We never had a housing credit bubble: Kohler

When Steve Keen and his fellow trudgers set off from Parliament House in Canberra tomorrow in the direction of distant Mt Kosciusko, there will be an extra spring in their step because of this headline in the Sydney Morning Herald yesterday: “House prices to plateau as buyers flee in droves”.

Keen is doing the walk because he lost a bet about house prices with Rory Robertson of Macquarie Group. Keen said house prices would fall 40%, but after a tiny dip during the GFC they kept going up.

But has he changed his mind? Not a bit. The walk has become a sort of Rally for the House Price Bears.

And just as these intrepid ursine backpackers are limbering up, the SMH apparently joined in yesterday with the phrase “buyers flee” in a headline. It’s a fine, picturesque word “flee”, especially when coupled with “droves”.

I got an email yesterday from an alarmed Sydney friend who said he had been reading about the “seeming desertion of house buyers at auction” and was wondering what’s going on.

Well, the story was about a fall in home loans, not auctions. Clearance rates actually went up last week, from 70.7 to 73% in Sydney and an amazing 75.5 to 85% in Melbourne. According to Australian Property Monitors, there were 515 successful auctions in Sydney, Melbourne, Brisbane and Adelaide for a total of $400 million.

So I don’t know about fleeing buyers, but loan approvals are definitely down. According to the ABS, the number of owner-occupier loans fell 1.8% in February, the seventh fall in eight months.

Lending for new construction is down 29% year-on-year and for established dwellings it’s down 20%. The value of loans fell for the fifth straight month.

Surprised market economists had pencilled in a solid rise after a big fall in January and Adam Carr of ICAP, writing in Business Spectator on Tuesday summed it up when he said: “House credit growth is not, as the RBA would have us believe, solid. That is simply not true.”

Chris Joye of Rismark, writing in Business Spectator yesterday, made the interesting point that all the recent “jawboning” of house prices by the Reserve Bank lately – trying to talk them down at the same as raising interest rates – may have the opposite effect.

Joye argues that while the jawboning might give some mums and dads pause, the much greater impact is likely to be on credit officers inside banks that lend to developers and builders. “A combination of some poorly targeted RBA commentary combined with rising rates is the best possible recipe for killing the supply-side.”

And a key reason for the rise in house prices last year was a lack of supply, partly caused by the difficulty in getting development finance and partly by low and falling unemployment keeping mortgage repayment problems and foreclosures down.

Meanwhile the housing loan approvals data shows that demand is not being boosted by easy credit, but rather by population growth and overseas buying. That means the 12% growth in national house prices last year was not evidence of a credit bubble.

That’s why everyone keeps getting the property market wrong (even the bulls have been surprised at its strength).

Anyway, a plateau this year would hardly be surprising; in fact another 12% rise in the national median house price in 2010 would be staggering, and would see the RBA cash rate closer to 6% than 5% by early 2011.

Will Steve Keen’s 40% crash finally arrive, two years after America’s? Not with unemployment at 5.3% and the national income about to rise 3% because of the resources boom.

This article first appeared on Business Spectator.

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