Property Update: articles of the week!

Summarised by Michael Yardney over at Property Update here.

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HIA: New home sales climbing since September 2012

From the HIA Media Centre:

"The HIA New Home Sales report, a survey of Australia's largest volume builders, showed that total

seasonally adjusted new home sales increased by 3.4 per cent in June 2013, representing a fourth consecutive rise. 

Detached house sales increased by 7.3 per cent at the end of last financial year, but multi-unit sales dropped by 17.5 per cent.

In the month of June 2013 detached house sales increased by 19.7 per cent in Victoria, 7.1 per cent in Western Australia, 3.9 per cent in New South Wales, and 0.5 per cent in South Australia. Detached house sales fell by 11.0 per cent in Queensland."

A bit odd to see such a huge increase in Victoria, although monthly figures can be volatile.

Still a way to go for this series to represent what might be considered to be 'strength' in the new sales market, but the uptrend is encouraging.

Source: HIA

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Another interest rate cut a done deal? Dollar below 90 cents...

72% likelihood priced in already.

We're just a soft inflation print away from a record low interest rate of 2.50%.

It seems that the RBA is fairly relaxed that the housing market won't overheat, in spite of investor activity being close to all-time highs. 

Interest may well be heading lower still.

Currency traders have made their minds up - the Aussie dollar is heading below 90 cents, which is welcome news for many of us.

US stocks are up 3% for the week and the Aussie stock market also anticipates a leg-up, recording 4 straight days of gains.

Interestingly, no major forecasting houses see unemployment rising much above 6.5%. Such a key figure for the health of the Aussie economy.

Much will hang on whether the mining capital expenditure figures plateau or collapse in the coming year or two. Surveys imply there is much to come in the pipeline, but actual figures look to be weakening.

One matter which has seen little mention is that the iron ore price has rebounded up above US$125/tonne. Few expect the price to remain so high, but it's great news for Australia if it can hold up. 

Source: ASX

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Are Australians struggling to pay their mortgages?

Generally speaking, no, with mortgage delinquency rates remaining low and below the 5 year average, although some areas of low income are vulnerable. 

For all the talk of a nationwide housing bubble, delinquency rates remain around where they were a decade ago - they rose to 2% in the lead-up to the GFC, but they've come back down to just 1.45% as interest rates fell, despite a small increase in the period to March 2013. Reports Fitch:

"Low Income Areas in Australia Remain Vulnerable Despite Low Mortgage Rates

On average, the delinquency rate across Australia increased to 1.45% at end -March 2013, up from 1.2% at end-September 2012, but below the five-year average of 1.53%."

However, that is something of a generalisation, for low-income areas are struggling much more than relatively affluent regions:

"However, within each state, mortgage performance diverged between low-income areas and affluent regions. Regions southwest of Sydney, west of Melbourne, and south of Brisbane, where serviceability is key to mortgage performance, experienced the sharpest increase in arrears. 

These regions recorded an increase in delinquency rates in the 26bp-55bp range, above the national average increase of 25bp. Fairfield-Liverpool (NSW) returned to being the worst-performing region with a 30+ day delinquency rate of 2.37% at end-March 2013, compared with 1.82% at end-September 2012.

Delinquency rates were little changed in Australia's most affluent regions. Lower Northern Sydney (NSW), Southeast Inner Brisbane (QLD), Boroondara City in Victoria and Central Metropolitan Perth in Western Australia were the best performing regions within their respective states. 

On average, the ten best performing regions worsened by 10bp, to 0.73% from 0.63% in September 2012, and showed no change in the number of borrowers in arrears, still five out of every 1,000."

Fitch is Fairly clear on which sector of the market is best avoided by investors, then. Low income areas have increasing deliquency rates - but, the good news is that they are increasing from the lowest levels recorded by Fitch in September 2012.

"Christmas spending and increasing cost of living might have arguably offset the positive benefits from lower mortgage rates, but do not fully justify the increase in delinquency rates. 

The increasing number of delinquent borrowers in low-income and high-unemployment regions might indicate that these specific serviceability constraints cannot be fully solved by monetary policy, unlike previous first quarters characterised by rate cuts.

Therefore, the delinquency rate in these regions may have reached a floor in September 2012 when arrears were in line with, if not lower than the delinquency rates in 2004, the lowest level recorded from the data used in this analysis."

So, Fitch concludes, some low income areas cannot be saved by monetary policy (low interest rates). 

Fitch also notes that there is now little difference between the delinquency rates of different states. 

Fairfield-Liverpool (NSW) is the worst performing region, and Nelson Bay in the Port Stephens region of NSW is the worst performing postcode, with a delinquency rate of 6.6%. Despite what some commentators recommend, I'd steer well clear of these coastal regional areas.

In summary, delinquency rates remain way below the 2% level they reached before the financial crisis and are broadly where they were a decade ago.

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Don't make the rest of us worry, Rob!

All the warnings over the years about a possible Australian recession are getting a tad wearisome.

The unemployment rate of 20% predicted by Steve Keen is actually only at 5.7% and basically fairly low unless you are in Tasmania (and his house price crash predictions were even worse).

For all the never-ending predictions of a bust, house prices have moved up to all-time highs and share markets have been on a fabulous run for the past year.

The iron ore price which was set to ruin Australia by falling to US$70/tonne is actually at double that level when considered in A$ terms thanks to the correction in the currency.

The Reserve Bank of Australia, with all of its army of economists sees GDP growth continuing at 2.5% to 4% over the next couple of years.

Of course, some bloggers will continue to forecast an Australian recession, a massive property crash, a mining investment cliff, a commodity price crash or chronic levels of unemployment...they've been doing that for years with no joy, and they'll never go away. So what? I'll go with the Reserve Bank economists any day and get on with living life.

Interest rates at a stimulatory 2.50% are set to keep the Aussie economy growing...

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{warning: contains expletives}

(probably not the best idea posting this video - it ends with England getting dusted by Holland - hopefully the Aussie economy will fare a little better than poor old Graham Taylor!)

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Property Update: Is Australia's mining boom over?

I write for Property Update today.

You can read the article here.

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