Home truth about unemployment
The latest figures on bank lending present a conundrum to any one who thinks it is about time for the property market to recover a little in line with the rest of the economy.
As of December, 95.8 per cent of all new residential mortgages were being made at or below the official best lending rate. That figure was 0.3 per cent in November 1998.
At the same time, lending for home ownership is now not only by far the largest category of loans but also the only significant one to show real growth. It presently accounts for more than 33 per cent of all loans for use in Hong Kong.
This is up from 23 per cent at the beginning of 1995 and, as you can see from the first chart, the only thing that the big financial crisis did in 1997 was send the figure way up.
Clearly our banks have no difficulty with making money available for mortgages. Industry complains that it is still being pinched and overall bank lending still shows negative growth, but bankers are falling over themselves to make money available to homeowners.
You can understand why. Mortgages have always been one of the financial system's best assets. Homeowners stretch themselves to the limit to keep payments up when they face the danger of losing possibly their biggest ever investment and still having the liability of personal guarantees. Delinquencies are negligible.
But why in that case are residential property values flat or still declining after having already fallen by 50 per cent or more from their peaks in 1997? Surely this fountain of easy money should have given a decided impetus to the property market by now, should it not? Here, however, is one possible reason that it has not. Those same compelling pressures on homeowners that make mortgages such good financial assets can make buyers reluctant to bid the property market up when they think the security of their incomes may be in danger.
Look at the second chart. One line gives you the Government's price index for estate-type domestic premises and the other gives you our percentage unemployment rate. Both are rebased to a value of 100 for October 1995.
They could almost be mirror images of each other, couldn't they? Hong Kong people are not accustomed to high unemployment. Survey after survey shows that unemployment quickly becomes one of the biggest concerns people have about their future when it rises.
Foreign opinion may say that 6 per cent unemployment is still mighty low for an economy that has suffered its biggest crisis in decades. And that this 6 per cent in any case mostly represents labourers who live in public housing and there are still plenty of jobs for people in higher income brackets who can buy their own homes.
This may all be true, but it misses the point. Hong Kong people take fright at high unemployment rates and that's that. This is a psychological, not a commercial reaction.
It may yet just turn out that falling unemployment is the key to at last unlocking a price rally in the property market.
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