While the market’s been frozen with fear, credit conditions have quietly turned.
I was putting some pressure on a real estate agent a few weeks ago. There was a property I was interested in, but only if I could get it at a discount.
So I told some stories. APRA restrictions, falling credit growth, reductions in maximum lends blah blah blah. The market just wouldn’t support the price the vendor was asking.
And the agent says, well, you know, it’s Christmas time. The data is always a bit funny around Christmas.
He’s telling a story too, but you know, he’s kinda right. There’s so much other stuff going on around Christmas and the New Year’s break, that it probably is the trickiest time of year to get a good feel for where the market is at and where it’s going.
Australia is funny like that. We’re pretty much the only country in the world that says, “Nah mate, I’m taking January off. See you in February.”
Then of course Australia day is a bit of a bender. (Have a listen to this guy’s police interview, and tell me it’s not the Aussiest bender you’ve ever heard of.)
But then after that, the kids go back to school, and everyone takes their brains out of their eskys and gets back to business. It’s weird.
So true enough, it’s hard to know what the market is doing in January.
And the silly season gave us no shortage of silliness. The Fed hiked rates, global share markets wobbled and wobbled, there were some more terrorist attacks, and Indonesia looks like a worry. Oil prices fell to record lows and our big miners look like their floundering.
Now my brain’s back out of my esky, it’s kinda hard to know what to make of it all. None of it was good news, but none of it was surprising either.
But if I was a betting man, I don’t know I’d be backing shares right now.
Across the market, the bears have the run of things, and it’s hard to find anyone who’s pumped about what 2016 has to offer. Many are in outright panic.
Take a look at this chart here. This is the cash holdings from the Global Fund Managers survey.
Fund managers will move to cash (by selling shares) when the risks associated with being ‘in’ the market, outweigh the benefits.
And right now, it seems that fund managers are worried about being burnt, and have the highest cash balances since the GFC.
But when you look around it’s hard to put your finger on exactly what changed. The US Fed took advantage of the Christmas distractions to slip in a rate hike. The move itself was minimal, but it was the change in intention that suddenly cast everything in a new light.
There was also a lot of worry around Chinese output figures, but then most people I know don’t think the government’s statistics are worth the paper they’re printed on, so I’m not sure what the fuss is there.
The fall in oil prices is actually big news, but even then, that’s a story that’s been a year in the making…
Maybe it’s just fear. Maybe it’s just enough people thinking, “yep, we’re due.”
And then what do we make of the Aussie property market?
It’s still hard to tell there too. The APRA led tightening of credit conditions carried over into the new year, and that has been making itself felt.
One of the key reads for me at the moment is the RP Data Mortgage Leading Index. According to RP Data it has an 81% correlation with ABS finance data, so it’s a pretty good guide.
And what has it done? It’s dropped off a cliff.
To be fair, December is always soft, but there was a huge drop, taking it to some of the lowest levels in years.
That would suggest that the pool of buyers in the market is thinning out, which would take its toll on price growth eventually… if it were permanent.
Thing is though, that we’re now hearing stories of the banks letting up the screws. The APRA tightening was enough to put a pause on things, and most importantly, put the banks back in a sounder financial position. But maybe their job is done and we can wave goodbye.
The AFR was running the story late last week:
“Lenders are easing rates and conditions for borrowers in the lucrative investment property market following six months of tougher terms in response to regulatory concerns about excessive risk.
Fourteen lenders have increased loan-to-value ratios, others have slashed investor rates by up to 30 basis points, and new products are being launched priced for additional risk involved with investors.”
Now given that the credit tightening has been one of the biggest themes in property over the past six months, you’d expect easier conditions to be big news.
So this could actually be a golden time to buy – in the sense that there is a truck-load of fear in the market right now, but the credit cycle appears to be turning.
If the banks and especially the non-bank lenders take us back to the pre-APRA days, we could see the sudden spring-back of six months of pent up demand.
Know I don’t know for sure. It’s still a bit early to tell, but these are definitely interesting times to be sure.
How’s the market feel to you? Are there opportunities to drive some bargains, or are credit conditions still putting the squeeze on?