4-year low for new home sales

Building boom is ending

More evidence that the building boom is coming to an end. 

New home sales are now tracking at their lowest level since August 2013, and are well down from the record highs of 2015. 

Monthly sales dropped by -3.7 per cent in July, following on from a sharp -6.9 per cent drop in the preceding month. 

Source: HIA

The Housing Industry Association (HIA) media release noted that the decline was driven by a big drop in new apartment sales.

There was one "notable exception", being Victoria, where new dwelling sales remained strong in rising +9.8 per cent in the month. 

The HIA expects activity to decline for a number of years, albeit from record high levels.

ADI home loan exposure pass $1 trillion

Loan market changes

The share of interest-only loans fell sharply towards the 30 per cent proposed regulatory cap in the June 2017 quarter, as bank incentives to switch towards principal and interest products had the desired impact. 

Treasurer Scott Morrison will argue that the "scalpel" approach to cooling this sector of the market has been successful, forcing Aussies to begin paying back their mortgages sooner. 

For ADIs with greater than $1 billion in residential term loans, new loans to investors also dropped back to a 34.5 per cent share of the new lending market, now well down from 42.5 per cent in the June 2015 quarter. 

The share of high loan to value ratio (LVR) loans has also diminished considerably over the past 10 quarters, which makes life tough for first homebuyers, but arguably reduces mortgage exposure risk in aggregate.  

Despite these changes in the composition of exposures, lending growth remains strong, with total ADI exposures rising by +7.3 per cent over the financial year to $1.54 trillion. 

That's an increase of +$105 billion over the 2017 financial year, ever-so-slightly less than the +$107 billion increase seen in FY2016. 

The growth in ADI exposures to owner-occupiers was particularly strong, rising by +8.1 per cent to beyond $1 trillion for the first time. 

Activity in new low-doc loans and other non-standard loans continued to decline, as has consistently been the case now since 2009. 

The wrap

Overall, there was not much of a slowdown in evidence here, even if the composition of lending has shifted. 

Furthermore, non-banks have been growing their mortgage books apace - the dollar value of Pepper's residential loan originations soared by +17 per cent in H1 2017, for example. 

After accounting for these changes it's questionable that there has been any meaningful slowdown at all in the pace of mortgage lending. 

Home values up

Up +10 per cent over the past 12 months, according to CoreLogic.

Source: CoreLogic

The fastest growth over the year was notched by Melbourne, and then Sydney.

Wicked leaks

Lend leaks

Staying down in Sydney tonight, at Darling Harbour.

Yes, it's as freezing as it looks - probably colder, if anything.

To the left of shot you can see the first three giant towers down at Barangaroo, part of one of Lend Lease's enormous flagship projects. 

Lend Lease (ASX: LLC) actually reported its FY2017 results this morning, which confirmed a solid+9 per cent lift in post-tax profit to $758.6 million. 

The market wasn't greatly moved, of course, since the group inadvertently dumped a stack of market sensitive information out to to the public at the beginning of the month, including the unaudited EBITDA (oops).

As accounting stuff-ups go, it was a rather impressive one (disclosure: I made similar goofs in my listed company career) though in the end relatively little harm was done, save a little embarrassment.

Defaults under 1pc

Reading through the investor presentation it was interesting to note a +20 per cent uplift in residential unit completions in the 2017 financial year.

Approximately 90 per cent of apartment completions have already settled, with a default rate of under 1 per cent.

This follows on from similarly low default rates reported by other developers during earnings season.

This is very important, for there had been fears of a wave of Chinese investor defaults following on from local lenders pulling up the ladder.

To date, this does not appear to have transpired.  

In other news, S&P reported a drop in loan delinquencies from 1.21 per cent in May to just 1.15 per cent in June. 

Declines were recorded "across the board" for 30,60 and 90 day mortgage arrears, with a corresponding fall in outstanding loan balances, with Queensland showing the biggest drop in arrears. 

This broadly mirrors what you'd expect to see given extremely low mortgage rates for homeowners, and a national unemployment rate that has been trending down for several years now.

No stress?

Countless media articles have claimed that mortgage stress is rising - often referred to as a "perfect storm" no less! - perhaps based upon household cash flow surveys.

But in reality so many households have been repaying ahead of schedule into offset accounts that it wouldn't be a surprise if some net monthly cashflows showed an outflow. 

With the aggregate value of the housing stock exploding to $7.1 trillion against mortgage debt of around $1.6 trillion, it also wouldn't be a surprise to me if some of the benefiting households have taken a breather on their earnings either. 

In any event, with the possible exception of Western Australia mortgage arrears remain low to date, which is about the only indicator that matters, when all's said and done. 

4BC Radio show segments: 4 Corners & all that...

What's going on in Australian property?

I was on 4BC radio yesterday from 8am to 9am with the legendary radio and real estate industry stalwart Kevin Turner.

Firstly, we discussed the use of gearing and loan to value ratios in Australia.

Click the images or links below to listen to each segment. 

Below, we then discussed what influences property prices in Australia. 

We also discussed gentrification, and where to look for suburbs with the potential to gentrify, as well as so-termed property 'hotspots' (and why you might want to steer clear of them). 

Finally, we spoke about the Queensland property cycle, which you can listen to by clicking the image below.

There's only so much depth I can get into in a one hour radio show, of course.

For a full day event of more practical information, come and see me speak live in Sydney - book quickly to get the Earlybird special price before it expires.

Weekend reads - must see articles of the week

Summarised for you here at Property Update (or click on the image below).

To take advantage of the Earlybird special offer on our live event in Sydney - which now expires very soon - see here!

Copper up +50pc as well

Dr. Copper price surges

Some long overdue brighter news for copper-rich South Australia.

With the price of copper now riding all the way up to US$3.045/lb from below $2.00/lb in 2016, some of the state's copper producers will be thriving again. 

Globally, activity has been picking up, with the Eurozone now growing along with the rest of the world's economies.

In fact, all 45 countries in the OECD are now growing together at the same time, which is the first time that has happened since 2007.

And it's not just copper that is benefiting from global growth. 

The iron ore price been has been on a huge run-up since June, while Australian thermal coal prices have also soared to above $100/tonne.

Together these two commodities alone comprise nearly 40 per cent of Australia's index of commodity prices, as measured by the Reserve Bank.

BHP Billiton reported an outlandish surge in profits this week - a profit of $7.4 billion from a statutory loss of $8.3 billion last year, leading to a tripling of the dividend - which was largely attributable to a doubling of the coking coal price since fiscal 2016. 

The prices of zinc, aluminium, and nickel have also been tearing higher.

After a correction of about 8 per cent in June and July, Australia's commodity price index remained more than 17 per cent higher year-on-year last month.

And on this evidence, there are more gains to come.

Meanwhile, it appears that the feared mining 'capex cliff' is finally over, some 4.5 years after it began.

So it seems that the lingering clouds are at last beginning to clear for Australia's economy after nearly half a decade of drag from declining resources construction. 

Winning strategies for 2018 & beyond (double ticket offer)

Money for Life

Come and see me speak live in Sydney, where I'll be discussing:

-how to start saving and investing

-the magic of compound interest

-how best to tackle the Sydney housing affordability conundrum: to buy or to rent?

-the outlook for the economy and housing markets

-the latest demographic trends

-construction hotspots: the property markets and dwelling types set to become oversupplied, and undersupplied

-infrastructure boom - where will the next major projects be found?

- a peek into the future - what will Australia be like 20 years from now?

-the Australian regions poised to flourish and flounder

-how to reset your financial thermostat...permanently

And a whole lot more besides.

If words aren't your thing, here's a short video, in which I get harassed by magpies. 

There are now less than two weeks remaining on the Early Bird special price, which also includes a special double ticket offer this week. 

Book today!

To book your tickets, visit the Quadrant 2 web page.