ANZ backs tough rules to cool housing market, but says bubble fears are overstated; If prices surge for several years there may be a case for 'macroprudential policies
It's not a bubble. Yields are too high, too many people can still afford to buy.
And yet the FTBs stay away in their droves.
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
I forewarned a few weeks back, that we might see an increasing detachment from reality as this residential market recovery takes hold.
I was thinking it would start in earnest sometime next year. But it looks like I was wrong. The loopers are already at it and in force. Lord help us when we actually see some real heat in the overall housing market.
Just the normal noises
For the record, Sydney house prices are up 8.3% over the past 12 months according to RP Data, but were up only 1.2% last year and were down 2.4% in 2011.
As for the rest of the country, Perth is up 7.9% for the year but down 0.5% last month while Melbourne is up 5.4% for the year and the Brisbane-Gold Coast region is up a measly 1.8%.
Hmmm, a housing bubble indeed.
Yet we now have the IMF – yes those clowns – planning to visit Australia (to help get a suntan, I suggest, rather than anything else) to determine if Australia is in deep throes of a housing bubble.
It was just two months ago, when we were still waiting for Australia’s housing market to bust.
For mine, what we are experiencing is the normal machinations of the property cycle - nothing more, nothing less.
Valuations are often short at the recovery stage of the cycle. They sometimes overshoot near the peak. There are many issues regarding valuations in Australia. We have written about them several times. Go here, here, here and here if you have nothing much better to do.
Development, redevelopment and renovations
One of the problems with house price reporting is the way prices are measured and more importantly what influences the rise (or fall) of both median and mean house price figures.
New development or redevelopment often causes the middle and average price to rise, without seeing resale values increasing much at all.
This is what often happens around key infrastructure, such as railway stations. New projects lift the median/mean values, whilst resale prices remain flat at the time of new development/redevelopment. The same can be said about weekly rents. Base property values/rents often rise faster closer to core infrastructure, but the overall residential cycle must be on the improve.
A similar trend can be found in many areas affected by flooding across Australia in recent years. Many of these areas, especially in Queensland, have now been redeveloped. This has seen new properties replace older stock. Median/mean values have often risen as a result. But many owners in these areas, who are trying to resell flood-affected but unimproved homes, cannot get much more for their property than they originally paid for it. They are often getting less than they most likely would have if they sold just prior to flooding.
Median and mean housing prices are also affected in the same way when it comes to individual house renovations.
Many areas across Australia are experiencing a renovation surge. Areas which are going through his swell of reno activity are seeing a strong lift in suburban median and mean prices. But when you factor in the cost of the renovation itself (and especially if you include your time at a commercial rate), then the true uplift in financial gain is far less than the headline suburban price growth being touted.
It is true that a high and consistent proportion of renovation work across many homes in an area, is a good thing in terms of improving the underlying investment potential of a location. It is another of our key 10 measures which helps us determine the strength of a place’s underlying investment clout.
Such activity suggests that owners are ‘placing money where their mouth is’, so to speak; which in turn often leads to more owner-resident resale interest; which increases the actual size of the resale market and in due course, can help get a much better price on resale. But it takes time for the base value of property in such an area to increase.
New development, large scale redevelopments and major renovation activity cause median and mean values to rise. But this isn’t the same as seeing the base value of the existing, unimproved housing stock increase in a certain location.
When we see rapid increases in the base value of residential property, and across widespread areas, then we are experiencing boom-like conditions.
I suspect that - outside of a certain areas in Sydney and Perth, maybe parts of Melbourne now – the base value of Australian housing isn’t increasing much at all.
But the IMF and the newspapers will be telling you otherwise.
For mine, what we are experiencing is the normal machinations of the property cycle - nothing more, nothing less.
not really Michael - it's more like a new way of doing things with record low interest rates around the globe, but the result will be the same for a while nonetheless
APF - a place where serious people don't take themselves too seriously. There's nothing else like it.
not really Michael - it's more like a new way of doing things with record low interest rates around the globe, but the result will be the same for a while nonetheless
Man who makes living from property market encourages people to buy property.
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
not really Michael - it's more like a new way of doing things with record low interest rates around the globe, but the result will be the same for a while nonetheless
If the RBA cut again we in SYD are potentially going to run out of properties to sell
When is a boom not a boom? Suddenly, we seem to be back to enjoying Australia’s traditional dinner party conversation. Housing prices. Auction clearance rates. Who’s buying what, where, when?
After all, those same low interest rates that underpin the housing market make the cash alternative seem ever less attractive. And despite the big run in the sharemarket, many people – especially those nearing retirement – don’t want to rely on only shares. The costly lessons of the global financial crisis are still too recent. Investment in bricks and mortar seems more solid.
Various official urgings to maintain strict lending standards are reasonable warnings to smaller lenders and credit unions. But it’s not as if the big Australian banks, still responsible for the great bulk of Australian home loans, are about to be reckless on housing. The stability of the domestic mortgage market is their greatest security in a volatile world.
The countervailing force to the pick-up in new lending for housing is also the propensity of Australians to use low interest rates to pay off their mortgages more quickly. That means the overall level of household debt to income remains relatively stable against all the warnings by international analysts who don’t comprehend how Australian housing prices can be so high.
Commonwealth Bank of Australia chief executive officer Ian Narev has called on the new federal government to be more forward-looking in its discussion of the economy and urged it to avoid talking the down the state of the nation's finances.
There is an opportunity with a new government to provide a narrative to a collection of businesses and people who are ready to hear it, he told an Australia-Israel Chamber of Commerce lunch.
There's always a risk that newly elected governments start work and say, "We thought the economy was bad but then we came in and my goodness, now that we've seen it, it's a basketcase," he said.
"I think that will really undermine, be exactly contrary to, the economic narrative we need to hear, which is, let's draw a line in the sand," he said.
"The Prime Minister has characterised this in his eyes as being under new management.
"It's really about looking forward now and saying given where we are, here are the prospects and here is the role of government."
He said the only benefit of a backward-looking dialogue is to learn from positives and negatives in the past.
The election campaign lacked a clear narrative and instead resorted to slogans such as "the mining boom is over" or "the mining boom is not over," he said.
Next year export receipts of minerals, metals and energy are likely to hit $200 billion, an 11 per cent increase year on year, he said.
"That does not sound like a boom that is over."
But a drop in mining investment from about $119 billion to $100 billion is likely, although investment should stay at levels four times the 20-year average, he said.
"So the narrative really is not, 'The mining boom is over.'
"The narrative is, 'The conditions that caused the boom in investment have come back a bit. There is still a good fundamental underpinning from exports. But the challenge that we have is that roughly two per cent of employment in this country according to the Commonwealth Bank chief economist is linked to mining investment and undoubtedly that investment-related employment is coming off.'"
"So the challenge for the economy is to understand what aspects of non-mining investment can grow to offset the role that mining investment played. And there's obviously a particular complexity that arises with gyrations in the Australian dollar."
Other business leaders who visited Indonesia with Prime Minister Tony Abbott this week agree on the need for an economic narrative, he said.
"I think there was quite a strong common view on that. All of us feel that we've all just got to, and the government's got to, put the economy into context. But we all feel there's an opportunity now to do that, the election's finished.
"And it's not about, is it the coalition government or the Labor government. There is now a new government with a majority knowing it's going to govern for a period of time, and I think all of us feel there's a good opportunity to put a line in the sand and outline a vision for where the economy's going."
He said Indonesian counterparts are generally positive about the state of the Australian economy and are thinking about similar issues such as Chinese demand and a decline in commodity prices.
"They have seen Australia through the financial crisis as a very robust, resilient economy," he said.
CEO not worried about housing bubble
Mr Narev said he was "not concerned" about a housing bubble at the moment.
"We all know that in a sustained low-interest rate environment these risks exist and we've got to be alive to them," he said.
The best defence against housing bubbles is "good, conservative, prudent bank management," which was evident in Australia's banks, he said.
Mr Narev said there should be ongoing conversations with regulators and government, but he saw no immediate need for discussions about the settings.
"If you look at the fundamental drivers of supply and demand, demand for housing versus the supply of housing, all those economic figures, they are telling you that the underpinning of property prices right at the moment is easily justifiable on good sustainable levels of supply and demand.
"That doesn't sound like a bubble to me. But we've got to realise that if we're in a sustained period of low interest rates, it's something we've got to keep our eyes open."
International investors have no greater interest than usual about the property market, he said.
Mr Narev expressed confidence in Reserve Bank of Australia governor Glenn Stevens, despite recent allegations of corruption at the bank's subsidiaries.
"I'm very happy with the governor. I think he's done an outstanding job. He certainly has my confidence," Mr Narev said.
Medium-sized businesses' confidence grows
Businesses in the $10 million to $100 million range are more confident than six months ago about their prospects, preparedness and understanding of their business, Commonwealth Bank research from before the election shows, Mr Narev said.
"If confidence does move, then I'm certainly very positive that the extra benefits we will see in the economy on top of the very strong base we have built make the prospects for Australia very bright," he said.
"It's certainly an economy that we are very proud to be part of."
Due to global volatility, he said personal and business customers tell him it's best they "sit on their hands," and he sees quantitative evidence of this in higher savings rates, lower loan growth and lower expenditure.
The more subdued activity has made him "quite happy" as a banking CEO looking for long-term economic stability, but a little more confidence and activity would be a good thing, he said.
Two of the country's most senior bankers have acknowledged the risk of the housing market overheating in an environment of strong demand and record-low interest rates.
As the property recovery gathers pace, Commonwealth Bank boss Ian Narev and ANZ chairman John Morschel on Wednesday hosed down concerns Australia was in a bubble, arguing banks continued to behave prudently.
But they also signalled they were aware of the risks that rapid price growth could become dangerous if it continued for an extended period.
Mr Narev said fears about the housing market overheating were justified, but he was not yet concerned about a bubble forming.
''We all know that in a sustained low-interest rate environment these risks exist, and therefore we have got to be alive to them,'' Mr Narev said at a lunch in Melbourne.
''The best defence for any of these sorts of bubbles in relation to bank activity is good, conservative, prudent bank management. I think we do have that among Australian banking leaders.''
Mr Morschel, speaking at a function in Sydney, also dismissed concerns the market was in bubble territory but acknowledged the risk of one forming.
''I don't believe it's a bubble. It might be two years down the track but I don't believe it's a bubble at the moment,'' he said.
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.
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