'For the past four months, Australia has been experiencing a resumption in house price growth, but without an associated recovery in the rate of housing credit growth, or housing finance commitments. A similar phenomenon was also experienced early in the recent NZ housing growth cycle, where a lower volume of housing credit chased an even lower volume of housing transactions, resulting in an increase in average NZ mortgage sizes and rising NZ house prices. However, since 2011, mortgage demand actually accelerated in NZ, with the volume of mortgage approvals rising by around 50% and the value of approvals rising by around 85%. Average NZ mortgage sizes are up almost 20% and house prices are up another 7%. This suggests that in NZ, the early slow growth phase may have fed on itself, a virtuous circle whereby potential buyers noticed the rising prices (on low volumes), woke up to the fact that house prices were on the move again, and flocked back into the market on the back of low interest rates.'
Fast forward to mid-2013 and this is exactly what is happening in Australia too.
ABS housing finance approvals have surged upwards (check out Alex's chart at the bottom of the forum), and house price growth has accelerated.
So what's next for Australia? Well, once again we just look to NZ. The video below should strike terror into the hearts of Australian property bears.
For those who can't be bothered watching the whole thing, here is a brief summary of what has happened in NZ...
1. Fear of imminent property crash caused FHBs to sit on sidelines for a few years. 2. House prices dipped slightly over those years, then started rising again as low interest rates encouraged investors to re-enter the market. 3. Early tentative price rises were not accompanied by any significant growth in housing credit. 4. Housing finance starts to grow again as investors and FHBs re-enter in greater numbers as rising prices wake them up to the reality that the touted crash was a fantasy. 5. Three years worth of pent-up FHB demand suddenly floods the market, causing double digit house annual house price rises. 6. FHBs and investors start to compete aggressively with each other to get in before prices rise any further. Fear and greed take over. House Prices BOOM!
NZ is currently at stage 6. Australia is at stage 4, about to enter stage 5.
Aussie housing bears should watch the video, and be very very afraid...
The NZ situation is currently only in some centres such as Christchurch where there are a limited number of good properties undamaged and the economy is supported by massive earthquake activity and in Auckland.
I dont think you can say that NZ is ahead of Australia by several stages.
Aussie housing bears should watch the video, and be very very afraid...
No way...really....you mean...forever out of reach???? ever and ever????? You mean i'll be living in poverty even though i earn 130k a year????
SHIT!!!!
Quick, REIA, somebody, grab the lobby kosh and get on the case, 110% LVRs, 50 year mortgages, negative interest rates, QE, ANYTHING to keep our beloved housing bubble rising!
C'mon kids we can do it!!! Prices to the MOOOOOOOOON!!
The recent house price gains in Auckland are indeed scary. Most people would assume that property owners would all welcome steep price rises, but they make the market unstable when they happen, and that isn't beneficial to anyone.
I don't really believe in the "revert to mean" theory because I don't know what the "mean" is. We have 5000 years of recorded history but magically economists and commentators usually single out a few decades from recent history to use as a yardstick. Prices though can only increase if people can afford them, so prices have to be self limiting even if the exact limiting factors are vague.
Any expressed market opinion is my own and is not to be taken as financial advice
If Australia and NZ's financial affairs were immune and totally disconnected from global markets, then your 'fantasy' state of affairs and outcome might make sense.
Why look at NZ, is a tiny market? It's a completely different economy. I think a good look at greece or ireland would be of more use to an australian investor, Even the US has more similarities to us than NZ.
Where is all the money going to come from to fuel this new boom?
Lets see what the RBA have to say
Quote:
First, trend housing price growth will be slower in future than in the previous 30 years. We don't have a strong view about whether the ratio of prices to income should be mildly rising, falling or constant from here. We do not have a target for this variable. But we think it is very unlikely to return to its 1970s levels, or to rise rapidly once again. Nor would we want to see another boom like the one a decade ago.
Quote:
A second implication is that, if housing price growth is now cycling around a lower average, there will be more periods when prices are falling (a little) in absolute terms. This has implications for the loss given default (LGD) in mortgage portfolios. In my view, this vindicates APRA's decision to require a higher LGD floor than the 10 per cent minimum built into the Basel rules for banks using their own models. It also vindicates its decision to require higher risk weights for non-standard and high loan-to-valuation loans for lenders that do not use their own models.
If trend growth in housing prices will be slower in the future than in the past, trend housing credit growth will necessarily be slower too. This has obvious implications for the rate of growth of bank balance sheets and profits. We have been making this point for a while. Financial stability requires that the owners of banks accept that domestic balance sheet growth will be slower from here than it was in the previous 20 years or so. We would not want banks to ease their lending standards to make more loans and bring back the boom times. Nor would we want them to cut costs in a way that impinges on their risk-management capabilities.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
Where is all the money going to come from to fuel this new boom?
Same place it came from in NZ.
1. Property investors.
2. FHBs (three pent-up years worth).
3. Banks lending to them at low interest rates.
Andrew Judd
24 Jun 2013, 04:36 PM
The NZ situation is currently only in some centres such as Christchurch where there are a limited number of good properties undamaged and the economy is supported by massive earthquake activity and in Auckland.
Auckland and Christchurch alone make up nearly half the NZ population.
1. And who will lend it to the property investors? Where are the banks going to get the money?
2. Sure, because they are all cashed up waiting to go
3. Where are the banks going to get the money Shadow? There are limits. You know that.
Quote:
A second implication is that, if housing price growth is now cycling around a lower average, there will be more periods when prices are falling (a little) in absolute terms. This has implications for the loss given default (LGD) in mortgage portfolios. In my view, this vindicates APRA's decision to require a higher LGD floor than the 10 per cent minimum built into the Basel rules for banks using their own models. It also vindicates its decision to require higher risk weights for non-standard and high loan-to-valuation loans for lenders that do not use their own models.
If trend growth in housing prices will be slower in the future than in the past, trend housing credit growth will necessarily be slower too. This has obvious implications for the rate of growth of bank balance sheets and profits. We have been making this point for a while. Financial stability requires that the owners of banks accept that domestic balance sheet growth will be slower from here than it was in the previous 20 years or so. We would not want banks to ease their lending standards to make more loans and bring back the boom times. Nor would we want them to cut costs in a way that impinges on their risk-management capabilities.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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