Is this actually the quietest boom we’ve ever seen..?
If you’ve been following my blogs for a while now you’ll now I been sounding the alarm on a few segments, and drawing attention to the headwinds that are currently facing the property market.
But how bad are things, really?
It has almost become a bit trendy to say that things are looking rough for property (where were you 9 months ago?). But lets not get carried away with ourselves.
Sure things aren’t as bumper as they were in 2013 to 2015, but those were some of the best years on record. If that’s your benchmark, anything is going to look woeful.
We’re like the Princess and the pea. We’ve become so acclimatised to bumper years and double-digit growth rates, that anything else is worth calling up the maid and complaining about.
I’m thinking this as I read the papers yesterday morning, and I’m reading that Australian auction markets turned in a very solid result over the weekend. According to CoreLogic, 77.8% of auctions cleared successfully.
This is actually an outstanding result. In fact, it’s one of the best in the post-GFC era.
But are people talking about the booming market? Are they talking about thumping results and hot markets? Nope.
In fact, I saw a few people try to blow it off as a bit of statistical noise. And sure, eyeballing the chart, looks like there’s a bit of an unusual blow off in the results this week.
But look at what’s happened over the past 12 months. Towards the end of last year, auction clearances started slowing from their previous peak (which was at levels that a lot of people were calling ‘insane’).
That slow-down continued into February, pushed lower by some stock-market jitters. And so there was a depressing cratering that happened. But even at its worst, it was still higher than the results we were seeing between 2008 and 2012.
The sky was hardly falling.
But then look at what’s happened since. Auction clearance rates have pushed higher, for 6 months in a row, until the weekend just gone where we posted one of the best results on record.
It’s been too strong for too long to simply fob off as ‘statistical noise’.
Some commentators were pointing out that the strong result comes on the back of lower volumes. Somehow suggesting its easier to get strong results when there’s fewer homes on the market (though I don’t fully understand that logic).
But even then, yes listings are lower than they were in February, but looking through the noise, listings remain extremely elevated – like the best levels we’ve seen since the GFC.
So looking at the clearance rates and looking at the listings data, neither are telling a story of a housing market in decline. In fact, on the face of it, both of them are pointing to boom-time conditions.
Same story if you look at CoreLogic’s leading mortgage index. This series dropped off a cliff in January and February this year, and I’ve got to admit I was a little worried when it happened. Christmas time is always soft, but this year it was extra soft.
But then it just bounced right on back. And right now, it’s down a little on 2015, but it’s still hanging out around historical highs.
So why aren’t we talking about a boom?
At this point a lot of people might talk about the finance data. Growth in the dollar value of mortgages has fallen, and this typically coincides with slower price growth.
Not falling prices mind you. Just slower growth. Eyeballing the charts it looks like we’re in for about 3 or 4% growth p.a. (And you know, for a stable asset like property, I’d take that any day of the week).
But the thing to remember is that this comes after 12 months of deliberate government policy aimed precisely at slowing mortgage growth. APRA cracked the whip and the banks started reining in the mortgage books, often by lowering LVR limits.
And so the average loan size has fallen.
Now if LVRs were constant, that would mean lower prices being paid on houses. But LVR’s haven’t been constant. For the same house and the same price, you now need to stump up more of your own cash. That means that the amount the bank is willing to lend you will be lower.
And so average loan sizes will fall.
This is not a cyclical question. This is about how effective government policy has been. And it looks like it’s worked.
But even if you were worried about lower finance results drive prices lower, looking through the spike in 2015 to where we are now, finance is on a pretty steady upward trend.
So again, I’m not saying it’s a boom. But right now, more than a few indicators are saying that actually, the market is booming.
And I can understand why people are reluctant to start banging on about the boom. The market is very patchy right now. If you’re in Perth, there is definitely not a boom happening over there right now.
There’s also considerable risks brewing in the apartment market. That could weigh down the national numbers in the near term (even if the detached housing market is fine).
So no one wants to be out there banging on about how awesome the market is right now. In six months they could have egg on their face.
And look, sure, we still have some challenges ahead of us. But let’s keep a bit of perspective. On a lot of measures, and on a lot of measures that matter, things are booming.
So cheer up sunshine. You’re much prettier when you smile.
How’s your read of the mood out there right now? Boom or gloom?