5 reasons why the real estate market can't stay down

Activity in the housing market is still at a very slow and weak pace at the moment. It seems there are no real hard signs that a pick up is around the corner, however Harcourts did say on Friday that it was expecting a lift in activity.

One point which is often discussed is that banks are holding back the housing market by keeping lending criteria tight and keeping properties, which should be going up for mortgagee sale, off the market.

Here are five reasons why banks aren’t deliberately holding back the market or trying to keep house sales at a low level.

1. The real estate market is an important part of the economy employing thousands, probably tens of thousands, of people directly and indirectly. It’s not just the real estate agents here either. It includes lawyers, accountants, valuers, media companies and builders. In fact the list is quite long when you think about it. It seems this industry is nearly at a tipping point. It can’t go much slower without serious damage being done to itself and the economy. This is not in the best interests of the banks.


2. Banks need to make money for their shareholders. Currently they make little in the highly competitive term deposit space as margins are under pressure as they battle for funds (thank the core funding ratio for that). The mainline of business for banks is lending and currently their margins in this space are pretty good. To get an idea of how they have changed check out this graph. During the home loan wars margins were nearly non-existent. Now they are pretty fat. To grow profit banks need to increase their lending. It’s a volume game. Reserve Bank figures show lending growth is weak.


3. At some stage banks will “pull the trigger” and ease up on lending criteria. Sources I have spoken to confirm there are active discussions going on within banks about when to do this and by how much.


4. When the trigger is pulled it will be a substantial fillip for the housing market. One key real estate industry figure summed it up like this: “The volume of sales is not at true market levels.”
   “If banks ease their criteria there could be a 10 to 20% lift in sales volumes.”


5. Finally it is worth noting that mortgagee sales make up a pretty small proportion of houses sold each month. Arguably it is not material enough to have a big impact on the market.