Will one day they will say the non-existence of housing shortage...

Will one day they will say the non-existence of housing shortage is unexpected ?

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Oz November Housing Data Weaker Than Expected
FNArena News - January 12 2010
By Chris Shaw

First home buyers appear to be leaving the Australian property market as November figures showed a 19.4% fall in the number of housing finance commitments from this sector of the market, an outcome enough to drive an overall 5.6% decrease in commitments for the month.

While a weaker result was expected, Westpac notes the outcome was below market forecasts, as consensus numbers suggested a 2.3% fall in commitments and the bank itself was anticipating a 5.0% decline. While a lack of activity on the part of first home buyers was the major contributor, Westpac also noted investors have not yet returned to the market in a major way, something expected to occur over the course of 2010 thanks to strength in the rental market and anticipated stronger house prices.

The value of total housing finance commitment also fell but by just 1.6% for the month, with investor approvals gaining 2.1% against a 2.9% fall in owner occupier approvals.

Joiner notes the data highlight the fact investor and upgrader approval levels are more resilient than those for first home buyers.

As ANZ Banking Group economist Dr Alex Joiner points out, the fall in first home buyer activity reflects the ending of the boost from government grants as well as the impact on the market of the recent increases in interest rates.

This is largely as the first home buyer segment has a larger proportion of borrowers at close to their maximum borrowing capacity than do upgraders or investors.

Commonwealth Bank senior economist John Peters suggests while first home buyers are likely to be less of an influence in the market in coming months, this is only 20% of the overall housing market and so lending activity should continue to increase in coming months, even allowing for higher mortgage rates.

This is because while interest rates will go higher they are still at relatively low levels historically, while improvements in the economy overall in 2010 should mean increasing consumer optimism, especially given unemployment is unlikely to move much higher than 6% in his view. As well, balance sheet consolidation in the past couple of years has improved the outlook for existing home buyers, as about 90% are eight to nine months ahead of required repayments and a similar proportion are servicing current repayments with less than 30% of household disposable income.

Peters also suggests the November weakness in housing numbers will be temporary as the issue of undersupply of housing remains, especially as Australia continues to enjoy strong population growth. The reduction in activity levels among the first home buyer segment does lead Joiner to suggest recent strong capital city house price growth should moderate in the first half of the year, as market activity will be driven largely by improved economic conditions and buyer confidence as the economy and labour market continue to gradually strengthen.

According to Peters, todays data do nothing to change his expectation of the Reserve Bank of Australia lifting the cash rate by 0.25% at its upcoming February meeting, as the accumulated evidence of increasing momentum in the economy means the need for emergency cash rate levels has well and truly passed.