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Slow and steady wins the real estate race

In a sign of the changing economic times around the world, housing credit growth in Australia has almost halved since 2007, as more of us wave the flag of conservatism over consumerism.

According to a recent report  Domain, buyers are increasingly wary of taking on debt and as such, our property sector is undergoing a timewarp of sorts that will see the more cautious approach of generations past resurface.

The JP Morgan, Fujitsu Australian mortgage industry report claims that banks will be forced to adjust to a “new normal” weaker demand for property finance.

“I do not expect to see a return to the buoyant times of the mid-2000’s in the years ahead,” said Martin North, executive director of Fujitsu Australia & New Zealand, and co-author of the report.

This is not surprising given that housing loan growth went through the roof between 1992 and 2006 in the wake of interest rates being lowered drastically by the Reserve Bank (remember when we were paying almost 20 per cent?), and the concept of leveraging took hold as home values started rising rapidly.

In fact housing loan growth expanded at an average annual rate of 15.2 per cent from 1992 to 2006, which coincided with Australians lifting their Loan to Value Ratios, “to keep things going” in credit growth, the report said.

However since the GFC reared its ugly head in 2007, housing credit growth has almost halved to 8.3 per cent, a pace likely to persist for 2012 and beyond.

“Going forward, we expect future housing credit growth to reflect fundamental factors, including normalised loan-to-value ratios, modest investor housing credit growth and tighter, more expensive funding for commercial real estate purposes, which will keep new housing starts under pressure,” the report said.

My thoughts:

When you see what happened overseas as many countries kept spending more than they were earning and the people in them where doing the same, I don’t think this new era of savings is such a bad thing.

Booming property prices allowed some people to use their homes as an ATM and many were encouraged by banks lending to anyone who asked for a loan.

Fortunately things didn’t get as bad here s they did overseas – but they could have if no doc loans continued for a few more years.

This new era of financial conservatism and getting our banks’, our companies’ and our personal balance sheets in order can only be good for the Australian economy and in turn, housing market stability in the long term.

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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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