Corelogic Lies?

Would someone here be able to speculate on how they think property national is up 5-6 %annual whilst investment lending is running negative , OO loans (monthly) are flat and total housing credit (annual) is declining.

Annual investor loan growth is running at the lowest recorded figure in RBA series history, total housing credit is the same. We are two years int this credit cycle. Why and how would prices be rising?

Who is buying?

 

Upgrading owner occupiers. Retirees selling and repaying their mortgages while fhbs take on debt to buy.

 

OO credit growth is flat though, how are these fringe buyers increasing national property values by double inflation?

 

Owner occupiers push prices up. I really have no opinion or care factor for if it’s viable for investors to flood in, yes they provide activity and demand but for real meaningful price growth it comes from emotional buyers. Hence why select markets, within select capitals are posting double digit run rates as upgraders/downsizers/FHBs etc etc see value while credit is cheap.

 

Buying and selling is always only a small percentage. So if 10% of property changes hands, and those are upgrading with higher debt (but with high deposits), it can be offset by all the other owners not selling and paying down their loans.

 

I still can't see how this is occurring when the credit is contracting. Were talking a swing of 15-20 % yoy in a period where the credit growth contracted.

In the same period through 2015-16 , national rises were 8-11 % yoy and credit growth was over double what it is now.

Is anyone familiar with the RBA figures I'm referring to?

 

I’m not sure they are as closely linked as you think? Feel free to post the data I’d like to read.

 

Lower volume can skew the stats.

Small numbers of properties sold but at higher prices. There would be price growth but total loans might be evened out by paydowns by everyone else.

 

Table D1 , columns B-G

https://www.rba.gov.au/statistics/tables/

 

So that would require that no other properties to be sold at a loss then (as well)?

 

Not really. Price increase is say compared to 12 months ago. Two identical houses. Bought in 2017 for 1m. One sold 2019 for 800k. One sold 2020 for 880k. Price growth for 2020? 10%.

 

The first is a 10 % yoy loss, the second is a 4% yoy loss.

What do you mean.?

 

Being a stock of existing credit the RBA figures are a lagging indicator.

Also, more owners are now paying down debt since the 'P&I cliff' and record low mortgage rates.

Past research shows that the new flow of lending is what moves prices, not the stock of existing mortgages.

New lending has actually ripping higher since the election (see the ABS lending series), and the RBA credit growth series finally began to increase again in Dec-19 (Nov-19 was also revised up a bit).

In fact, if you run a credit impulse (second derivative) on the RBA figures this will also now imply rising prices, albeit only just based on past trends, because of the impact of the P&I cliff:



The RBA figures will lag price gains, in any event, which is easy enough to back-test.

See 2012-2013, for example, when housing credit growth continued to slide throughout all of 2012 until Feb-13, a long time after prices were rising again.

There were plenty of articles in 2013 reporting record low housing credit growth, when the Sydney boom had long since begun back around mid-2012.

Annual mortgage growth plumbs fresh lows - MacroBusiness

RBA's credit figures are also pretty sketchy as an indicator: for example, prices can initially recover on lower volumes than at the peak, and they also don't capture non-resident lending, or, e.g. funds coming in from Hong Kong or China etc. etc.

I'm pretty sure @Redom and others would've pointed somewhere, by the time the RBA figures are rising the recovery would already be 3-6 months old.

For some reason not all economists seem to be able to grasp this, but maybe they just don't want to..

 

Good and interesting analysis. Out of interest how do you run a derivative to get an impulse. Don’t you need an initial function.?

 

You explained it so well as there are lagging and Leading indicators. Also foreign buyers could assist (just see why London prices are so high - 70% foreigner owned I think I heard somewhere?). In addition interest rate cut enable more credit flow.
So it could be a combination of many such indicators.
Perhaps some forget to concentrate on the outcome as opposed to process and details?

 

i've tried to recreate what ANZ runs as its 'housing credit impulse', and as far as i can tell i *think* they simply take the quarterly change in the rate of annual housing credit growth (i.e. the change in the rate of annual housing credit growth from 3 months earlier).

btw, it is of course possible that Corelogic is lying - but i'm not sure that would help their cred?! unless i'm missing something!!

 

exactly, you'd be a million times better off just looking at a few auctions and local sales.

even if you were a statistical genius you'd quite likely miss the bottom by 6 months using credit growth figures - plus they're national figures, not regional

 

I only wanna pluck the ripe, good value fruits. I couldn't care less how they grew. Once you get too obsessed with how something is growing ( I've seen many people fall into this trap) it will very likely hinder your wealth creation journey. Assuming wealth creation is your intention.

Look at recent sales in your target area, talk to a few players on the ground and that's more useful than most of the fancy graphs out there.

 

What were the factors behind that growth? Was it really growth if it was purchased at peak market for $1m but is now only 88% of the previous purchase price? In my book that's still a 12% loss not a 10% gain. Then again, was it a partial recovery from the trough? Or did the 10% growth come from a capital injection ie refurbishment?

Have you read the guidance notes?

"Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid 2015, a number of borrowers changed the purpose of their existing loan. Growth rates of ‘Owner-occupier housing’ and ‘Investor housing’ have been adjusted for this over the period from mid to late 2015, when switching of loan purpose was unusually large, but not thereafter. For more information, including on past treatment of switching, see Measures of Investor and Owner-Occupier Housing Credit (available at <https://www.rba.gov.au/publications...vestor-and-owner-occupier-housing-credit.html>)."

 

Yes , from what I can tell theyre acconting for the massive IO/P&I switch that occurred in 2015 , doubling down on mortgage fraud before the royal commission.

You can see in the series a change in each class of lending, the curves depart like a sine wave.