We’ve been on a bit of a housing kick lately, so I promise this will be the last of our posts on deflating bubbles for now. Perhaps we’ll move onto the auto industry next week as we’ve been hoping to share our investment thesis on a major supplier that has been “reborn” in the wake of the industry downturn.
Until then, we’ll share a couple of new pieces of information we’ve come across since our Aussie Pride post just a few days ago. To begin, we think it’s worth noting that the peak in existing house sales in the U.S., led the peak in price by about six months. It is intuitive that, Activity Leads Price in the real estate market. With that little nugget in mind, homeowners in Australia may wish to note the following press releases from HIA’s Economics Group:
Approvals Nose-Dive in January, 3 March 2011
“Building approvals fell substantially in January 11, as higher interest rates have negatively impacted the demand for housing.”
“Total residential building approvals fell by 15.9% in January 2011 to be down 24.8% on a year earlier.”
“The January 2011 fall in approvals is the worst monthly decline we have seen since September 2002.”
“Today’s poor approvals numbers emphasise the extent to which the non-mining sectors can be squeezed as the RBA hikes rates to control price pressures coming out of the mining sector.”
Pulse of New Housing Too Slow, 9 March 2011
“The number of loans for construction fell by 9.4% in January 2011 to reach the lowest level since December 2008. Loans for the purchase of new dwellings dropped by 13.5% in January 2011, which was also the weakest level since December 2008.”
“An unequivocally weak update on housing finance for January 2011 reinforces the appropriateness of a steady interest rate environment. It is important the Reserve Bank maintains a clear message of stable rates. Housing, like the majority of non-resource sectors, is performing below par in 2011.”
Investors are certainly entitled to their own opinions but that does not sound like a ringing endorsement for a fundamentally strong housing market to this simple mind. It would appear that 8% interest rates on new loans are starting to take a bite out of the “non-mining” Ozzie Economy.
The numbers don’t lie. But the anecdotal information we are coming across on a regular basis paints an even more colorful story. Once Australian writer notes:
Southport Central — where 165 units remain for sale — was the city’s best-selling project for the quarter with 28 sales. Apartments in the project’s second and third towers are selling from $340,000, down from the 2007 entry-level price tag of $437,000.
More than 720 new apartments remain for sale across the Coast, equating to just over two years of stock at the current rate of take-up.
The number of newly advertised properties for sale is 25.9% higher than it was at the same time last year. The total number of properties currently being advertised for sale is at the highest level of any week since the beginning of 2007. The elevated stock level is largely due to the difficulty vendors are having selling their properties as investors and first home buyers remain on the sidelines. The total number of properties advertised for sale increased by 1.7% last week and is 24.2% higher than at the same time last year.
Disclosure: At the time of publication, the author was short the Australian Dollar, Australian interest rates and various Australian financials via traditional and derivative investment vehicles, although positions may change at any time.