Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
This is the edited high quality and tidied up version of our live session, where we walked though our scenarios once again and answered viewers questions.
We updated our scenarios once again.
The original live recording, with live chat, which you can watch in replay is here:
A quick round-up of some of today’s news, including the latest falls in unit sales, APRA’s latest climb down, consumer and business confidence and ASIC move to curtail some of the excesses in the short term consumer credit market where people might pay 990%.
The latest edition of our weekly finance and property news digest with a distinctively Australian flavour.
Apartment owners in high-rise units are realising their properties are worth less than they paid for them as rampant oversupply and falling demand send real estate values plummeting. Via RealEstate.com and The Daily Telegraph.
Recent sales figures indicated multiple unit owners made a loss on their investments, with some apartments in high rise buildings selling for up to $150,000 below what the sellers paid.
Such sales were particularly prevalent in construction hubs such as the suburbs of North Ryde and Rosehill, near Parramatta.
The suburbs were among the few Sydney areas where average prices have fallen below what they were in 2014, according to research from CoreLogic.
Multiple units in this complex on Allengrove Crescent in North Ryde have sold at a loss for the sellers, including one for $150K less than the vendor paid.
Median unit prices in the suburbs were 2-5 per cent cheaper than they were five years ago.
Median prices in other suburbs with a high supply of new units such as Hillsdale, in the Botany area, and inner west suburb Lewisham were below their 2016 levels, along with Zetland and Kellyville.
Suburbs with such deep drops in prices remained rare considering real estate values skyrocketed in the years between 2013 and 2017.
CoreLogic reported a 0.2 per cent fall in national dwelling values, the smallest month-on-month decline in the national series since March 2018, according to their June Home Value Index .
On a quarterly basis, every capital city housing market has recorded a drop in value, highlighting the broad geographic scope of this housing market downturn. Annually, the average fall is 6.9%, but regional WA is down one third from peak 5 years back and Darwin down 30.1%, thanks to the wider economic downturn there.
Sydney and Melbourne dwelling values have recorded their first monthly rise since 2017 with Melbourne values increased 0.2 per cent across the past month, while there was 0.1 per cent growth in Sydney.
According to CoreLogic head of research Tim Lawless, the June results presented an early sign that lower mortgage rates and improved sentiment were already having a flow-on effect for housing market conditions in Sydney and Melbourne, while most other regions of Australia continued to show relatively soft housing market outcomes.
“The subtle rate of decline was heavily influenced by trends across Sydney and Melbourne where the pace of falling home values has been consistently reducing over the year to date,” he said.
“Importantly, the improving conditions through to mid- May were largely ‘organic’, pre-dating the positive boost in sentiment following the federal election and interest rate cuts in early June.”
The only other regions to record a rise in housing values over the month were Hobart (+0.2 per cent), as well as the regional areas of South Australia (+0.1per cent) and Northern Territory (+0.2 per cent).
The largest falls over the past three months were recorded in Darwin (-3.6 per cent) and Perth (-2.1 per cent) where the weaker trend has persisted since mid-2014.
Adelaide recorded the smallest decline amongst the capitals over the quarter, with values down 0.4%.
Across the regional markets, values were 0.4% lower over the month to be down 3.1% for the financial year.
Dwelling values recorded a rise over the June quarter in Regional South Australia (+0.6 per cent) and Regional Tasmania (+1.3 per cent).
Mr Lawless said although these areas have recorded modest gains over the quarter, the trend across the regional areas of Australia is generally “one that is losing momentum”.
The latest edition of our weekly finance and property news digest with a distinctively Australian flavour.
We ran our regular live Q&A event last night, and had the biggest audience ever (thanks to all those who took part).
During the show we discussed the latest data from the RBA, ABS and Moody’s, and our updated scenarios. In the current “risk-on” environment, and with the RBA’s pivot to lower rates, QE and lifting the money supply incorporated into our modelling, plus the heightened international risk profiles; there are some big changes to our scenarios.
Given the RBA (and the FED) have flipped to more QE, the future could play out a number of ways over the next 2-3 years. Indeed, if the RBA does get unemployment down to 4.5%, it is possible home prices will be higher by then.
We are expecting a small bounce, but then further falls in home prices as the broader economy weakens, and the risks from an international crisis rise further. But remember average rises or falls mask significant variations. We discuss specific examples on the show where prices have already dropped more than 30%.
You can watch the edited version of the show and our rationale for the scenario revision.
Alternatively, the original stream, including the live chat replay is available.
And we also included a view behind the scenes during the session.
Residential property prices fell 3.0 per cent in the March quarter 2019, according to figures released today by the Australian Bureau of Statistics (ABS).
Through the year growth in property prices fell 10.3 per cent in Sydney and 9.4 per cent in Melbourne. Adelaide (0.8 per cent) and Hobart (4.6 per cent) are the only capital cities recording positive through the year growth.
All capital cities recorded falls in property prices in the March quarter 2019, with the larger property markets of Sydney (-3.9 per cent) and Melbourne (-3.8 per cent) continuing to observe the largest falls.
In the March quarter 2019, property prices in Adelaide (-0.2 per cent) and Hobart (-0.4 per cent) recorded their first falls since March quarter 2013 and September quarter 2012 respectively. Falls were also recorded in Brisbane (-1.5 per cent), Perth (-1.1 per cent), Canberra (-0.9 per cent) and Darwin (-1.8 per cent).
ABS Chief Economist, Bruce Hockman said: “These results are in line with soft housing market indicators, with sales transactions and auction clearance rates lower than one year ago, and days on market trending higher.”
“A continuation of tight credit supply and reduced demand from investors and owner occupiers has contributed to weakness in property prices in all capital cities this quarter,” he said.
The total value of Australia’s 10.3 million residential dwellings fell by $172.7 billion to $6.6 trillion in the March quarter 2019. The mean price of dwellings in Australia is now $636,900. The total value of residential dwellings has fallen for four consecutive quarters, down from $6,957.2 billion in the March quarter 2018. The mean price of residential dwellings has now fallen for five consecutive quarters, down from $689,700 in the December quarter 2017.
On 14 June, the Canadian Real Estate Association (CREA) reported that May home sales rose 1.9% nationally from April, says Moody’s. The report confirms other recent data suggesting that macro-prudential measures the Canadian government has taken to cool extreme houseprice appreciation over the past five years have been successful in engineering a “soft landing,” easing market concerns that some of the country’s more expensive markets such as Toronto and Vancouver were poised for a major correction. CREA now predicts home sales nationally will rise a sustainable 1.2% in 2019, a reversal from a previous forecast for a drop of 1.6%.
Reducing elevated house-price growth without triggering a severe correction in housing markets supports financial stability in Canada’s
banking system and reduces the prospect of rapid consumer deleveraging, which would pressure Canadian bank asset quality. Although Canadian banks’ mortgage portfolios are relatively resilient, unsecured consumer exposures would generate substantial incremental loan losses under the stress of a major housing price correction. This would pressure profitability at the Canadian domestic systemically
important banks (D-SIBs) and be detrimental to their strong credit profiles. The D-SIBs are Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, The Toronto-Dominion Bank and National Bank of Canada. Rising house prices in the major urban areas of Toronto and Vancouver have been the main driver of the growth in Canadian residential mortgage debt to almost CAD1.9 trillion (about 95% of GDP) as of 31 March 2019. Roughly 50% of domestic banking assets are
residential mortgages. Positively, about 85% of Canadian mortgage debt is in disciplined amortizing structures, which are lower risk than interest-only home equity lines of credit (HELOCs).
Policy decisions by the national and several provincial governments, including the tightening of mortgage eligibility requirements, have stabilized prices somewhat in recent quarters. We expect a more sustainable growth rate in housing prices over the next year, as supported by the CREA announcement.
A significant number of Canadian mortgages are explicitly backstopped by the Canadian government through Canada Mortgage and Housing Corporation (CMHC, Aaa stable) insurance, and the loans’ historical credit quality is high. However, federal initiatives to reduce the government’s exposure to housing risk have reduced the proportion of insured mortgages to about 33% at 31 March 2019 from 47% at 31 March 2014.
Structural features of the Canadian mortgage market also buffer banks against the effects of a housing shock: mortgage loans are full recourse, securitization and broker origination levels are low, payments are not tax-deductible and the level of subprime loans is low.
Banks are not invulnerable to losses on mortgages in a stress scenario, but losses would be moderate relative to strong capitalization and earnings. The non-mortgage consumer loans of Canadian banks are relatively more prone to rapid deterioration in the event of an economic shock, especially given high household indebtedness. These exposures also have higher expected loss given defaults than real estate secured debt. We expect increased provisions for credit losses on consumer portfolios over the next year, starting from a low base, with the potential for more significant asset quality deterioration in the event of an economic shock. Evidence of a moderation in housing price growth rates reduces the prospect of this risk.
The latest edition of our weekly finance and property news digest with a distinctively Australian flavour.