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As always, buyer sentiment continues to be influenced by both the macro-economic environment and localised market conditions. In terms of the general media, last week saw more talk of further house price declines, as well as fears of mass job cuts as administrators were called in to the Hasties Group and its 44 Australian subsidiaries.
A news.com.au report said up to 2000 positions are at risk as 2700 workers were stood down without pay for 28 days pending the sale of the Hasties’ businesses. According to the article, the big four banks are set to take a hit with an expected $250 million in write-downs. The Hasties group are currently estimated to owe more than $650 million to lenders, including $150 million to ANZ.
The Hasties’ losses are likely to impact consumer interest rates further, with Mark Bouris from Yellow Brick Road warning during the week that the days of banks passing on official cash rate cuts in full are over. He says although many variables, including increasing funding costs, are weighing on the bank’s decisions, he believes they get away with “hoarding” the cuts because the big four banks effectively act as an oligopoly with 92% market share.
Meanwhile, a Sydney Morning Herald article said high Australian house prices will challenge credit growth more than a mortgage crisis, according to a Credit Suisse report. Conversely, independent banking expert Martin North says banks are beginning to relax lending ratios, creating a small but significant risk of default. He says the average mortgage is now twice what it was in 2005, calling 25-30% of borrowers “pretty stretched”. A separate Herald article cited the latest OECD Economic Outlook as saying real estate prices are very high compared to rents and incomes and are under threat from the high Australian dollar along with confidence and jobs. The report suggests further falls in property prices, but predicts the Australian economy will grow at the fastest pace in the developed world.
Locally, consumer confidence continues to be shaky – an article in the Age reported Boston Consulting’s annual global sentiment survey shows Australians are gloomier than they were a year ago and in some ways, in worse psychological shape than consumers in countries where the global financial crisis has wreaked havoc.
