Robin's Corner - 2010

Robin Matters' weekly quotes covering topics on the mortgage industry to the global economy

January

  • 11/01/2010 - If sea levels rise as predicted over the next 100 years, a recent Federal Government report suggests $63 billion worth of property is at risk. The predicted rise is 1.1 metres
  • 18/01/2010 - As expected, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments fell from 26% in October 2009 to 22.1% in November 2009
  • 25/01/2010 - Housing and transportation costs contributed most to the inflationary pressures, both nationally and in Adelaide, while decreased health costs provided the most significant offset to inflation in the 09 September quarter. I would expect the Australian dollar to have been the catalyst for the reduction in health costs.

February

  • 01/02/2010 - Australia's largest independently-owned mortgage broker, Mortgage Choice, report that only 1% of loans written in December 09 were fixed rate, the lowest ever recorded by them. They cite the reason as the comparative cost between fixed and variable. I interpret the cost differential as an expectation of the Lenders that the cost of money is going to continue to rise.
  • 11/02/2010 - A Fujitsu Consulting survey, conducted just a few weeks after the first home buyer grant top-up had ended ,of more than 26,000 borrowers indicated that 45% of first home buyers who had entered the market within the previous 18 months were experiencing mortgage stress; as we expected.

    The big issues for these people are interest rates and employment.
  • 23/02/2010 - The Housing Industry Association senior economist, Ben Phillips stated when releasing the outcome of the HIA/CBA housing affordability survey on Monday that "The window is now closing with affordability retreating to 2008 levels when interest rates were significantly higher." Affordability was 22.3% lower than it was 12 months ago.

    I expect interest rates to increase in the medium future and that coupled with low housing stock levels will place further pressure on home affordability.

March

  • 02/03/2010 - According to the Housing Industry Association, 10 out of 13 skilled trades operating in the residential sector now suffer from a shortage of tradespeople, up from eight last year. They estimate that the shortfall, which includes bricklayers, plasters, tilers and electricians totals about 55,000 people.

    Expect to pay more next time you call an electrician or plumber.

    I expect interest rates to increase in the medium future and that coupled with low housing stock levels will place further pressure on home affordability.
  • 08/03/2010 - According to Bloomberg the world's financial institutions lost US$1.7 trillion since the crash of August 2007 but have since had capital raisings of US$1.2 trillion.

    Interestingly, however, is that the US banks only raised US$517 billion, or 74% of losses, whilst European Banks raised US$558 billion, or 10% more than there losses!
  • 15/03/2010 - According to Mortgage Choice First Homebuyers February the majority (55%) of Australia's first homebuyers-to-be will be aged 30 years or older when they purchase their first home. 45% will be aged between 19 and 29.

    The 55% is consistent with generation Y wishing to be transient with their living arrangements and probably intertwines with their plans to raise a family.
  • 29/03/2010 - I don't believe that there is any debate that we presently have a period of extraordinary demand for housing whilst Agents and Buyers are whinging about lack of supply; all this just two plus years after the now infamous GFC. The question to be asked, is Australia doing what the Americans did to get themselves into a like predicament?

    I think it is close but we do not have the oversupply of new housing and it appears some Lenders are becoming more cautious with their lending criteria; they may think that all is not as it should be!

April

  • 05/04/2010 - It has been reported that Detroit has 33,500 empty houses and 91,000 vacant residential allotments and the Mayor, Dave Bing, believes that Detroit can't continue to fund police patrols, fire protection and other essential services for what are essentially ghost towns The mayor's plan is to bulldoze approximately 10,000 houses and empty buildings over the next 3 years, whilst re-directing capital into the better / stronger neighbourhoods.

    It is my understanding that, ownership of the properties will revert to the City under tax foreclosure proceedings and a mortgage lender would have to front those costs to prevent this occurring and for what benefit?
  • 12/04/2010 - UK insolvency Specialist Begbies Traynor predicts that a record 40,000 UK companies will collapse this year after releasing data that showed more than 140,000 UK companies experienced significant or critical financial problems in the last 3 months of 2009, an increase of 6% on the previous quarter.
  • 19/04/2010 - The media spent last week trumpeting the paradox of increased house prices but reduced loan approvals; however no-one spoke of the simple supply and demand equation.

    My mail is that there is still a shortage of good stock available in the marketplace and all and sundry have been touting the issue of under-supply of new housing for some time. Surely this was a given until it just gets too expensive!
  • 26/04/2010 - The majority of corporate ownership in China is Government, thus the flexibility of personal wealth creation is limited and many Chinese achieve this through property development and ownership; both in China and abroad. It appears that the Chinese Government is cognisant of the burgeoning property market and have increased the deposit required for a second home from 40% to 50%, coupled with a slight rise in the rates. Such action was to quell the annual increase of housing prices that occurred - 11.7%. We in Australia saw an increase of 12.7% over the same period!
    I also suggest such levels deposits would eliminate negative gearing.

May

  • 03/05/2010 - This week is an observation rather than a quotation; not withstanding good clearance rates in Sydney on the weekend and amazing results noted for Victoria, I can feel a shift in the 'supply and demand' equation. This is by way of both an increase in stock and a diminution of demand.

    Only time will tell if this "gut feeling" has legs.
  • 10/05/2010 - A recent UBS report reveals that Westpac is the largest issuer of term debt in the world as a percentage of assets, with the other 3 Australian majors close behind. As Australian Banks presently account for about 1.9% of global term debt, it is UBS's considered belief that it will be a huge task for Australian banks to grow this percentage, thus overseas funding growth will be modest at best.

    Therefore for lending to grow we need to save more for them to lend or available funds to borrow will diminish.
  • 17/04/2010 - We continue to receive economic data that one day is positive and the next is challenging - with regard to US employment, the number of jobs jumped 290,000 however the unemployment rate went up to 9.9% (an increase of 0.2%) as more people are looking for work. A staggering 67.2 million Americans have been looking for work for more than 6 months.

    There not very good odds!
  • 24/05/2010 - The IMF recently noted that more than half of all international bank funding requirements will need to be refinanced in the next 3 years, equating to approximately $US5 trillion as reported recently in the Financial Review. The report went on to say that the search for funds will be exacerbated by new capital and liquidity rules, the shift from guaranteed to unguaranteed funding and the rapid expansion of government borrowing requirements.
  • 31/05/2010 - The Mortgage Bankers Association in the US released a statement advising that more than 10% of US homeowners with a mortgage had missed at least one payment in the first quarter of 2010. Their chief economist said "Overall we see a continuation of the pattern of declines in short-term delinquency rates, at least on a non-seasonally adjusted basis, the continued historically high share of delinquencies that are 90 days or more and a levelling off in the pace of foreclosures".

June

  • 07/06/2010 - Further statistics from the US;

    High frequency traders account for 40 - 70% of all trading across the US,with some of the bigger players trading more than a billion shares a day and they normally hold shares for no longer than 11 seconds!

    1 in 4 Americans with a mortgage have negative equity in their homes.

    Only 1 in 50 Americans plan to buy a home in the next six months.
  • 14/06/2010 - The RP Data - Rismark dwelling values for the April quarter read a follows:-
    Perth down 0.6% - $475,000
    Brisbane down 0.5% - $445,000
    Adelaide up 1.4% - $385,000
    Darwin up 3.1% - $480,000
    Sydney up 3.6% - $507,000
    Melbourne up 3.7% - $465,000
    Canberra up 4.1% - $511,200
    Hobart up 6.1% - $329,000
  • 21/06/2010 - According to Bloomberg the world's financial institutions lost US$1.7 trillion since the crash of August 2007 but have since had capital raisings of US$1.2 trillion.

    Interestingly, however, is that the US banks only raised US$517 billion, or 74% of losses, whilst European Banks raised US$558 billion, or 10% more than there losses!
  • 28/06/2010 - RP Data's research analyst, Cameron Kusher, came up with an interesting statistic last week - of all the capital cities, Sydney, which is the nation's most expensive for homes, actually had the greatest percentage of homes sold below $350,000 - nearly a whopping 22%.

    I would put this down to the greater percentage of high density accommodation constructed over many decades in Sydney and the recent push by first home buyers and then investors who have been active in the bottom end until very recent times. Still a surprising statistic.

July

  • 05/07/2010 - According to Access Economics and despite population growth, new home starts in Greater Sydney fell to the lowest level in half a century in early 2009, leaving housing starts roughly half of where they were a decade ago and about half of underlying demand.

    Meanwhile Residex advises that unit sales in the same area were 30% higher in the 12 months ending March 2010 than the previous year and was the highest annual sales total on record. Annual unit sales volume has outstripped the annual house sales volume in all but one of the past eight quarters.

    I believe this is a function of what people can afford.
  • 09/07/2010 - A recent article in the Weekend Australian showed some interesting ABS figures as far as immigration is concerned. Overall arrivals have dropped 25% in recent months (although only down to a 3 year low), with the New Zealanders down 35% and the British 29%. Meanwhile Australian's going overseas for a holiday has gone up 27%

    Could just be the exchange rate!
  • 12/07/2010 - The Australian Bureau of Statistics report that the last decade has seen rents rise by approximately 44% more than wages. Another level of support for the argument surrounding un-affordability of housing in Australia.
  • 19/07/2010 - Bankwest's First Time Home Buyer Report suggests housing affordability has continued to worsen over the past year with first home buyers needing on average 4.5 years to save for a house deposit, up from 3.7 years. $85,800 is the average deposit required to be saved for a house and $76,900 for a unit. Melbourne has overtaken Sydney as the most unaffordable place to purchase a unit as a first home buyer.
  • 26/07/2010 - I am told the number of real estate sales (land, units, apartments and houses) in the Cairns Regional Council (about 200 km of coast from Cooktown / Port Douglas to Innisfail) for June totalled 40 - shared between about 300 sales people!

August

  • 02/08/2010 - A recent Dunn & Bradstreet survey comments that one in five households expect their debt levels to increase in the next few months, whilst 49% of households indicate an increase in interest rates would negatively impact their household finances.
  • 09/08/2010 - A recent HIA / RP Data report on residential land showed that the national volume of sales of residential land was down 40% on the 1st quarter this year compared to the 1st quarter last year, however the average median sales value remains about the same at $184,500.
  • 16/08/2010 - According to the just released Reserve Bank of Australia report, the ratio of household interest payments to disposable income has increased by around 2 1/2 percentage points over the last year, although it remains well below its peak in September 2008.
  • 23/08/2010 - The Nab SME quarterly survey for the June quarter of more than 700 small to medium businesses found that business conditions, profit growth and cash flow deteriorated for the second consecutive quarter and provided the lowest reading over the last 12 months
  • 30/08/2010 - The US housing market has been bandied about in the news lately; a recent report had US repossessions for July at 92,858; some 9% higher than June and 6% higher than July 09. The major US banks had already written of about $US 8 billion on mortgages for the first 3 months of 2010 - at this rate they will exceed last years total of $US 31 billion!

September

  • 20/09/2010 - On 10 September 2010, the Supreme Court of Victoria handed down its decision in Bovino Pty Ltd v The Casey Group Holdings Pty Ltd [2010] VSC 391.
    The decision found, in circumstances where:
    • a real estate agent has advised the purchaser of property that there were other prospective purchasers who were prepared to make an unconditional offer or a higher offer, despite there being no such parties in existence; and
    • the purchaser relied on the representation to enter into a contract without conditions precedent (which it would otherwise have required), for fear of missing out on the purchase:
    the purchaser may rely on the misleading and deceptive conduct provisions under s52 of the Trade Practices Act 1974 to avoid the contract, where the purchaser has reason to take as truth the real estate agent’s statements.
  • 27/09/2010 - Nab's Alan Oster recently stated that if credit growth slows by about 5 per cent, GDP slows by one percent.
    Warren Hogan, Nab's chief economist, also added "there is so much Australian Bank paper out there that it is having a price effect - we are having to pay for money."

October

  • 4/10/2010 - Rang a hard working Agent in the southern mortgage belt of Perth to discuss a particular property. He did 14 opens on the weekend for a total of 4 visitors.
    Every sale we made at auction on the weekend was to an investor. Interesting times.
  • 11/10/2010 - An article in the New York Times states - JPMorgan Chase has halted foreclosures in the 23 States that require judicial review of foreclosures. They said they are putting hundreds of lawyers and executives to work on what it describes as a "technical" paperwork problem with 56,000 mortgages with improper documentation. BoA has suspended its foreclosure activity in all 50 states whilst it reviews it's paperwork and processes.
  • 25/10/2010 - China has been encouraging private developers to take part in the social housing program to assist in providing low cost housing as part of it's massive urbanisation program. The Government gives developers guaranteed work with a 7% margin.This has assisted Chongqing in meeting 60% of it's full year target by June. It's aim is to complete 8 million square feet of social housing in 2010 (double 09). Bloomberg

November

  • 15/11/2010 - Capital gains in Australian Housing have been lower in the last 5 years than the previous 5 years with an overall increase of 7.1% average year on year. CPI however averaged about 3% during the last 5 years.
    In other words property has been doing better than double the CPI - while the question is, how long can it be sustained

December

  • 1/12/2010 - A recent Financial Review article interviewed an owner of a 12 table noodle shop in Beijing who says meat and vegetable prices have climbed 10% in a year and staff wages have risen 40%.
  • 16/12/2010 - I think it is fair to say that the amount of housing increases when we have a combination of economic growth and low interest rates; interestingly, and counter to the standard supply and demand equation, values seem to increase at the same time, often too far. Rather than then sell below the aledged ‘peak’ value of our home, Australians choose not to sell, which sees the market enter a flat period. Personally I saw the price over run as significant and thus expect the flat period to be something similar.


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