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Can i throw something into this debate? Not sure if you have done work on this but no one seems to mention anything about lower funds coming from securitisation markets. Ie NAB/WBC/ANZ fund c40-45% of their loan books (both residential and commercial) through "whole sale" markets, the rest coming from deposits. With the advent of the GFC, this has seen these markets come to a grinding halt (some signs of thawing are emerging).
So has anyone got an opinion on what will be the impact on house prices as a result of weaker wholesale markets? i think this is a serious issue, and would be interested in anyone's thoughts.
rayd wrote:I would be interested if anyone has any thoughts or done any work on what will be the impact on house prices from signficantly reduced new security issues in the whole sale funding markets? ie the commercial backed mortgage securities (CBMS) market and residential backed mortgage markets (RBMS)?
I have a couple of observations and would point people out to read ANZ's and NAB's recent 1h09 result presentations issued to the ASX;Here are my observations
– banks increasing mortgage rates are a function of ithe ncreased cost of wholesale funding (typically 40-60% of loan books depending on which bank as the remainder comes from deposits), not banks trying to increase margins on a discretionary basis ie but more so to protect margins. So credit growth will be below trend for sometime, which i think is a good indicator of property prices.
– tighter credit standards (LVR's, savings tests etc) are a function of "credit rationing", because of the reduced available credit as a result of weaker securitisation markets ie CBMS and RMBS. this could mean less loans made potentially untill these markets reopen?
– Australia's dependance on foreign liabilities is a risk (highlighted in the IMF's recent financial stability report), especially given international banks are withdrawing from Ausrtralia's lending markets. This means could mean reduced available funds for corporates, transalating into reduced private investment, and employment propspects.
So from these obsevations, i think this cycle in property prices may differ from 2002-03, despite similar policies ie low rates and increased government stimulus.
Okay ive been trolling through all the house price posts and no one seems to mention anything about lower $$$ coming from securitisation markets. Ie NAB/WBC/ANZ fund c40-45% of their loan books through "whole sale" markets, the rest coming from deposits. With the advent of the GFC, this has seen these markets come to a grinding halt (some signs of thawing are emerging).
So i ask my question again, has anyone got an opinion on what will be the impact on house prices as a result of weaker wholesale markets? i think this is a serious issue, and would be interested in anyone's thoughts.
blogs wrote:rayd wrote:Remember house prices are down 19% and 17% in the US and UK respectively so far (not 40%) – and both of these countries have failed banking systems. So to say a 40% collapse in Australian property prices is ahead is a very pessimistic call.Remember we still have a lot of this recession to flow through. Deloittes are predicting a further 33% fall in U.K property prices by 2010. They are very respectoible and dont have vested interests….
Not sure where you are getting you figures from either-the USA is currently 30% down..
http://www.dailymarkets.com/economy/2009/03/31/us-home-prices-drop-record-19-in-january/
"Average home prices across the U. S. are now at levels not seen since late 2003. As of January 2009, the 20-city composite is down 29.1%, from its peak in the second quarter of 2006. A measure of the 10 largest cities is down 30.2%."
Either way, sure it may not drop 40%, but it sure as heck aint going to be going up….
Some measures report such as the Shiller index report that US house prices are down 30% since May 2006 (this includes non-conforming mortgages), but the FHFA index shows a decline of 20% (only includes conforming mortgages). Australian banks indicate <1% of loan books are sub-prime, so FHFA index may be more relevent.
Reality is that most economists never get their forecasts right. Remember in November 2008 – every economist from leading retail and investment banks (with the exception of Morgan Stanley) were predicting +0.1% GDP growth in 2009. Even the RBA Governor was forecasting Australia would avoid a recession, and only have a mild softening. So i would pay little credence to economic forecasts and would pay more attention to whats happening in international markets as a potential lead indicator for Australia.
Remember house prices are down 19% and 17% in the US and UK respectively so far (not 40%) – and both of these countries have failed banking systems. So to say a 40% collapse in Australian property prices is ahead is a very pessimistic call.
I would be interested if anyone has any thoughts or done any work on what will be the impact on house prices from signficantly reduced new security issues in the whole sale funding markets? ie the commercial backed mortgage securities (CBMS) market and residential backed mortgage markets (RBMS)?
I have a couple of observations and would point people out to read ANZ's and NAB's recent 1h09 result presentations issued to the ASX;Here are my observations
– banks increasing mortgage rates are a function of ithe ncreased cost of wholesale funding (typically 40-60% of loan books depending on which bank as the remainder comes from deposits), not banks trying to increase margins on a discretionary basis ie but more so to protect margins. So credit growth will be below trend for sometime, which i think is a good indicator of property prices.
– tighter credit standards (LVR's, savings tests etc) are a function of "credit rationing", because of the reduced available credit as a result of weaker securitisation markets ie CBMS and RMBS. this could mean less loans made potentially untill these markets reopen?
– Australia's dependance on foreign liabilities is a risk (highlighted in the IMF's recent financial stability report), especially given international banks are withdrawing from Ausrtralia's lending markets. This means could mean reduced available funds for corporates, transalating into reduced private investment, and employment propspects.
So from these obsevations, i think this cycle in property prices may differ from 2002-03, despite similar policies ie low rates and increased government stimulus.
thanks for that. Doesnt sound as bad as i thought, i guess i was worried that i would need to constructu a trench wall to stop the roots from getting to the foundations.
