The Australian government released its latest housing statistics on January 13, 2013 during early Asian trading hours where it reported that mortgage lending (Housing Finance) demand rose to 1.10 percent during the month of November 2013, up from the Reuters consensus estimates of a 1.00 percent climb. Mortgage lending demand tied to financing real-estate investments during the same month rose to 1.50 percent, down from the prior figure of 8.21 percent.
Below is a chart showing the quarterly trends of mortgage lending volumes in Australia from 2009 to 2013:
Source: Thomson Reuters MetaStock.com
The above data indicated some seasonality in the figures, however, with the Reserve Bank of Australia (RBA) maintaining overall interest rates at 2.50 percent, a gradual withdrawal of monetary stimulus measures, known as tapering in the United States, falling commodity prices, large multi-national corporations such as General Motors (GM) announcing manufacturing shutdowns, the outlook for expected housing demand in the coming months during 2014 looks to be less optimistic at first glance. However, there is a need to look at the broader context going forward in 2014. Since the start of the second half of 2013, RBA governor, Mr. Glenn Stevens, has come out repeatedly indicating that the Australian (Aussie) Dollar continues to be relatively overvalued, and his team is currently forecasting a fall of the Aussie Dollar to around AUD/USD of 0.8500. The spot AUD/USD was last traded approximately 0.8999 to 0.9000, and has been on a decline since the end of 2013.
With the release of the latest mortgage demand numbers in Australia, coupled with a slowdown seen across the board in Australia, are there reasons to celebrate for potential home buyers seeking to purchase a new of existing home in the country?
According to a December 13, 2013 Bloomberg News article, Westpac Banking Corp. (WBC) Australia’s chairman, Mr. Lindsay Maxstead was quoted as saying that mortgage demand is rising and businesses are more interested in investing following a federal election in September and a weakening of the Australian currency. In fact, recent a news article published on one of Australia’s online business/finance news website, news.com.au (http://www.news.com.au/finance/real-estate/low-interest-rates-drive-building-approvals/story-fncq3era-1226798685209) on January 10, 2014 indicated that new home construction approvals, published on January 09, 2014 by the Australian Bureau of Statistics showed that the number fell by 1.5 percent across Australia during the month of November 2013, but on a year-over-year (yoy) comparison, the figures was up by approximately 22.2 percent; Local councils had approved the construction of 16,396 new homes in November; Private sector house approvals rose six percent. According to the news story, the November 2013 figure was weighed down by a 9.7 percent fall in approvals for private sector apartments and townhouses.
With the pickup in mortgage demand in Australia, coupled with a low interest rate environment, it does point to some easing of conditions on the mortgage financing front. With the economy seemed at risk of falling into recession, it appears that the RBA has some room to manoeuvre itself in terms of its interest rate setting expectations. The gradual increase in housing approvals does provide some impetus for a gradual recovery of the economy, following a global rout in commodity prices, which the economy is heavily reliant on, is not showing much signs of an end. The RBA, together with the Australian government is trying to steer its economy towards the non-commodity sectors through the various fiscal and monetary reforms that focus on restructuring the overall economy. Both government bodies are hoping that with the Australian economy, through the combination of fiscal and monetary measures, could eventually wane itself out of its past overreliance on the commodity sector to fuel much of the country’s economic growth.
Coming back to discussion of the Australian housing market outlook for 2014, the latest November 2013 mortgage demand data could be indicating some seasonal effects, but does not appear to be a sign of any potential waning demand going into 2014. However, there are existing risks such as the potential capital flight as a result of carry trade related monetary flows, as a result of the global economy facing with an increasingly tightened interest rate environment taking place, particularly in China, Asia ex-Japan, and the United States, while enjoying a relatively stable interest rate environment in Australia. The risks of potential fallout of the commodity prices, coupled with an uncontrolled rising boom in the home mortgage demand could result in an unexpected retardation of the overall housing sector growth. These emerging trends could pose some risks on the long-term sustainability of housing demand in Australia. Although such risks are largely being discounted in view of the continuing positive signs taking place in the real-estate market in Australia, one should also exercise caution when thinking of the next real-estate opportunity in the country, as a prolonged decline in the mining sector, a weakening Aussie Dollar, and a relatively loose monetary policy seen so far, could pose various risks that one might not have anticipated previously while trying to forecast on the timeline for the long-term sustainability of the overall growth of the Australian economy.