Australia Home Lending At Lowest Level Since 1991

The worldwide housing bust continues to pick up steam. Down under, Home lending growth plunges to lowest level since 1991.

HOME lending growth has suffered its biggest decline since the 1991 recession while inflation continues to soar, confronting the Reserve Bank with the dilemma of a slowing economy and simultaneously rising prices as it meets today to set interest rates.

The slump in home loan growth led a general slowdown in credit, with increases in total borrowing at a three-year low and personal loans growing at their slowest pace in six years.

Soaring petrol prices and rising rents caused by a tight housing market are feeding inflationary expectations.

ABN Amro chief economist Kieran Davies said it was possible the Reserve Bank had come to the end of its interest rate rises. "The news on inflation hasn't been good, particularly with oil prices continuing to climb, but the credit figures show borrowing is responding to higher rates," Mr Davies said.

"It's not a clear-cut case for the Reserve Bank," he said. "The danger is that although growth appears to be slowing in the economy, people may well want to embody higher food and fuel prices in their wage claims. If that happens, you start to get into a wage-price spiral, which would be anathema to the (Reserve) bank.

Big Standoff

We all know how this is going to end, or at least we should, but a big Stand-off between Brisbane house buyers and sellers proves otherwise, at least for the moment.

SELLERS want up to 30 per cent more for their homes than buyers will pay, and the stand-off has caused falling sales volumes in southeast Queensland.

A stagnant market, fuelled by uncertain economic conditions has buyers hungry for bargains. But many sellers are still refusing to budge from their dream prices, in the face of offers tens and in some cases hundreds of thousands below what they are asking.

Johnston Dixon principal John Johnston said that in a usual market there was a disparity of between 10 per cent and 15 per cent from buyer to seller - a gap agents could often negotiate closer.

But he said the difference recently had blown out to 30 per cent. He said right across Brisbane there were instances of people wanting $800,000 for their homes, and buyers wanting to pay around $600,000.

RP Data research shows homes were selling at about 6.1 per cent below the asking price in April.

"There has been some movement in the level of discounting since April and I would estimate the average level of market discount in Brisbane now to be closer to 6.5 per cent to 7 per cent," Mr Lawless said.

The Pattern Repeats

• It all starts with an attitude change.
• The pool of greater fools dries up.
• Sellers refuse to admit the market has turned.
• Volume of sales plunges.
• Home prices eventually follow.
• Sellers chase last month's price all the way down.
• Eventually the sellers get underwater.
• Defaults and bankruptcies soar.

This process can go on for years, or even a decade. The process is 3 years old in the US now in many markets, with Florida acting as ground zero. In Japan, property prices fell for 18 consecutive years, rising last year for the first time in 19. History suggests those expecting prices in Oz to recover anytime soon are sadly mistaken.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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