, the Corporate world are extremely loathe to change it, and they don't really have to.

So, what you have is a population of people who are becoming polarised; those who earn zip, and those who earn truckloads. It is becoming like India was; a minority of very wealthy in a sea of 3rd world humanity.

The ramification is all the important jobs in between are disappearing - teachers, cops, fireys, nurses. These are being replaced by imports who are happy to accept a pay rise compared to their previous life in 3rd Worldia.

So, we have this to look forward to.

 

[Player]

We are absolutely heading the same way from my observation...............In the US, the disparity between the professional employee and the unskilled labourer/shop assistant type worker is now enormous.

And, now that the pattern has been established, the Corporate world are extremely loathe to change it, and they don't really have to.

So, what you have is a population of people who are becoming polarised; those who earn zip, and those who earn truckloads. It is becoming like India was; a minority of very wealthy in a sea of 3rd world humanity.

The ramification is all the important jobs in between are disappearing - teachers, cops, fireys, nurses. These are being replaced by imports who are happy to accept a pay rise compared to their previous life in 3rd Worldia.

So, we have this to look forward to.

AND, that demographic you describe above (high earning professional emloyee) will not all necessarily end up wealthy anyway. High earners can often end up "ostentatiously poor" anyway, due to their need for high status artefacts, trophy homes and excessive consumerism, with nothing to show at the end............good for the banks and them thar credit cards ca$hflow$

More incentive for us all to be financially literate and create one's own LUCK

 

[Shadow]

Latest RBA Financial Aggregates, for those who are interested...

Good to see housing credit growth is picking up for the first time in a few years. This really goes along with the uptick in housing finance commitments discussed earlier in this thread. Once the finance has been committed to, then it takes a little while to actually flow through and appear on the credit growth statistics.

 

[boz]

thanks shadow for the chart.
my opinion is the rising personal aggregate is because of increasing confidence that pushed up a bit retail sales (and reduced slightly savings). not sure about business credit as last week ABS had a 3.3% rising in business investment for the second quarter (private capital expenditure), that was more then the -4.7% expected, but the RBA credit for business is contracting on y/y basis.
Overall still look like RBA is in control of credit growth and the low RBA interest rate are justified and probably market expectations for a rise are a bit too optimistic.

 

[Shadow]

Latest RBA Financial Aggregates.

Latest RBA Financial Aggregates.

Housing finance continues to pick up, however personal and business credit is still falling year on year. Hard to see how the RBA could raise rates significantly, especially given the continuing decline in business finance. Despite the runaway housing market, I think the RBA would want to see business conditions improve before hitting the brakes too hard...

 

[boz]

Latest RBA Financial Aggregates.
Despite the runaway housing market, I think the RBA would want to see business conditions improve before hitting the brakes too hard...

I agree with you shadow, no rate increase in sight.
Today also building approval and retail sales number were released. Only retail sales were better then expected and that is not good news even if gives temporary boost in gdp it will get our trade deficit worse and reducing investment (more consuming). here is the bloomberg report

 

[blaster]

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.

Cheers,

Shadow.

The step that it's on in a mth or twos time will be the trickiest of all hey - will it be a step , or will it be the top of the heap ? The 64 dollar question, time will tell I guess.

Great chart , thanks Shadow
Cheers