Tuesday, 9 September 2008

The Spring Selling Season That Will Not Be

The title above is meant to a prediciton about the upcoming Spring home selling season in Australia. The bull case is that with an RBA rate cut and more on the way, homebuyers will be encouraged to go looking for homes.

The bear case, or as I like to call it - reality is that this Spring selling season will fail to eventuate because of tighter lending standards and an already an embattled consumer up to theri eyeballs in debt and facing the prospect of falling equity in their homes for the first time in many years.

Today the ABS released data on housing finance commitments. Both the number and value of commitements excluding refinancings are off -30% from their highs.

Also today the abs released retail sales data for July showing a tepid rise in retail sales. It should be noted that the abs has reduced its smaple size for the retail sales data and therefore they now recommned that the trend data be used rather than the seasonally adjusted data and that is what is shown below.

As you can see, even in the recession of 91, retail sales never went negative on a year over year basis. Whilst retail sales are clearly weak, on the positive side, tax cuts in July in concert with lower petrol prices may give consumers some support, however I believe that will be offset to some extent by rising unemployment in the months ahead.


dean said...

I saw an economist from the NAB called Alan Oster talk on Monday and while he painted a fairly dire picture of current loan demand from the banks perspective, he highlighted the rather severe under supply of housing as a major factor of support for house prices. What's your view on this supply/demand issue preventing a mass correction in the oz property market?

The Fundamental Analyst said...

I think the under-supply issue is somewhat of a myth. Check out this webpage


which looks at abs statistics related to the number of new dwellings built as opposed to population and household formation growth. The problem seems to be a lack of supply of 'desireable' housing. Thatis, there is plenty of housing, but just not in the areas that people want it.

Also I think expectations is part of it. Couples in their 20's don't want to buy a second hand home they can afford. They all want their 4 bedroom Mcmansions with double lock-up garage.

Also take a look at this article.