The number of new owner-occupier housing loans rose by one per cent in July after rising by 0.6 per cent in June. The number of loans is 5.4 per cent higher than a year ago.
Loans for the purchase of newly erected dwellings fell by one per cent. However, they were still down 7.8 per cent on a year ago. Loans for the construction of homes fell by 0.8 per cent in July to 4,757 – below the decade average of 4900.
Government spending fell by 0.4 per cent in the June quarter after lifting by 0.7 per cent in the March quarter.
The broad measure of Australia's external position – the current account – improved in the June quarter with the deficit narrowing from $11.1 billion to $7.4 billion. The trade sector will slice 0.5 percentage points from overall economic growth (GDP) in the June quarter. We expect that the economy expanded by 0.8 per cent in the June quarter.
What does it all mean?
The latest improvement in housing activity is encouraging. However, it by no means suggests a reversal of fortunes, especially given that the pickup in activity is off a low base. In addition, approvals are still down almost three per cent since the start of the year. And other metrics such as housing credit, auction clearance rates and building approvals have all been decidedly weak in recent times.
Housing credit is bouncing of the weakest levels in 34 years and the lack of activity in new construction is a clear dampener on the sector. The weakness in housing activity does have flow-on effects for other parts of the economy. Asset values are falling, share markets remain sluggish and the result is that consumer confidence is at two-year lows. And looking forward, businesses will continue to find conditions tough.
At present, it is clear that the housing sector is decidedly weak, and the latest improvement in housing finance at most only provides a modest degree of hope going forward. Aussie consumers were already hesitant about spending, and the sustained drop in home prices and weakness in share markets will entrench the current mood of nervousness across the country.
It is important to remember that the Reserve Bank has raised interest rates just once in the past 16 months yet an array of sectors are unwilling to borrow and spending remains subdued. Clearly, rate hikes are off the agenda for the next few months. However, it is interesting to note that financial market participants are getting more dovish with overnight indexed swaps factoring almost four interest rate cuts with the cash rate falling to 3.75 per cent in a year’s time.
It is likely that the Australian economy expanded in the June quarter, returning to growth after the floods and cyclone knocked around the growth estimates in the March quarter. Overall, we are tipping growth of around 0.8 per cent – only a partial rebound after the 1.2 per cent contraction in the March quarter. Clearly the domestic economy has lost momentum with annualised growth likely to post at around 0.4 per cent, and even the Reserve Bank is not expecting a robust recovery to take place until early 2012.
What do the figures show?
The number of new owner-occupier housing loans rose by one per cent in July holding at 49,813 new commitments. However, the number of new loans has still fallen by 2.6 per cent since the start of the year. The number of loans is now up 5.4 per cent higher than a year ago.
Loans for the construction of homes fell by 0.8 per cent in July to 4,757 – below the decade average of 4900. Loans for the purchase of established dwellings (ex refinancing) rose by 0.6 per cent, while loans for the purchase of newly erected dwellings fell by one per cent. Newly erected home purchases are now down 7.8 per cent on year ago.
The value of new housing commitments (owner-occupier and investment) rose by 1.6 per cent in July. Owner-occupier loans rose by 1.4 per cent while investment loans rose by 1.9 per cent.
Banks accounted for 92.7 per cent of all loans taken out in July, up from 92.5 per cent in June.
The proportion of first homebuyers in the market held steady at 15.2 per cent in July – well below the decade average of 18.2 per cent. Fixed rate loans accounted for just 6.3 per cent of all loans in July, down from 6.5 per cent of loans. And the average home loan across Australia stood at $293,400, up one per cent on a year ago.
Government consumption spending rose by 0.9 per cent in the June quarter after a 0.8 per cent lift in the March quarter. But total public investment fell by 3.8 per cent in the June quarter after a small 0.3 per cent lift in the March quarter. Overall, spending by the government sector fell by 0.4 per cent in the quarter.
The broad measure of Australia's external position - the current account – improved in the June quarter. The current account deficit narrowed by $3696 million to $7419 million in the June quarter. The balance of goods and services surplus rose from $2747 million to $5599 million. But the net income deficit improved by $870 million.
In the June quarter, the current account deficit narrowed from 3.2 per cent to 2.1 per cent of GDP.
In the June quarter, exports of goods and services rose by 2.6 per cent. Goods fell 3 per cent with services up 0.2 per cent. Imports rose by 4.3 per cent in the quarter. The trade sector (exports less imports) will slice 0.5 percentage points from economic growth in the June quarter.
Export prices rose by 5.4 per cent in the June quarter (goods up 6.2 per cent, services up 1.2 per cent) but import prices were flat (goods up 0.5 per cent, services down 1.9 per cent).
The terms of trade (ratio of export prices to import prices) rose by 5.4 per cent to a record high of 122.6 in the June quarter.
Net foreign debt rose by $0.4 billion to $675 billion in the June quarter. New transactions added $1.3 billion, price changes added $6.2 billion, exchange rate changes subtracted $7.7 billion and other changes added $0.6 billion. Net foreign debt held steady at 49.4 per cent of GDP.
What is the importance of the economic data?
Housing Finance data is produced monthly by the Bureau of Statistics and shows commitments by lenders, such as banks, to provide finance for housing purposes. The lending figures relate to those looking to buy or build homes to live in as well as those seeking to buy or build homes for investment purposes. Generally, people get their finance organised first, so the figures are regarded as a leading indicator on the housing market.
The quarterly Balance of Payments figures have few short-term effects on financial markets. The importance of the data is merely to highlight Australia’s trading position with the rest of the world as well as the contribution of foreign trade (exports less imports) to the latest estimates of economic growth. Trade has been a drag on economic growth over the past four years with a lack of productive capacity holding back exports while rising incomes have boosted imports.
What are the implications for interest rates and investors?
Interest rates are on hold. That is without question. All the data over the past month portrays an economy that has lost momentum. The terms of trade may be at record highs, but in the suburbs that doesn’t pay the bills or get people out to the shopping malls, car yards or real estate agents.
Over the past eight months, it is clear that conditions in the housing sector have been soft. Buyers have been holding off on purchases in all areas. Loans for the construction of new dwellings – a key forward looking indicator of home building – is still down on a year ago. And loans to purchase newly established dwellings are still down a cumulative 16.8 per cent in the past eight months. Clearly it is too early to claim a revival in the fortunes of the housing sector and the sustained weakness in house prices is unlikely to turn around anytime soon.
The biggest risk in the current environment is that people will lose confidence and retreat further into their burrows. Australia can’t afford the ‘new conservatism’ taking hold in a major way.
The Reserve Bank has already acknowledged that the economy is softer than it had previously thought and the prospect of rate cuts cannot be ruled out if activity levels deteriorate further.
Robs Real Estate Report. Please enjoy the following articles I have included what I think are relevant and interesting to the Brisbane people and region.
