What an exciting ride in economics this week!  And what an interesting time to see so much contrasting and conflicting reports come out.  The Australia property sector is an ongoing focus of mine, because apparently, property can never fall if you believe the Retail Institute of Australia, and we just need to release more land to solve the housing affordability problem.

However, information now emerging shows that this view  is not shared by international investors, and that even with all the full force of a federal election putting pressure on banks, it is unlikely that bank interest rates will remain as constrained as official RBA interest rates.  As sentiment moves toward regarding Australian residential property as a riskier investment, expected rates of return (interest rates) demanded of Australian banks will rise.  If banks are to remain viable, and this is in everyone’s interest despite what some popular media outlets tell us, they will have to pass on the increased cost of borrowing to mortgagees.

With Australian property now the least affordable in the world, it is not unreasonable to expect a correction.

The question I will continue to ask and look out for signs for, is will the coming bushfire be a healthy one that clears out the forest to make may for newer healthier growth in housing and the economy overall, or will it be something more serious?  Despite all the reports coming out, I am optimistic that the coming economic bushfire about to erupt in the Australian property market, will be a healthy correction and nothing to fear although spooked investors will make it look like something to fear.

Here are a few interesting articles floating around that you may not have seen, as this sort of information rarely receives broad attention.

Early June (almost one month ago)

“AUSTRALIA’S biggest banks have become the victims of aggressive international hedge funds, which are shorting the banks’ stocks after growing concern about the strength of the domestic property market .. A New York hedge fund manager, who did not want to be named, said sentiment towards the Australian banks had soured because of doubts that the strength in the national property market would be sustained“

via US hedge funds dump Australian bank shares | The Australian.

(Well, at least something’s growing)

Yet despite this coming out a month ago, reports in the Australian media are still reporting contrasting and at times conflicting information.  However, that any conflicting reports are emerging, is a sign that a few measures are becoming more widely known.  Eventually, a cunning journalist will connect the dots and see there is something worth investigating here.

Tuesday (June 29)

Reports are emerging that the cost of lending to Australian banks is rising, regardless of any level of ‘political pressure’, because well, the foreign markets where our banks source their funds don’t answer to our politicians.  So while bank bashing will become a popular sport in the coming federal election, it is unlikely this will achieve very much outside of the polls.  Banks may ‘reconsider’ their discount rates, however a bank is not a charity, they still need to make money, and we need to them to make money.  Love them or hate them, events in the USA in 2008 showed us very clearly how struggling and failing banks are in no ones interest.

“The ‘big four’ banks are struggling to maintain their home loan status quo as higher wholesale funding costs increase the pressure on banks to raise their home loan rates. But faced with the potential political backlash for increasing interest rates out of sync with the RBA’s cash rate changes has lead to banks reconsidering their discount rates for new home loans, The Australian reports.”

via Banks to slash loan discount rates due to politcal pressure | Dynamic Business.

“Borrowers are unlikely to get any relief through lower costs in the forseeable future as the big banks face replacing tens of billions of dollars of cheaper-priced debt at much higher rates.  That was the message underlined by ANZ yesterday when it disclosed that its long-term debt was now costing 20 per cent more across its $90 billion portfolio of borrowings, extending to the 2014 financial year.”

via More pain as banks prepare to pass on costs.

Wednesday (June 30)

A report suggesting the housing market is very strong.  Except it’s largely attributed to being artificially created by taxing the future to boost the present (aka ‘stimulus’).

Building permits soar – ABC News (Victoria)

“The value of approved housing permits has climbed to almost $12 billion, up almost a third on the same period a year ago”

“The Building Commission .. Deputy Building Commissioner Sarah McCann-Bartlett says .. it is a combination of very strong growth in the domestic sector, particularly driven by the first home owners grants, and public housing programs, and then the school stimulus package as well as growth in other public buildings,” she said.”

So not much actual real private sector growth there.

New home sales slump, prices stagnate – ABC News

“The widely watched RP Data – Rismark Home Value Index showed a rise in city home prices of just 0.5 per cent (seasonally adjusted) in May .. new home sales slumping by 6.4 per cent in May”

So outside of the publicly supported property market, prices growth is slowing.

Today (Thursday, July 1)

Building approvals slide, retail sales edge higher

“building approvals slipped 6.6 per cent in May (seasonally adjusted), following on from a steep fall in April .. The bureau says all states except South Australia (up 30.6 per cent) reported a fall in building approvals in May, with falls of 24.8 per cent in Tasmania and 13.9 per cent in Western Australia the worst results. However, the total value of building approved rose 2.7 per cent in May driven by a strong rise in non-residential approvals.”

So the property market is strong, where public funds have been diverted to support it.  Elsewhere, it’s sliding.

Interesting times are ahead..

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