Is there really a housing bubble?

Real Estate

Is there really a housing bubble?
 
The Reserve Bank has indicated that it is open to a third interest rate cut this year. During a speech in Brisbane this week RBA Governor Glenn Stevens said that low inflation and restrained government spending were helping keep that option on the table. However Mr Stevens also said he doubted another interest rate cut would be all that effective and that more national infrastructure spending would possibly go some way towards addressing Australia’s sub-trend growth rates. 
 
Real Estate figures
 
Treasurer Joe Hockey set a cat amongst the pigeons this week when he urged first home buyers to ‘get a job that pays good money’ if they want to enter the property market. Asked to comment on if residential property in Australia’s largest city was out of reach for many, Mr Hockey was quoted as saying ‘… if housing were unaffordable in Sydney, no one would be buying it. The comments came following last week’s warnings from treasury secretary John Fraser that Sydney and Melbourne were experiencing a ‘housing bubble. 
 
Elsewhere, two recent consumer sentiment reports are painting a bleak picture of potential household spending.The weekly ANZ-Roy Morgan index showed a fall of 1.2 per cent to 112.1 points after spending two weeks stead at 113.5 points. And the monthly consumer sentiment report from Westpac slipped a seasonally adjusted 6.9 per cent in June, wiping out May’s 6.4 per cent buoyed by the Federal Budget’s tax break for small business. The reports indicate economic concerns continue to weigh on consumer minds with no real lift in consumer spending on the horizon.
 
In contrast, home loan approvals continue to defy economist expectations posting a 1 per cent rise in April. Experts were expecting a 2 per cent fall. There were a seasonally adjusted 53,951 approvals in April, up from 53,442 in March and taking the value of financing commitments to $32.7 billion. Loans for the construction of new houses were up 4.3 per cent compared to a 0.5 per cent rise in established homes. Investor loans were up 2.6 per cent for the month. May figures due next month will reflect the latest interest rate cut by the Reserve Bank. 

Commentary

FNN spoke to Jess Darnborough from Mortgage Choice about where the pattern of rising home loan approvals will continue.  
 
‘While we have seen home loan demand climb fairly steadily over the last few months we wouldn’t be surprised to see it taper off and that’s just simply off the back of the recent changes that are being made to lending policy. Over the last few months and in line with requests from APRA, many Australian lenders have started to make significant changes to the area of both policy and pricing in an endeavour to limit their lending growth to investors. As these changes start to take effect we wouldn’t be surprised to see a slight reduction in investor demand, which could contribute to an overall reduction in the value of dwelling commitments.’’ 
 
Australian auction results
 
Looking at this week’s auction results across Australian capital cities, and there were low volumes for the holiday weekend- Sydney recorded an 85 per cent clearance rate from 396 properties for auction, Melbourne cleared 82 per cent from 241 properties, Brisbane had a 44 per cent clearance rate from 77 properties listed and Adelaide cleared 78 per cent from 46 listed auctions
 
Commercial property sector
 
Federation Centres (ASX:FDC) has announced sweeping changes to its corporate structure and executive team as it seeks to integrate the Novion Property Group merger and streamline management. 
 
Western Australian property and construction company Diploma Group (ASX:DGX) says that its sale of 176 Adelaide Terrace in Perth announced in February will not go ahead at this time. 
 
Stockland (ASX:SGP) will pay Masonic Homes $75.8 million for a portfolio of eight retirement villages in South Australia. 
 
And Growth Point Properties Australia (ASX:GOZ) will join the S&P/ASX200 index after market close on June 19.