Housing credit growth is at its lowest level in over 30 years: lower than the dip of the early 1980s and the crash of 1987. The current rate of growth is barely sufficient to match already depressed construction rates for new homes*. The decline should see a gradual softening of housing prices, accelerating if there are any further falls in housing credit growth.
*Housing finance, for both owner-occupied and investor housing, totaled $59.8 billion for the year ended June 2012 according to the RBA, while residential construction — excluding land — was $44.2 billion according to ABS estimates.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
As China releases their bad news over the coming 2 years Australian house prices will drop back to affordable. Unfortunately some over-extended investors and developers will go broke and unemployment will rise about 2%. Pity.
What will falling house prices do to the big banks, leveraged 50 to 1 on residential mortgages?
It about time the greed came to an end for the sake of the generations to follow.
This graph still shows growth at nearly 5%. I am sure that you published a similar plot for the US market before the GFC that showed the curve going into negative values (or am I getting this mixed up with something else)?
Note oil prices heading up again should help this all along nicely.
US did go negative, but that is not necessary for us to experience a contraction. Take the trough of 1987 for instance.
When credit is expanding at $200 billion a year, that is added to aggregate demand. If credit growth then falls to $50 billion, that leaves an effective $150 billion hole in aggregate demand.