Su-Lin Tan| Australian Financial Review| 16 September 2019

https://www.afr.com/property/residential/why-the-housing-mini-boom-won-t-last-20190916-p52rqi

The current housing mini-boom triggered by two rate cuts will run out of steam, according to UBS.

Weak credit growth, little pick-up in new housing development and very low levels of homes listed for sale in Sydney and Melbourne suggest there may not be enough fuel to sustain a lasting boom like the one in 2012-2017, according to a UBS analysis.

Unlike that boom, the current uptick in the cycle also hasn’t seen the same new housing supply surge that normally follows price increases, indicating it’s likely to be short-lived or weaker than previously.

“We expect RBA rate cuts and APRA credit easing to trigger a ‘mini-boom’ for home prices. Nonetheless, ‘this cycle will be different’,” UBS economists George Tharenou, Carlos Cacho and Jim Xu said in a note.

“After July credit growth slid to an 8-year low, even with more loans ahead, housing and total credit may only bounce to 4 per cent year on year, as interest-only mortgages expire to principal and interest and up to 70 per cent of mortgagees don’t change payments after rate cuts.”

“July building approvals collapsed to a 6-year low … and our lead indicator of land sales indicates ongoing weakness even worse than our (long-held and relatively bearish) forecast for total dwelling commencements to fall to 170,000 in 2019 and stay low in 2020.”

More broadly, UBS expects the kind of “multiplier effect” from a “real boom” such as the one in 2012-2017 will be muted, given low sales listings and a record low turnover in renovations and other housing-related spending.

The market is already showing some signs of a slowdown after last week’s auction clearance rates dipped lower after a few hectic weeks.

While still strong by standards, Sydney and Melbourne both posted lower preliminary clearance rates, according to Corelogic. Once again, these sales were made against a backdrop of very low listing volumes.

While many buyers have seen some buoyant sales where final auction prices finished higher than asking prices, mainly in popular areas, by and large the housing market is still starved of the easy credit that propelled the last boom, mortgage brokers add.

“I am not confident in the depth or longevity of current demand,” mortgage broker Catalyst Advisers managing director Adrian Lee said.

“If stock levels or supply returned to same levels as at the peak of the boom, I highly doubt the demand would keep up with it.

“The truth is that most if not all applicants cannot borrow the same amount of money today as they could a year or two ago despite a reduction in interest rates and serviceability benchmark rates.”

Mr Lee sees the clampdown on easy credit remaining in force, with the government in a hurry to implement better lending standards following the banking royal commission.