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In the last couple of days the "not-so-mainstream" types that report on the economics of Australia have been reporting on the fact that CBA seems to have "sweetened up" the figures about Australian house price to income ratios in order to make a presentation to an international investors group.
Many of the overseas investors have recently seen their own countries go through a speculative bubble crash in housing and are therefore wary of any other country that is showing similar signs. They are also sceptical of economists in Australia making statements like "it is different here", because this was exactly what their own economists were telling them right up until the day it turned out they weren't different at all.
So yesterday we were very interested to find the UBS report that CBA used to justify its house price to income ratio in our inbox.
The report is a very long 93 pages, and just like the Goldman report seems very well researched on the surface, yet once again we find glaring holes in the analysis that we feel need to be pointed out.
Unsuprisingly the report sets about trying to convince the reader that in fact whatever they have been told about housing prices is incorrect, they are really not so bad , we have graphs to prove it , and even if there is a bubble it isn't going to effect Australia without some external issue , and even if it did our banks wouldn't be that badly off.
Firstly they say:
Many of the overseas investors have recently seen their own countries go through a speculative bubble crash in housing and are therefore wary of any other country that is showing similar signs. They are also sceptical of economists in Australia making statements like "it is different here", because this was exactly what their own economists were telling them right up until the day it turned out they weren't different at all.
So yesterday we were very interested to find the UBS report that CBA used to justify its house price to income ratio in our inbox.
The report is a very long 93 pages, and just like the Goldman report seems very well researched on the surface, yet once again we find glaring holes in the analysis that we feel need to be pointed out.
Unsuprisingly the report sets about trying to convince the reader that in fact whatever they have been told about housing prices is incorrect, they are really not so bad , we have graphs to prove it , and even if there is a bubble it isn't going to effect Australia without some external issue , and even if it did our banks wouldn't be that badly off.
Firstly they say:
We have undertaken a detailed review of the Australian housing market, which is the greatest exposure for all the banks and many other financials. Given numerous misconceptions about Aussie housing, we attempt to provide accurate facts to
enable investors to come to a more informed conclusion about these exposures.
Lets try an ignore the vested interest of an investment bank telling you about investments and move on.enable investors to come to a more informed conclusion about these exposures.
There has recently been a significant increase in interest from investors in Australian house prices. This follows a number of international articles that point to Australia being amongst the most expensive housing markets globally. The perception has been exacerbated by house price corrections seen across the western world over the past three years, which Australia has largely avoided.
....
From the outset, we should emphasise our view that Australian housing is expensive. Median house prices have grown at 9.1% CAGR since 1971. While this is broadly in line with nominal GDP at 9.0% CAGR, it far exceeds growth in household income which has grown at a compound rate of 6.8% over this period. This has placed ongoing pressure on housing affordability.
Housing affordability measures, which adjust for movements in interest rates and unemployment, are re-approaching the low points reached in 2008. However, at current levels Australia looks expensive. This is manageable assuming that there is limited further house price inflation and interest rates do not move materially higher in the near term.
The report goes onto say that although housing is "expensive" it isn't that bad , and Australia is safe because:....
From the outset, we should emphasise our view that Australian housing is expensive. Median house prices have grown at 9.1% CAGR since 1971. While this is broadly in line with nominal GDP at 9.0% CAGR, it far exceeds growth in household income which has grown at a compound rate of 6.8% over this period. This has placed ongoing pressure on housing affordability.
Housing affordability measures, which adjust for movements in interest rates and unemployment, are re-approaching the low points reached in 2008. However, at current levels Australia looks expensive. This is manageable assuming that there is limited further house price inflation and interest rates do not move materially higher in the near term.
- Australia has not posted a negative GDP year in the past five
- There is a undersupply of houses
- The economy is strong and without some sort of exogenous shock housing will be fine.
- Mortgage arrears are low
- Unemployment is low
- Australia has good mortgage underwriting standards
- Australian banks are well placed to absorb direct mortgage losses.
This post has been edited by RumpledElf: 16 September 2010 - 11:28 PM
Reason for edit: don't post full article text please
