The ABS released the November Australian Housing Finance stats today. Housing in Australia seems to be one of the most discussed topics when commenting on the Australian economy. It also is one of the most misunderstood. Various commentators, the most prominent being Steve Keen from the University of Western Sydney, talk up "asset bubbles", especially in regards to housing and lament the fact that households have so much debt. In fact Steve Keen believes that debt is driving up property prices. So lets examine whether that statement is true.
Firstly, it does appear that the average mortgage loan did go up last month. According to the ABS, the average loan for housing was $279,900, up from $272,000. While only an increase of 2.9% a month; annualized, this works out to 34.5% (or 8.7% per quarter). So we are definitely taking on more debt. But the question is whether this is growing at a higher rate than the asset price securing this debt.
When looking at the ABS House price index for September 09 (a quarterly stat), we find that the house price index (a weighted index made up of property prices of property in the capital cities) increased 6.2% from September 2008 to September 2009. When we look at the average mortgage loan over that period (from today's release), we have loans increasing from $252,100 to $269,500 (an increase of 6.9%) over that same period of time. So it is true that debt in increasing faster than asset prices, but only by 0.7% a year.
Firstly, it does appear that the average mortgage loan did go up last month. According to the ABS, the average loan for housing was $279,900, up from $272,000. While only an increase of 2.9% a month; annualized, this works out to 34.5% (or 8.7% per quarter). So we are definitely taking on more debt. But the question is whether this is growing at a higher rate than the asset price securing this debt.
When looking at the ABS House price index for September 09 (a quarterly stat), we find that the house price index (a weighted index made up of property prices of property in the capital cities) increased 6.2% from September 2008 to September 2009. When we look at the average mortgage loan over that period (from today's release), we have loans increasing from $252,100 to $269,500 (an increase of 6.9%) over that same period of time. So it is true that debt in increasing faster than asset prices, but only by 0.7% a year.
If we go back further (to 2003) and chart increase in Mortgage Price Vs increase in Housing price we get the following graph.
So the increase in housing finance appears to be sustainable at this time. However, if average loans increase at a much higher rate than house prices in future, then there might be cause for concern
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