Archive for December, 2010
According to statistics released from RP Data today, House prices in Australia continue to trend in the downwards direction. In the November quarter, prices fell 0.6 per cent in capital cities, or a seasonally adjusted 0.2 percent. Perth lead the pack with a 3 percent decline for the three months to November.
Tim Lawless, RP Data research director said “Since their peak in May 2010, capital city home values have fallen by 1.0 per cent in raw terms. The rest of state areas peaked in April 2010, and have suffered a similar 0 9 per cent fall”
» Home prices dip in major cities – The Sydney Morning Herald, 31st December 2010.
» House prices continue to fall in Perth – Yahoo 7 Finance, 31st December 2010.
» Brisbane house prices drop: survey – Yahoo 7 Finance, 31st December 2010.
Posted in Australian Economy, Australian Housing | 6 Comments »
A surprise sharp decline in house prices in the United States has analysts calling the start of the double dip for the already depressed U.S. housing market. The S&P/Case Shiller home price index for a composite of 20 U.S. cites plunged 1.3 percent in the month of October, the biggest monthly decline since March 2009. Six cities recorded new all time lows.
David Blitzer chairman of the index committee at Standards and Poor’s said “There is no good news in October’s report. Home prices across the country continue to fall.” and “The double dip is almost here, as six cities set new lows for the period since the 2006 peaks,”
» U.S. house prices tumble in October – Market Watch, 28th December 2010.
Posted in United States Economy | 1 Comment »
According to the Global Real Estate Trends report published by Scotia Economics on Christmas Eve, “Australia is the clear front-runner in 2010” when it comes to house asset price rises. The report cites “Housing demand is being supported by low unemployment, while tight supply is adding to the upward pressure on prices”.
The world beating growth in house prices comes at a bad time for Australia, which is also known to have one of the biggest housing bubbles in the world. Figures from the ABS show Australian banks owe overseas investors $352.7 billion dollars, and global fund managers are starting to get very nervous about lending to Australia as the Australian housing market shows signs of stress and could buckle under the weight of extremely high household debt levels at any time.
One such person is Gerard Fitzpatrick, a global fixed income portfolio manager for Russell Investments. He cited to the Herald Sun the example of Ireland where the housing bubble there effectively caused the banking crisis. “I’m not saying Australia is the same as Ireland, but there are definitely similarities, You’ve had a booming housing sector and rapidly increased lending by banks.”
The Scotia Economics report noted Australia has seen Interest Rates increase by 175 basis points since October 2009 and the expiry of the “enhanced” First Home Buyers grant which is causing the “red-hot property market” to cool. They expect a further slow down in 2011. More up to date figures from Australian property groups show house prices are plunging into reverse gear as the “tight supply” turns into oversupply. Such news could make fund managers lending to Australian duck for cover.
» Global Real Estate Trends – Scotia Capital, 23rd December 2010.
» Australia leads world in house price rises – The Sydney Morning Herald, 29th December 2010.
» Australian housing market strongest in the world – The Courier Mail, 29th December 2010.
» Foreign lenders get the property jitters – The Herald Sun, 25th December 2010.
Posted in Australian Economy, Australian Housing | 9 Comments »
With only 24 hours left the go, analysts are describing retail conditions as the worst since the early 1990’s.
According to the Australian Retailers’ Association, more than 65 percent of retailers had worst sales figures this year than in the same week, last year.
While some blame the high Australian dollar and the internet for off-shoring more sales, the stark reality is that due to huge levels of household debt, more household income is required to be funnelled into housing at the expense of discretionary spending. In addition to this, the deleveraging process is starting to take hold with many households trying to save money and pay down debt, rather than the traditional spend more than you earn-a-thon.
Retail Traders Association of WA executive director Wayne Spencer says “The larger discretionary spend is certainly being affected”
Gerry Harvey was quoted “There is a recession in retail right now. Boxing Day sales have had to come early because retailers need to sell something to pay their staff.”
“It’s a crisis, the worst in 20 years,”
The Victorian Employers Chamber of Commerce and Industry has called for further stimulus such as personal tax cuts. In early 2009, the Rudd Government gave over 8 million Australians a $900 handout to help prop up the unsustainable economy.
All eyes are now on the largest retail day of the year – Boxing Day. It will be make or break for many retailers.
» Retailers wish for Christmas miracle – The Sydney Morning Herald, 22nd December 2010.
» Traders crying out for help – The Herald Sun, 23rd December 2010.
Posted in Australian Economy, Australian Housing | 6 Comments »
In what should be a pre-Christmas cheer to home owners and property investors, the IMF has said Australian housing is only moderately overvalued by 5 to 10 per cent and as a result the correction is likely to be orderly. Rising exports from our mining boom resulting in higher disposable incomes and a shortage of land have caused the surge in house prices in Australia.
This is a dramatic shift from a report earlier in the year from IMF economist Prakash Loungani warning that New Zealand, Australia, the Netherlands and Belgium had the “biggest misalignment” with historical price to income ratios and that Canada, Sweden, Norway and Australia had the biggest misalignment in terms of price-to-rent values. He said the last boom has been so much bigger than previous ones and hence the downturn should be more brutal.
Last month, The Australian reported on emails it had obtained from the Treasury under Freedom of Information. One email said “It is a concern that the IMF is considering publishing a report that suggests Australian house prices are overvalued.” In September this year another email suggested that “the reference to the potential house price collapse in the last paragraph should be deleted” from the IMF’s World Economic Outlook.
It appears treasury has now “convinced” both the OECD and the IMF that housing prices in Australia largely reflect fundamentals rather than a bubble.
» Housing market collapse unlikely: IMF – The Sydney Morning Herald, 16th December 2010.
» The high price of punting on property – The Australian, 27th November 2010.
Posted in Australian Economy, Australian Housing | 16 Comments »
The ABS reported yesterday that housing starts have fallen a seasonally adjusted 13.2 percent in the September 2010 Quarter. In the ACT, falls were as large as 30 percent.
It is the biggest fall since the GFC with some economists explaining the plunge due to the weather or high rain fall during the quarter. Other economists are suggesting the end of the first home buyers boost stimulus program is more likely the main culprit.
» 8750.0 – Dwelling Unit Commencements, Australia, Preliminary, Sep 2010 – ABS, 14th December 2010.
» Housing starts depressed by rain – NineMSN, 14th December 2010.
Posted in Australian Economy | 7 Comments »
In a Senate inquiry into the banking sector today, Reserve Bank Governor Glenn Stevens has warned the government not to mess with the banking system too much or face the risk of “unintended consequences”.
“When you think about extensive public intervention in housing markets, we don’t need to go any further than the United States of America to see what can go wrong if you’re not very careful in the way incentives are designed.” he said. “There can be, and there usually are, unintended policy consequences down the track. We should be quite careful about how we assess these things.”
He indicated the Australian Banking system is more competitive today than in the mid 1990s.
Mr Stevens also took the opportunity to warn Australians against any more excessive borrowing in the future. “My view is (that) we’ve managed this fairly well but I don’t think we should push our luck too much from here in terms of gearing up any further,” he said. “I don’t think it would be very wise.” He said 20 years ago Australians enjoyed household debt levels below most of its peers. “We’re not any more. We’d be up near the top (of the pack)”
The ABS announced today that the value of housing finance for owner occupation climbed 2.8 per cent seasonally adjusted in the month of October to $14.1 billion. Australian households now owe a record $1.01 trillion in the June quarter. We highlighted yesterday that Wayne Swan is concentrating too much on Interest Rates (at a time when interest rates are low), rather than the extremely high levels of Household debt. At current rates, the couple of percentage points shaved off interest rates (of any) through increased competition come July next year will be eroded by increases in our household debt levels.
» 5671.0 – Lending Finance, Australia, Oct 2010 – ABS, 13th December 2010.
» Housing loans swell as credit card growth slows – The Sydney Morning Herald, 13th December 2010.
Posted in Australian Economy, Australian Housing | 14 Comments »
Today, the Adelaide Sunday Mail printed the following in an article titled “Housing boom over as values fall” :
ADELAIDE’S median house price has fallen by $8000 since hitting a record high this year, the latest sales figures show.
And the real estate industry says the past decade’s price boom – averaging an increase of almost 20 per cent a year – is over.
Real Estate Institute of SA president Greg Nybo said “There is no speculation in the market and vendors have to be competitive with their pricing”.
No speculation? Does that mean the market will fall back to an equilibrium point where the market is driven by fundamentals and, not speculation. If so, we have some quite sizable falls ahead of us as the Australian housing bubble comes back to earth.
The same sentiment can be felt right across Australia. Also Today, but in a Melbourne Herald Sun article titled “Melbourne home buyers happy to wait out buying properties”, the paper writes :
HUNDREDS of millions of dollars worth of property went unsold yesterday in a pre-Christmas blow to vendors.
A near record number of properties were put under the hammer, but only 61 per cent sold as market uncertainty ensured buyers kept their hands in their pockets.
In a further blow to vendors, agents declared property prices across Victoria had fallen by as much as 5 per cent from their highs set earlier this year.
But as we found out in 2008, government interference in markets can delay the inevitable. When the Australian housing market started buckling under the weight of debt in 2008, the government introduced the first home buyers boost. According to Treasury minutes this “short term stimulus was designed to encourage people who had already been saving for a home to bring forward their purchase and prevent the collapse of the housing market.”
Window Dressing (Banking Reform)
Today’s “big” policy announcement was on banking reform. It was designed at easing the “rates pressure” Australian families are experiencing and hence we couldn’t make a prediction on a housing crash until we see how the government attempts to rigs the housing market under these new reforms.
Bank bashing has displaced cricket as Australia’s most popular sport. Wayne Swan wanted to get in on the band wagon and show up John Howard with support for the new sport and win some political points along the way.
As part of the package, exit fees on new home loans will be banned from the 1st July next year, but while the details are still sketchy, it’s believed the ban won’t apply to existing loans. This reform is believed to assist borrowers to more easily switch providers and help them take advantage of cheaper rates.
Other reforms include a mandatory key fact sheet for new home loan customers, flexibility to more easily transfer deposits and mortgages, expedite legislation to allow better deals with credit cards, to set-up a task force to get ATM competition reform and to support smaller banks, essentially creating the fifth ‘pillar’ of our banking system. This will come with a community awareness and education program called “Bank on a Better Deal.”
The government will also invest a further $4 billion into Residential Mortgage Backed Securities (RMBS) and allow all banks, credit unions and building societies to issue covered bonds.
Covered bonds gives the bond buyer recourse to the pool of mortgages or other secured collateral in the event of a default. For example, if the bank is unable to pay it’s obligations under the conditions of the bond, the bond holder has recourse on deposits held by the bank. The current Banking Act 1959 prevents banks from the issuing of covered bonds, as depositors must be placed first over other creditors when the bank is wound up.
Both the RBA and Australian Prudential Regulation Authority has warned against allowing covered bonds, but it looks like the Government has caved into the demands of the big banks on the understanding covered bonds will help the banks obtain cheaper funding. According to the government, draft amendments to the Banking Act allowing covered bonds will be released during the first sitting of Parliament in 2011.
Treasury re-assures deposit holders that “Australian depositors will continue to have absolute certainty over their deposits under the Financial Claims Scheme, which is a permanent feature of Australia’s banking landscape.”
It appears all of today’s reforms are about reducing interest rates by a couple of basis points so Australian households can breath again (before they load up on more debt).
Wayne Swan is not one bit concerned about this :
But rather this – Interest rates are far too high! :
The result of our extremely high levels of household debt and low interest rates make this :
Extreme Mortgage Stress. Today’s reforms do little to address the real underlying problems.
Personally, we would like to see banking reform that encourages responsible and sustainable levels of mortgage lending though caps on loan to value ratios (LVR) and limits on serviceability, tax reform that encourages savings (maybe taxed at 15 percent) and a community awareness and education program about household debt levels and savings. We would call it “Bank on a sustainable future.” – Although we do admit that we are more than 8 years to late to prevent the debt fuelled crash.
» Housing boom over as values fall – Adelaide Now, 12th December 2010.
» Melbourne home buyers happy to wait out buying propertes – The Herald Sun, 12th December 2010.
» RBA, APRA wary of covered bonds – The Australian, 1st December 2010.
» Competitive and ‘Sustainable’ Banking System – Australian Treasury, 12th December 2010.
Posted in Australian Economy, Australian Housing | 12 Comments »
Chinese Academy of Social Sciences (CASS) has found China’s Real Estate bubble has soared in urban areas despite repeated efforts of the central government to keep it under control.
It has found the city of Fuzhou has the most expensive housing predicted to be 70.3 percent overvalued. Hangzhou and Nanning follow with over-valuations of 66.9 and 66.8% respectively. Larger cities such as Beijing & Shenzhen faired better at only 49.5 and 48.5% overvalued.
Ni Pengfei, director of the Research Center for City and Competitiveness at CASS warned “The country’s macro economy overwhelmingly relies on real estate, and people might invest in real estate when confronted by inflation.”
» Cities see a new spike in real estate bubble – The China Daily, 9th December 2010.
Posted in China | 7 Comments »
Enzo Raimondo, the CEO of the Real Estate Institute of Victoria has just reported on today’s Auction Clearance Rates for Melbourne.
Of the 937 auctions reported today, 84 sold prior to the auction, 475 sold at auction and two sold after, making a clearance rate of 60 percent. There is 135 auctions with no result so far, and as we have seen in previous weeks, we expect the clearance rate to be adjusted down as more data comes to hand. This week last year the clearance rate was healthy 82 percent.
But the comments from Mr Raimondo are the most interesting :
The clearance rate has remained stable this weekend, confirming that the drop in demand from the latest interest rate rise was not temporary. This will now impact stock levels in 2011.
So it looks like weak Auction Clearance rates is something Melbourne will have to get use too as we move into 2011 with the prospect of further interest rate rises to cool our booming commodity market. Inventories of unsold homes continue to grow.
In recent months as awareness grows that Australia is in the grips of the biggest asset bubble in Australia’s history and one of the biggest in the world, we have seen investors flock to the exits hoping to lock in capital gains before they evaporate in front of them. Enzo Raimondo writes :
Its interesting to note that 2010 will see the most auctions ever held in one year in Melbourne, surpassing the previous high in 1999.
According to the REVI, there will be 1280 auctions next week. As Enzo writes :
This [today] is the third weekend in a row with over 1000 auctions planned and the biggest of the year – till next weekend.
The “shortage” of homes appears a distant memory.
» Weekly Auction & Sales Results, Market Overview – The REIV, Saturday 4th December 2010
Posted in Australian Housing | 17 Comments »
More bad news out today from the ABS. Retail sales fell a seasonally-adjusted 1.1 percent in October, surprising economists who expected a 0.4 percent increase. Discretionary spending was hit the most as households funnelled more money into debt repayments to service skyrocking mortgages.
» 8501.0 – Retail Trade, Australia, Oct 2010 – ABS, 2nd December 2010.
Posted in Australian Economy | 11 Comments »
Australia’s gross domestic product (GDP) has grown at its slowest pace since the GFC as stimulus measures start to wear off. Seasonally adjusted GDP grew at just 0.2 percent in the September quarter surprising the market which expected approximately 0.5% growth. Looking closer at the results, a strong result in Agriculture contributed 0.4 percentage points to the GDP. If it wasn’t for such a strong result, the economy would be going backwards. Non-farm GDP contracted 0.2 percentage points.
Treasurer Wayne Swan put his positive spin on the results, saying the figures is “another solid result for our economy in the context of a world economy which is fragile” and that “The Australian economy remains resilient.”
Today’s soft result is likely to mean Interest Rates are on hold for the foreseeable future.
The question now remains, has Australia really dodged the bullet or is it still coming our way?
» 5206.0 – Australian National Accounts: National Income, Expenditure and Product, Sep 2010 – ABS, 1st December 2010.
Posted in Australian Economy | 2 Comments »