Australian housing finance (Jul10) – gone but not forgotten
Posted on 09 September 2010
ABS released housing finance data for July yesterday (here) – following is their summary of the stats:
Looks okay I guess – and that was the general response from our mainstream media (see the ABC’s coverage “Housing finance rises in July – but caution remains). As Westpac senior economist, Andrew Hanlan, said “It’s probably best to describe it as sort of levelling out at this stage, but we do expect to see an improvement in coming months with the RBA likely to be on hold for the rest of this year”. You’d expect that with ~40% of the housing loan market, Westpac would be pretty well informed.
But still I’m less optimistic. As we have suggested before (here), house price to disposable income ratios remain at elevated levels which at the very least limits the appetite for new housing debt. This is perhaps why when I look at a chart of new lending the trend appears to be down – though admittedly it’s all in the interpretation and we are already plumbing depths not seen since we entered the new millenium:
A key variable in this are the first home buyers, as they were an important catalyst in reigniting loan volumes through 2008. Post the government handouts though, loans to first home buyers have returned to more sustainable levels. Without more government stimulus, they are unlikely to be leading the charge back up the hill.
But to me the charts that really undermine the outlook for the housing sector are the following:
Housing finance has grown at over double the rate of GDP since the mid 70′s. We can see the effect of this in the increasing leverage to disposable income across the period. In turn this has been enabled by the trend to lower interest rates. The recent experience of a smorgasbord of countries suggests that the time for increasing household leverage is gone. How likely is it then that we are likely to see “improvements in coming months” – whatever that might mean?
4 responses to Australian housing finance (Jul10) – gone but not forgotten
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It looks like people are trying to send the real estate market a message – a bit too much debt for the time being. What I’m really interested in is how long it will be before the government feels the need to step in and support the market again. And in what form it will be.
Interesting to note that Christopher Joye is proudly saying that the Australian housing bubble isn’t a risk because the government will guarrantee and/or bail out the banks long before it becomes a problem. He’s gone from being wary of moral hazard to embracing it. Whatever it takes in the name of high house prices.
You have to give government and the RBA full marks for doing their best to manipulate and manage a bubble that is surely trying to pop. Time will tell as to how successful they are, but it looks like they’re giving it a go.
I agree – gotta give them points for trying.
To be fair, the RBA doesn’t have a lotta tools at its disposal to fight the tide – and it has been proactive in using the one that it does.
But the government is guilty as charged. The First Home Buyers grant/boost etc will end up hurting those that it was supposedly trying to help. As for the return the govt guarantee on bank debt, it’s inevitable isn’t it… The assymetric risk/reward of working for an Australian bank.
If the Australian housing bubble is being sustained by the Government, could the new political environment (minority Government) be the catalyst for change? Because:
1. It will be more difficult for the Government to introduce new handout policies; and
2. For once, the Government doesn’t have to take all the blame for falling prices under their watch.
Hey Lawrence (aka drunkenhero!),
I’m hoping you are right on both counts. But those politicians are a crafty mob at the best of times…
Cheers
Rohan