Another weekend, another dive into what is rumbling around my thought box.
AFG Mortgage Index.
AFG’s latest mortgage report came out this week. Their overview of the lending market was fairly bearish.
AFG, Australia’s largest mortgage broker, has called on the Government to address weak consumer confidence, after figures for April showed mortgage sales fell by nearly 10% compared to April 2010. AFG processed $2.1 billion in mortgages in April 2011 compared to $2.3 billion in April last year and $2.8 billion in April 2009.
Month on month figures showed an even larger fall of 15.6% – but this drop in volume also reflects the impact of the extended Easter and Anzac public holidays. On a volume per business day basis, April was somewhat higher ($117 million) than March ($111 million), but both these figures are well below those recorded in previous years.
Mark Hewitt, General Manager of Sales and Operations says: ‘Falling property prices, rising interest rates, the increasing cost of living and the fear of a carbon tax and other levies are a toxic combination to consumer confidence. As people start to see their net worth eroding because of falling home and investment property values, they become even less likely to spend. The Government needs to address this problem in its forthcoming budget, and provide a circuit breaker to restore confidence among consumers that the underlying fundamentals of our economy are still strong.’
Although this sits well with what we have been hearing from other organisations I have been becoming slowly less confident about AFG’s data. I have talked about this previously and these issues continue to exist in April’s data.
Again you can see falling LVRs on rising loan amounts, yet the ratio of FHB, investors and refinancing remains relatively stable. The national LVR now stands at 49% on a $386K loan suggesting the average property being purchased through AFG has risen again to $787K. This is made more strange by the fact this is a long running trend in their data even as many other organisations claim property values are falling. I am yet to hear a decent explanation for this. Secondly I have noticed that overtime AFG has stated that their market share is rising. This would suggest that any increases in the volume and total value of loans sold overtime may not all be due to the property maket itself, but simply due to the fact that AFG are getting a bigger slice of the pie. However, even if that is the case the number of loans sold in April is certainly down on last year which leads to my second musing.
Bearish Housing “Experts”.
This week Leith posted about Louis Christopher’s words in SQM research’s lastest newsletter. That sentiment has been re-iterated by Mr Christopher again in an article on SmartCompany
Property prices may drop more than 5% during 2011-12, one property expert has warned, after new figures released by SQM Research show the number of listings added to the market grew by 3.9% during the past month, and by over 68% during the past year.
SQM managing director Louis Christopher says the data provides evidence there could be a price correction of more than 5% if the trend continues – especially in Melbourne where stock has doubled over the past year.
“I think we’re going to see downward pressures on Melbourne prices. Asking prices in Melbourne have stood their ground for a while, but that’s about to change. Given the amount of stock on the market, they’ll have no choice but to reduce their asking prices.”
“We will hold to our general view regarding a correction size. In the capital cities, we think there is the possibility of seeing corrections of between 5-10%”.
It seems however that Mr Christopher is not alone in his bearishness, some more bullish commentators are joining in. Last June Tim Lawless from RPData had this to say about his expectations for the Australian property market.
“Our view is that home value growth is likely to moderate, tracking household income growth which is likely to be circa 5 per cent over the coming year.”
However in his latest video about current market conditions his assessment is far less bullish.
I note that in the smartcompany article Mr Christropher states.
… there is no way this trend can continue and have prices remain at the same levels.
“There isn’t going to be a massive fall of something like 40%, but there is going to be correction. The amount of stock means buyers have no other choice than to make amends to their asking prices.”
He points out that even a correction of between 5-10% could prompt the Reserve Bank to take action, or force the Government to once again intervene in the market as it did during the financial crisis with the first home buyers’ grant.
Given how the debt dynamics of a collapsing housing market will effect the broader economy I think this is a fair assesment of when the government would be forced politically to do something, even if it is making claims about tightening the purse strings. Whether or not the RBA would follow suit is up for contention, and was the question H&H posed on friday. I also wonder whether or not new intervention by the government would work as effectively as it did previously given that people have already seen the effects of direct government intervention. Either way it is more “can kicking” on a housing market that looks like it definitely wants to find some lower plateau to rest on.
Swan’s determined ….
However until such as time as housing or some other “unseen shock” tests the government, Mr Swan seems very determined to stay on his surplus target. On Friday news.com.au had a piece on his latest words on the budget.
Strength over the economic cycle makes it imperative to bring the Federal Budget back to surplus in 2012/13, Treasurer Wayne Swan says.
Despite the economy stalling early in 2011, the outlook for the economy meant the Government had tightened its purse, which starts with the Federal Budget to be announced on Tuesday, Mr Swan said. Today, the Reserve Bank of Australia (RBA) said the economy contracted in the March quarter due to the impact of natural disasters, both here and abroad.Mr Swan said the Government had to pull back on spending to restrain pressures on prices in the economy. “We still have a very strong economy in the medium term,” Mr Swan said today. “That is why in this Budget we have to come back into the black in 2012-13, to get the Budget back into surplus.
“We have got a very strong investment pipeline, we have got strong job creation, we have a low unemployment rate which will go lower and of course we have this massive mining boom and a very high terms of trade.”
“(We need) to maximise all the opportunities that are going to flow from that in this Budget. We have to make sure we spread the opportunities from the boom right around the country,” he said. He said the Government had to share the bounty from the mining boom, with programs to increase skills and the number of jobs in the economy.
Obviously you will need to remove the vomit from your mouth once you have read that. In the context of how the government handled the RSPT those words are laughable. However it certainly does make it clear that no matter what happens in the short term the government believes that they are about “crowd out” the private sector so they are going to close the coffers. I certainly do not believe that the floods and cyclones in Queensland have caused the current economic malaise. In my opinion it is private sector debt that is causing the issues and a sudden removal of government expenditure is going to have a vastly larger effect than many commentators are suggesting. But we will see, as I said recently steering the economy away from credit driven growth to resource backed investment was never going to be a smooth transition. However I really don’t get the feeling that government and the RBA are on the same page on a lot of this.
Greece
Which leads me to Greece, one of the ultimate examples of what happens when the government that sets fiscal policy and central bank that sets monetary policy aren’t reading from the same book. I have spoken quite a bit about Greece in the past, one of my latest posts was this one. I have long believed that the macro-economic architecture of Europe is broken and ultimately it would lead to one group of countries having to leave the union. I am not sure if it is just bluff to get a better deal or an actual plan, but it looks like Greece could be considering steps to do just that.(h/t Naked Cap)
The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government’s actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area’s finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.
Greece’s economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou’s government is considering abandoning the euro and reintroducing its own currency.
Alarmed by Athens’ intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. The meeting is taking place at Château de Senningen, a site used by the Luxembourg government for official meetings. In addition to Greece’s possible exit from the currency union, a speedy restructuring of the country’s debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union — regardless which variant is ultimately decided upon for dealing with Greece’s massive troubles.
Greece’s economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou’s government is considering abandoning the euro and reintroducing its own currency.
Alarmed by Athens’ intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. The meeting is taking place at Château de Senningen, a site used by the Luxembourg government for official meetings. In addition to Greece’s possible exit from the currency union, a speedy restructuring of the country’s debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union — regardless which variant is ultimately decided upon for dealing with Greece’s massive troubles.
I note that everyone is now denying everything, but this does show just how politically fragile the European debt monster still is. There is far too little information contained in either of these articles to make any real assessment of what Greece is actually up to. You would think however that the recent experiences of Ireland and Iceland would be playing on the minds of the Greek government. Is defaulting on the Euro debt and resurrecting the Drachma really going to be any worse than sticking around for Euro Austerity?
Maybe we are about to find out.
Enjoy the rest of your weekend.