Welcome Guest [Log In] [Register]


Reply
Watching the Australian housing market for vital signs - loan approvals and dwelling turnover; Property upswings are almost always associated with a strong rise in lending and property sales
Topic Started: 25 Aug 2014, 05:44 PM (361 Views)
Admin
Member Avatar
Administrator

Quote:
 
Watching the housing market for vital signs

Callam Pickering
21 Aug, 7:12 AM

Few measures of the housing sector are more valuable than loan approvals and dwelling turnover. Both measures -- operating as a proxy for housing demand -- provide important insight into the health and potential direction of the property market.

Property upswings are almost always associated with a strong rise in lending and property sales. The relationship doesn’t always hold as cleanly as analysts would like -- shifts in the composition of buyers and lenders can temporarily affect the relationship between prices and sales. But the occasional false signal is a small price to pay to identify shifts in Australia’s $5 trillion housing market.

Loan approvals and dwelling turnover track each other closely but not without some significant complications. Dwelling turnover data is not particularly timely, owing to the considerable lag between when a sale is made and when it is officially reported by each state’s valuer-general.

Useful estimates of dwelling turnover are typically available about three months after the reference period but it often takes more than six months before all sales are officially reported. Furthermore, reporting differs significantly by state; for example, property sales in South Australia are collected and reported more efficiently than in Victoria.

As such, the most timely measure of housing demand is the Australian Bureau of Statistics’ monthly lending finance data. Unfortunately, mortgage approvals have their own issues.

First, not every property buyer takes out a mortgage. According to the HILDA survey, between 20 and 30 per cent of all property sales are conducted without taking out a loan. Obviously those figures differ considerably with age; for example, only 20 per cent of purchases by households where the main breadwinner is over 55 years old feature a mortgage.

Second, there is considerable double counting in estimates of loan approvals. It is not unusual for prospective buyers to receive loan approvals from a range of banks before making a decision. In theory, these duplicates should be removed from the data but in reality this happens in a very ad hoc manner.

Third, just because you receive an approval doesn’t mean than you actually receive a loan. Cancellations can and do occur, creating some bias to the data.

Fourth, there is no measure for the number of investor loan approvals. The ABS only reports the value of investor loans but it isn’t too difficult to come up with a reasonable estimate.

Fifth, it does not capture foreign purchases. This category has been rising in recent years -- although legally foreigners are not allowed to buy existing property -- but on a whole it remains a fairly small share of total activity.

On a whole double counting and cancellations create some upward bias to the lending figures, which is partly offset by the fact that about 20 to 30 per cent of property sales do not involve a loan. Despite the competing biases, loan approvals and dwelling turnover track each other pretty well, as the graph below shows.

On a trend basis, dwelling turnover peaked late last year and has eased somewhat through to March. Early estimates of turnover in April and May suggest that demand may have soften a little more.

The number of loan approvals has also eased in recent months, although the value of loan approvals continues to rise. Investors have driven most of the recent growth and continue to underpin the property upswing.

Posted Image

Both indicators suggest that the pace of house price growth has peaked, with the current upswing relatively minor compared with the 2009 boom. Consistent with this, annual house price growth eased to 10.1 per cent (from 10.9 per cent in the March quarter). Price growth moderated in each mainland capital besides Brisbane.

Posted Image

The data suggests that most of the risks to housing lie on the downside. Lending activity has been elevated and historically has struggled to maintain this type of momentum for long.

But the limitations of loan approvals as a measure of demand may provide some upside risk for prices -- could greater foreign demand keep the market ticking along? Are prospective buyers shopping around to get the best deal? What about self-managed superannuation funds?

Furthermore, the recent property boom has been centred in Sydney and Melbourne. It is possible that stronger growth in the other three cities could offset the expected decline from Australia’s two biggest cities – although for now the Perth and Adelaide markets remain weak.

I suspect that none of those factors will stop prices declining significantly over the next couple of years, with Brisbane poised to be the best performing city. What remains uncertain is whether that correction will be similar to recent downturns -- nominal prices down 5 per cent; real prices down 10 per cent -- or part of a more significant correction as Australia adjusts to life after the terms-of-trade boom.

Loan approvals and dwelling turnover provide a great deal of insight in the cyclical triggers for the housing market. At the moment they suggest that the market is close to its peak and may start to ease before the end of the year.

However, we shouldn’t place too much faith in these measures because they don’t, for example, provide any insight into the longer-run drivers of the property market. For that we need to assess the outlook for factors such as wage and income growth, demographics, credit outstanding and risk preference.

Read more: http://www.businessspectator.com.au/article/2014/8/21/property/watching-housing-market-vital-signs
Follow OzPropertyForum on Twitter | Like APF on Facebook | Circle APF on Google+
Profile "REPLY WITH QUOTE" Go to top
 
1 user reading this topic (1 Guest and 0 Anonymous)
« Previous Topic · Australian Property Forum · Next Topic »
Reply



Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.

Forum Rules: The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.

Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.

Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.

This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.

For more information go to Limitations on Exclusive Rights: Fair Use

Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ

Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy