‘Building approvals in surprise slide’ – Age
Surprise to whom?
It doesn’t surprise us. The only people who were surprised by the fall in building approvals were those with their heads stuck in the sand.
It’s funny, in recent weeks we’ve seen a bunch of commentary talking about a recovery in the Australian housing market. We’ve even seen a few housing bears sayings things are looking on the up.
The reality is far different.
If they think the housing price falls they’ve seen over the past two years were the worst of it, they’re kidding themselves. As we’ll explain this morning, the worst is yet to come…
Look, in a lot of ways the reaction is understandable.
Heck, we’ve fallen into the same trap. We’ve occasionally jumped in too early when picking penny stocks in Australian Small-Cap Investigator.
The fact is most people are naturally optimistic. It must be a genetic thing. Arguably, the human race wouldn’t have become the most successful and intelligent of all living species if it wasn’t for this natural optimism.
By the same token, it’s humanity’s ability to recognise danger and have a questioning mind that has also contributed to this success.
Yesterday’s Age reported:
‘Building approvals dived 17.3 per cent in July from the previous month, the latest sign of weakness in the housing market.
‘Approvals, a gauge of future activity in the housing sector, fell at triple the 5 per cent pace tipped by economists. The drop was the biggest in at least six years, according to Bloomberg data.
‘Approvals were also 10.6 per cent lower than a year earlier, the Australian Bureau of Statistics reported. Economists had expected approvals to by 6 per cent up[sic].‘
But like the iron ore bulls and the Australian economy bulls, they’ve jumped in far too quickly. The reality is this…
What most in the mainstream believe has been a bearish housing market is just the beginning of the drop.
It’s the equivalent of someone who’s about to be hung, drawn and quartered, screaming as they get a bit of rope burn from the noose…little do they realise the real pain that awaits when the executioner really gets down to business.
The money from China goes into the Australian banks and the banks leverage this up nine- or ten-times to lend to home buyers.
Make no mistake, with iron ore prices (and coal prices too) slumping by almost 50% in three months, this will have a big impact on the amount of dollars coming into Australia and how much Aussie banks can lend.
It’s always tempting to pick the bottom of the market after a big fall. But our bet is that iron ore, the Australian economy, and Australian housing still have much further to fall yet.
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Written by Kris Sayce
Kris Sayce is Editor in Chief of Australia’s biggest circulation daily financial email — Money Morning. (You can subscribe to Money Morning for free here).
Kris is also editor of Australian Small-Cap Investigator, his small-cap stock research service, where he provides detailed analysis on some the brightest, smallest listed companies on the ASX.
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