In a move that surprised many the RBA increased the cash rate by 25 basis points today taking the cash rate to 4.75%. Further to this, the CBA announced they were increasing their variable rate by 45 basis points (almost double the RBA move). No doubt other lenders will follow suit and join CBA in increasing their rates by more than the official move. This is something the larger banks have been threatening now for sometime, citing increased lending costs.
Often I see comments on property investor forums and elsewhere inferring that the RBA looks after those borrowing to buy property (e.g. suggesting that the RBA will alter interest rates to avoid house prices stagnating or falling), I think this move will likely shatter that myth/assumption.
There have been several housing related releases over the last week which might be of interest (click the section title to go to the report).
This is a monthly release of data which represents approximately 10% of new mortgages across Australia. Normally these results will come out 4-7 days after the end of the month so it was interesting to see these figures out on the 1st of November for the month of October. I suspect this quick release was a purposeful ploy to get the data out in time for the RBA to take it into consideration for their board meeting today. AFG reported that is was the worst October for mortgage sales in 4 years. The $2.2b mortgages of mortgages is 17.5% down on 2009 for the same month and 4.3% down on last month. So much for the Spring recovery!
Other interesting figures from the October report was the decrease in first home buyer finance (after 3 months of increases) as well as the increase in fixed loans taken up. In general those taking mortgages do the wrong thing with fixed/variable rates. More often than not they fix when rates are peaking and go variable when rates have bottomed. Examples of this include over late 2007 and early 2008 when fixed mortgages were making up over 20% of those taken (when interest rates peaked), this number dropped to as low as 2-3% over late 2008 to early 2009 (as rates were bottoming).
Monday saw the release of the third quarter ABS House Price Index. Overall there were more capital cities with negative growth than positive, but the weighted average index saw a .1% gain.
Leading the pack for price drops was Brisbane with a 2.4% fall, Hobart and Adelaide both saw a 1.4% fall for the quarter. Melbourne bucked the trend being the only city showing a substantial increase in price managing a 2.7% increase.
The trend in the ABS data is fairly clear and consistent with RPData figures which show many capitals have had falling prices the last couple of months. Given the revisions (lower) in the Housing Index for the first two quarters we may even see this .1% growth figure turn negative come the next release.
Last Friday saw the release of the latest RPData house price figures (for the month of September). Their data showed capital cities to have relatively flat growth, with a substantial decrease in the price of 'rest of state' (regional) markets. Australia wide (rest of state) saw a drop of -.9% seasonally adjusted or -1.5% unadjusted, these are annualised rates of -10.8% and -18% respectively.
Their graphs are indicating that we are heading into a price dip at least as severe as the one seen in 2008 and I think it's unlikely we will see the government try and reverse this like they did the last time with the First Home Buyers Boost.
Another interesting development has been two of Australia's "Big 4" banks releasing reports that counter Australia's "mythical" housing bubble. The CBA released a report on the 9th of September, one which was going to be used to "reassure" overseas financiers that prices in Australia are reasonable and that their mortgage book was secure. You can read the report in the ASX release HERE. Shortly following its release Money Morning dissected it showing that CBA had been selective with their choice of figure use in a way which could be seen as deceiving. Westpac released a report last week entitled "Australian housing: the bubble myth", you can find a copy HERE.
Listings are on the increase. A couple of sites that I regularly visit (both of which have free data) are REFind & SQM Research. REFind does not show historical data however I have been keeping track of the number for sale on the site for several months. At the start of August there were approximately 284,000 homes for sale, today that figure is around 311,000, that's an increase in listings of almost 10% in just 3 months. SQM Research's "Stock on Market" figure shows that there aren't as many listings as in 2008 when prices last started to fall, but the number does seem to be trending up since the low in April earlier this year.
To sum things up:
- The FHBB was removed, reducing the free deposit for first home buyers
- FIRB laws were retightened making it more difficult for foreigners to buy in Australia
- Rates are on the increase via the RBA and independent moves by the banks
- New home sales are down 14% for the September quarter
- Auction clearance rates are dismal in most cities & not great in Melbourne or Sydney
- Listings are on the increase with a significant rise seen in the latter half of this year
- Mortgage lending figures are down on last year and other recent years
- Most capital cities are now seeing stagnating or falling prices
It's looking pretty dismal for the property market at the moment.
It has taken longer than I thought it would to turn, however price falls are now being seen and I suspect they will continue for the foreseeable future until prices are back to a more sustainable level or until the government once again interferes with the market to prop up prices.
With yields as low as they are (capital cities are returning average yields of approximately 4% for houses and 5% for units) and capital growth prospects for the short to medium term looking grim, one has to wonder who is buying and why...
I for one am glad to have sold around 10 months ago to start renting. It makes sense to rent a house/unit when the alternative is to pay around twice the cost of renting to buy (just to cover an interest only loan).