House price statistics released today from RP Data shows the housing market is back in force with national dwelling prices increasing 1.3 per cent in the month of March and 2.8 per cent for the quarter. According to experts, this marks the “best” result in three years. If annualised, prices are once again increasing by unsustainable double digit figures.
For the March quarter, Hobart dwelling prices surged 6.1 per cent, Perth 4.3 per cent, Canberra 3.8 per cent, Sydney 3.4 per cent, Melbourne 2.5 per cent, Darwin 2.4 per cent and Brisbane 1.9 per cent. Adelaide was the only capital city to be experiencing falling prices, losing 0.5 per cent for the quarter.
Abnormally low interest rates have been the stimulus to many a housing asset bubble, and this time is no different. The Reserve Bank now has a dilemma on its hand – does it increase interest rates to prevent an even bigger housing asset bubble? Only last year, Governor Glenn Stevens said the Reserve Bank should not “engineer a return to a housing price boom.” But increasing the official cash rate is likely to see the Aussie Dollar strengthen even more, putting pressure on Australia’s fragile manufacturing sector.
The Reserve Bank decided today to keep the official cash rate unchanged at 3.00 per cent, but there is speculation the cash rate will be heading up later this year.
Earlier last month the Australian Bureau of Statistics released housing finance figures for January showing the number of dwelling commitments for owner occupier’s fell 1.5 per cent, commitments for construction of dwellings fell 0.2 per cent and commitments to purchase established dwellings fell 1.9 per cent. The only segment to see an increase in commitments was for the purchase of new dwellings – up 2.3 per cent on the back of generous grants and incentives from both state governments and builders. If you took the artificial incentives away, would the number still be positive?
In February we reported that the number of first home buyers participating in our market had fallen to 14.9 per cent in December, the lowest level since 2004. There was speculation this may have been a once off fall due to changes in first home buyer grants and data in subsequent months would shine further light on this trend. Well the data is in, and the portion of first home buyers in the market in January was no change – just 14.9 per cent. First home buyers have abandoned the market.
But while the number of housing finance commitments fell, the aggregate value of commitments increased. This suggests there may be fewer loans, but they are bigger and could explain why prices are rising. Leading the increase in commitments by value is the investment segment, with the value of finance commitments for investment housing increasing 4.4 per cent in the month of January.
Last Thursday the Reserve Bank released financial aggregate data for February showing growth in housing finance sits at an annual rate of just 4.4 per cent, and once again is the lowest figure since records started 36 years ago. Annual growth for owner-occupier mortgages sits at 3.9 per cent, while investor mortgages come in at 5.6 per cent. The Reserve Bank believes some of the weakness in credit growth is due to households using the low interest rate environment to pay down debt. Because investors have tax incentives to do otherwise, growth in credit for this segment is greater.
With the data on hand, it would appear investors are leading the market and while turn-over is still low, investors are paying a premium to get in on the “cusp of the next boom”. Could dismal returns on bank deposits also be driving some of this shift into property?
In the owner occupier segment, job security appears to be a valid concern. The Glenworth Homebuyer Confidence Index we reported on last week paints a bleak picture of deteriorating confidence. But, it was to be expected jobs will be lost as households deleverage and consumption consequently falls.
Concerns of job security comes amid Australian Bureau of Statistics unemployment data released last month showing more than 70,000 jobs were created, the biggest increase in 13 years. But, It’s hard to find anyone outside of Canberra who believes these figures. It seems almost everyone knows someone who has lost a job recently. A private survey by Roy Morgan indicates unemployment sits at 10.9 per cent based on their methodology. Looking forward, the number of job vacancies fell 10.1 per cent in February alone.
Employment will be the key to the future performance of the housing sector baring any intervention by international markets. Credit Rating agencies continue to warn that Australia’s large household debt levels leave it vulnerable to external shocks.
» First home buyers out, investors move in – The ABC, 13th March 2013.
» First-home buyers exit the housing market – News Limited, 14th March 2013.
» Where are all the first-home buyers going? – News Limited, 23rd March 2013.
» Fitch reaffirms Australia’s AAA credit rating – The ABC, 29th March 2013.
» RPT-Fitch affirms Australia at ‘AAA’; stable outlook – Reuters, 28th March 2013.
» Labor rejoices in surprising unemployment figures – The ABC, 14th March 2013.
» Jobs put paid to RBA gloom – The Australian, 15th March 2013.
» Job vacancies fall 10.1pc to three-year low – The Australian, 28th March 2013.
» Job vacancies fall 10% – Yahoo!7 Finance – 28th March 2013.
» Job worries keep mortgage holders stressed – Yahoo!7 Finance – 28th March 2013.
» Annual mortgage credit growth hits new low – Macrobusiness, 28th March 2013.
I never thought I would say it but I really hope a recession hits us and those home investors who have made Australia one of the most expensive countries in the world by their buying debt spree and hyping up home prices will go under so only then I can afford to buy my first home at the price that I can afford.
Whoops, it looks like the RBA just lost control of the bubble. Not that I had any confidence they could control the decent, no one else has ever been able to orderly deflate a bubble, especially not one this big.
@THEO
its coming, just be patient.
@1. THEO, the recession is here for many people, it has been here for them for a good few years. Then there are those that are still being afforded credit, hasn’t hit them yet, or it has, and they just haven’t realised it yet.
Then there’s those that are wealthly. There is always a recession proof class of people.
@ Peter
Agreed! Bubbles can not deflate orderly.
Human psychology dictates this fact.
They can mess around with legislation, regulation, incentives, bonuses, interest rates etc. etc. But once the public perception meets the reality of a stuffed domestic economy and the fire sales begin it will be spectacular.
I was only talking to a mate that I see only every few years the other week. I presumed it was all good for them. He’s in a high paying unionized work force, she’s a high manager at a national chain. Get this:
The Honda and Toyota cars were purchased on finance using their parents…They are paying it back…Could not get finance…..
And then the corker! Her brother is a financial adviser. He had set them up with a personal loan to extend the house, to increase it’s value…Only to refinance (mortgage) the house and pour the ‘equity’ into the stock market. Then because “housing doubles every 7 years” they will again remortgage the house and pour it back into the market.
I could not believe my ears….The have so much debt they can’t buy cars on their own, so they use their parents ability to borrow to get their cars….Then they source the nastiest loan out there to extend their house to borrow against it to pour it into the stock market….(which is being held up by the USA fed’s idiotic QE policy)…and all arranged by a family member!
Wont Xmas dinner be fun in years to come.
I remember as a young fella in the 90’s seeing friends and people I knew loosing farms (I’m country raised).
I still have friends who are farmers, and we all agree, when rates rise farming will be wiped out. Their debt loads are too high.
Now if farmers, who attempt to operate a profitable business are to hit the wall, what will happen to ‘investors’ who negatively geared residential property during the worlds largest property bubble?
Isn’t it obvious what is going on here? On the one hand you have Kmart advertising stuff for $2! On the other hand you have idiots paying $400,000 for an average house (and given my knowledge of the construction industry from working in it many years ago, these average houses are in fact below average in terms of quality and longevity).
A multinational discounting items to prices we have never seen….against massive house prices, paid for by the largest mortgages in the world?
It’s all over bar the shouting. The TV will be off at my house when it does go, as I simply will not be able to watch any individual sook about how they were tricked by the FIRE industry about house investing, with out bursting a vessel.
My theory is a resurgence of SMSF’s diversifying out of shares where there have been some recent massive gains and into property.
AMP now advertises on TV to investors wishing to do just that, so obviously there is now a market for SMSF’s wanting to book recent stock market gains and diversify back into the property sector.
Does anyone know if Australian house price data is adjusted by size of houses transacted each quarter? If not, it seems to me all it takes for the price data in one quarter to show an increase over an earlier quarter is for a change in the mix of the size of houses where transactions actually occurred, towards larger houses, even if there has in fact been no change in price across two quarters for “identical” houses.
In a scenario where First Home Buyers are withdrawing from the market, for various reasons, would the relatively fewer transactions at the lower end of the market(where presumably First Home Buyers are mostly seen)lead to an upward bias in house price data, if house price statistics are not adjusted by size of houses that have actually been transacted?
As an interesting observation that would come as no surprise really, but as of today the ‘chest beating’ articles have not seemed to made it over to SA and The Advertiser. Presumably as it states that Adelaide is still recording falls, and it maybe upset the precious REI advertising accounts ? In the meantime, we get this. Go figure…
http://www.adelaidenow.com.au/realestate/buying/rise-of-the-property-underdog/story-fndbmulp-1226608992724
Matty, Unfortunately, this bubble has gone on for far too long, and a lot of people have become very rich because of it. Your friends have parents to fall back on, and probably those parents have several investment properties, so even if the couple do find themselves in hot water, the parents will bail them out.
Average house $400,000? More like a one-bedroom flat! I would think $400,000 might buy something very average a long way out of the city, but if you want to live closer in, you’re expected to come up with closer to $1 million! The thing is, though, people do, and I think it’s parents getting young couples started that enable them to do it. Also, a lot of couples getting married now ask for money for wedding presents to help them buy a house. It’s as if everybody just accepts they have to pay an enormous amount for somewhere to live, and so they happily wear it (or unhappily). In the meantime, people like me who have said we’re overdue for a crash for years now are still waiting.
Unfortunately, there just aren’t enough of us making a song and dance about it. Therefore I can’t see anything changing politically wise. I mean hell will freeze over before any politician tackles Negative Gearing.
Australia would have to experience a massive prolonged recession for things to change in the property market… and I mean whilst I would like house to return to normal values do I really want the country to descend into recession with it?
Catch 22
THEO – there are only so many tricks available to the Govt to continue this ponzi scheme.
The last few years has seen the opening up of the SMSF to property, FHBG, open door policy on foreign investment and lower and lower interest rates – Yet property remain moribund.
Deflation of the Global Property market will reach our shores – it’s hit Japan, Ireland, Spain, Greece, The USA. It’s hitting The Netherlands and Canada. It will hit Australia (NZ and the UK) in due course.
Investors who are over leveraged into property will be wiped out – it’s only a matter of time.