4. To date, HH debt reduction has been limited
$trn $trn
15 15
Other* Sources: Federal Reserve, Westpac Economics
Households
12 Nonfarm nonfinancial firms 12
Government
9 Rest of World 9
*nonfinancial noncorporate and farm
6 6
3 3
March „08
0 0
1990 1994 1998 2002 2006 2010
4
5. House prices have declined for 5 months
Index S&P Case-Shiller index Index
240 240
Source: Factset
20-city index
220 220
10-city index
200 200
180 180
160 160
140 140
Prices have fallen 4.3% in five months
120 to Dec ‟10 and are 31% from peak.
120
100 100
Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10
5
6. Contributions to real GDP growth
ppt cont.
15
2.5
2.0
10 2.6
0.8
0.8
6.1 8.7 0.8 0.8
5.6 1.0
5.0
4.4 4.6 5.6
4.6 4.0
3.3
5 1.4
1.5
1.1 1.2 1.1 1.2
1.1 1.1 0.9 1.0
3.7 4.1 3.4
3.2 3.0 3.0 2.8 2.8 2.9 3.2
0
Net exports
-3.7 Gross investment
Sources: CEIC, Westpac. Public consumption
Contribution to full year growth. Private consumption
-5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
6
7. A pending overhang of property
index index
250 250
Sources: CEIC, Westpac. Aug-2006 = 100.
Underlying data in sqm.
200 Completions 200
Sales
Starts
150 150
100 100
50 50
Aug-06 Aug-07 Aug-08 Aug-09 Aug-10
7
13. Mortgage rate expectations by state
net% net%
100 100
Feb-10
% reporting expected
95 Jun-10 rise minus % reporting 95
Aug-10 expected fall
90 Feb-11 90
85 85
80 80
75 75
70 70
Aus NSW VIC QLD SA WA
13
14. Pace of employment growth to slow in 2011H1
%yr `000
300
4 Sources: ABS, Westpac Economics 6mth change (rhs)
% yr (lhs) 250
3 200
2 150
100
1
50
0
0
-1 -50
Jun-03 Jun-05 Jun-07 Jun-09 Jun-11
14
15. Current account balance
% GDP Rolling annual % GDP
3 Sources: ABS, Westpac Economics
3
0 0
-3 -3
-6 -6
Trade balance Income position f/c to
Current account end-2012
-9 -9
Sep-85 Sep-90 Sep-95 Sep-00 Sep-05 Sep-10
15
16. Net public debt: G7 chalk, Australian cheese
%GDP %GDP
100 100
Sources: Westpac, IMF, Australian Treasury.
90 90
80 1990 2000 80
70 70
60 2009 2015 60
50 50
40 40
30 30
20 20
10 10
0 0
US UK Germany France Canada Australia
16
17. The Australian dollar: actual versus fitted
USD USD
1.10 1.10
Fair value band
1.00 AUD/USD actual 1.00
AUD/USD forecast
0.90 0.90
0.80 0.80
0.70 0.70
0.60 0.60
0.50 0.50
Sources: RBA, Westpac Economics
0.40 0.40
Jan-91 Jan-95 Jan-99 Jan-03 Jan-07 Jan-11
17
18. Qld: lagging – for now
% ann Domestic demand growth, by state
5
4.3
Dec-09 yr Dec-10 yr
4
3.2 3.4
3.1
3 2.7
2.9 2.82.9 2.7
2.2 2.1
2 1.5
1
0
-1
Sources: ABS, Westpac Economics
-1.4 -1.3
-2
Qld NSW Aus SA Vic WA Tas
18
19. Output effects from the Floods and Cyclones
Activity loss
March quarter: Coal: $2.2bn
Farm: $2.5bn
Tourism: $300m
Other: $500m
June/September: $1.5bn (coal/tourism)
Rebuilding
Government: Commonwealth: $5.6bn
States: $1bn
Private: Housing: $2.5bn
19
22. CAPEX plans by industry
% chg, yr avg % chg, yr avg
80 Sources: ABS, Westpac Economics
80
mining History in real terms,
60 60
manufacturing Expectations in nominal
services
40 40
total
20 20
0 0
5th est. 1st est.
financial years
-20 -20
2007 2008 2009 2010 2011f 2012f
22
23. Mining investment boom ... Coming to Qld
Business investment : share of GSP
% of GSP % of GSP
35 35
Sources: ABS, Westpac Economics
30 30
SA Qld WA
25 25
NSW Vic Tas
20 20
15 15
10 10
5 5
0 0
Dec-89 Dec-97 Dec-05 Dec-89 Dec-97 Dec-05
23
24. Firms: hiring ... under investing
% ann % ann
6 Sources: ABS; Westpac Economics * smoothed
30
Jobs (lhs)
Equipment * (rhs)
25
4 20
15
2 10
5
0 0
Consumer recession
-5
-2 Asian crisis in NSW & Vic -10
AUD “collapse” Deleveraging -15
-4 -20
Dec-80 Dec-85 Dec-90 Dec-95 Dec-00 Dec-05 Dec-10
24
25. Household savings ratio-cyclical high
% income % income
25 25
20 post 2006 avg doubled 20
equates to ~$122bn
15 15
10 10
5 5
0 0
Sources: ABS, Factset, Westpac Economics
-5 -5
Sep-59 Sep-69 Sep-79 Sep-89 Sep-99 Sep-09
25
34. Price-income ratios: various measures
times times
10 10
house price to state median income June 2008
9 house price to capital city median income 9
8 all dwelling price to capital city median income 8
unit price to capital city median income
7 units Source: APM, RP Data-Residex, ABS, Westpac 7
%total
6 stock: 6
22%
38% 28% 24%
5 21% 5
4 4
3 3
2 2
1 1
0 0
Sydney Melbourne Brisbane Adelaide Perth
34
36. ‘Time to buy a dwelling’ by state
index index
180 180
*smoothed NSW Vic Qld WA
160 160
140 140
120 120
100 100
80 80
60 60
Source: Melbourne Institute, Westpac Economics
40 40
Mar-08 Mar-09 Mar-10 Mar-11 Mar-08 Mar-09 Mar-10 Mar-11
36
37. Population vs dwelling stock
thousands thousands
500 500
population
450 Source: ABS, Westpac 450
dwelling completions
400 400
dwelling stock*
350 annual average change
350
300 * net of demolitions – implied by Census 300
data to 2006; Westpac estimates thereafter
250 250
200 200
150 150
100 100
50 50
0 0
1950s 1960s 1970s 1980s 1990s 2000s last 3
years
37
38. Population vs dwelling stock: Qld
thousands thousands
140 140
population Source: ABS, Westpac
120 dwelling completions 120
dwelling stock*
100 100
annual average change
* net of demolitions – implied by Census data
80 to 2006; Westpac estimates thereafter 80
60 60
40 40
20 20
0 0
1950s 1960s 1970s 1980s 1990s 2000s last 3
years
38
39. Population growth: sharp slowdown
% ann % ann
3.5 3.5
3.0 Qld (lhs) Aust (rhs) 3.0
2.5 2.5
2.0 2.0
1.5 1.5
1.0 1.0
Sources: ABS, Westpac Economics
0.5 0.5
Jun-82 Jun-90 Jun-98 Jun-06
39
40. Population growth in perspective
ann% ann%
3.5 3.5
population
3.0 contribution from net migration 3.0
2.5 contribution from natural increase 2.5
2.0 2.0
1.5 1.5
1.0 1.0
0.5 0.5
0.0 0.0
Sources: ABS, Westpac Economics
-0.5 -0.5
1926 1936 1946 1956 1966 1976 1986 1996 2006
40
41. Migrant inflows vs student visas
thousands thousands
600 600
student visas granted migrant arrivals
67k
500 *financial years 500
drop
400 400
300 50k 300
Source: ABS, Dept of Immigration and drop
Citizenship, Westpac Economics
200 200
100 100
0 0
2003 2004 2005 2006 2007 2008 2009 2010
41
42. Australian bank funding sources
% %
50 50
Sources: RBA, APRA, ABS, Westpac.
40 40
Domestic deposits
Short term debt
Long term debt
30 30
20 20
10 10
Jun-02 Jun-04 Jun-06 Jun-08 Jun-10
42
43. Major Banks’ Bond Issuance
$bn AUD equivalent $bn
60 60
Onshore* Offshore* Maturities Net issuance
Source: RBA
40 40
20 20
0 0
-20 -20
* Latest quarter issuance to date
-40 -40
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12
43
44. Westpac business lending by sector
6.1 4.6 Property
9
Agriculture
Accom, Restaurant
7.2
27.9 Manufacturing
6.2 Retail
Wholesale trade
7.6 Transport
Other
31.4 Sources: Westpac.
44
45. Total dwelling approvals – Victoria rules!
index index
200 200
Vic (36%) WA (13%)
180 180
Qld (17%) NSW (19%)
160 smoothed, Sep 2005 = 100 160
figures in brackets show %total
140 140
120 120
100 100
80 80
60 Sources: ABS, Westpac
60
40 40
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
45
46. Unit approvals- Victoria overheated?
index index
500 500
450 Vic (36%) WA (5%) 450
400 Qld (13%) NSW (20%) 400
smoothed, Jan 2006 = 100
350 figures in brackets show %total
350
300 300
250 250
200 200
150 150
100 100
50 Sources: ABS, Westpac
50
0 0
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
46
51. Non res showing no recovery
AUDbn/mth AUDbn/mth
3.0 3.0
units (surpassed prev peak, now 11% lower)
2.5 non res (still 41% below pre-crisis peak)* 2.5
Private dwelling approvals,
2.0 trend, nominal
2.0
* excluding education
1.5 1.5
1.0 1.0
0.5 0.5
Sources: ABS, Westpac Economics
0.0 0.0
Apr-87 Apr-91 Apr-95 Apr-99 Apr-03 Apr-07 Apr-11
51
52. Brisbane office market – also a constraint
... as supply continues
‟000 sqr meters %
250 20
Westpac Property
Net absorption Net supply forecasts to 2012
200 Vacancy rate 16
Vacancy rate
150 11.3% 2009 12
13.0% 2011
100 8
50 4
0 0
Sources: PCA, Westpac Property
-50 -4
1990 1994 1998 2002 2006 2010
52
53. Key points Disclaimer
• The two key challenges for the industry are interest rates and
credit availability – both are of equal concern to industry participants.
• The interest rate outlook will be affected by the global growth
outlook; the sustainability of the mining boom and prospects for
the cautious consumer.
• US growth prospects are less than robust; China is tightening
policy and Europe‟s problems are structural.
• Australian consumers are cautious and look to stay that way with
house prices under pressure and housing affordability stretched.
• Any easing in consumer caution is likely to lead to higher rates since
the mining boom will continue unabated.
• The mining boom is set to strengthen further maintaining
pressure on rates through 2012 – QLD will benefit from this.
• The Australian dollar will be resilient to increasing global risk
although it should weaken somewhat in 2012.
53
54. Key points Disclaimer
• The key to Australia‟s world class house prices has been the
increasing imbalance between new supply and population growth
although there is clear oversupply in places like the Gold Coast.
• Population growth has slowed sharply particularly in QLD taking
some pressure off underlying demand.
• New funding pressures have eased for the major banks as they
take advantage of the rising savings rate to fund books through
retail deposits – although maturities remain a challenge.
• Foreign banks and securitisers have lost considerable ground to
the majors who now dominate new lending QLD‟s reliance on
regional banks has been a weakness for the state.
• There is clear evidence that approvals and lending for developments
is slowly improving although Victoria is dominating activity.
54
55. Key points Disclaimer
• There is a clear diversity in terms of approvals across the states
with Victoria showing signs of being overheated while QLD is
lagging.
• Property dominates banks‟ loan books although approvals for
non residential have not recovered since the GFC while
apartments are showing upward momentum.
• While there is some improvement in residential prospects for non
residential particularly in Brisbane/Gold Coast are not sound.
• The stability and improvement in the housing industry is likely to
need to await rate cuts which should begin in 2013 following
another “round” of rate hikes in 2012.
55