Sydney Morning Herald – 28 September 2015
By Mark Mulligan
Softening auction clearance rates and a regulatory crackdown on lending to investors point to a cooling in the hot residential property markets of Sydney and Melbourne.
UBS economist Scott Haslem is the latest, writing in a note that the bank sees a “moderation of strength”, not a “downturn”, while cautioning that these “trends are a hard-to-quantify” downside risk.
“The outlook for housing depends on who and what you ask,” he wrote.
“Worryingly, a consumer survey asking if it’s a good time to buy a dwelling has slumped to a five-year low.
“Despite this, when asked the wisest place for saving, the share of respondents citing ‘real estate’ rebounded to a 12-year high of 28 per cent, albeit still only near its average.”
His comments come ahead of this week’s Reserve Bank of Australia’s monthly credit figures, which provide a breakdown of growth in housing, consumer and business loans.
Of most interest will be the growth in lending to buy-to-let and buy-to-sell residential property investors. This slowed from 1 per cent to 0.6 per cent month-on-month in July after the regulatory crackdown on riskier market segments.
National Australia Bank notes weak growth in loan approvals to owner-occupiers, suggesting a broader slowdown in mortgage demand.
“After aggregate 0.6 per cent growth in July, when we saw a noticeable deceleration in investor credit growth, loan approvals in July for owner-occupiers have also been very soft, and investor loan approvals have been essentially flat for two months, [with the] softness pointing to some further incremental easing in housing credit growth,” NAB wrote at the weekend.
NAB expects 0.5 per cent aggregate credit demand growth in August, in line with the average of economists surveyed by Bloomberg.
Wednesday also brings the latest building approvals survey, which is expected to show a 2 per cent month-on-month decline in August, according to the Bloomberg survey, compared with 4.2 per cent growth in July.
The year-on-year rate should ease to 7.4 per cent in August, compared with 13.4 per cent in July.
“Residential approvals remain near a record high at 232,000, and renovations recently rebounded,” UBS’s Haslem wrote.
“So even as commencements ease to 200,000 in 2016, dwelling investment should lift in coming quarters, but flatten in the second half of 2016.”
Driving demand will be a shortage of supply in some states, despite slowing population growth.
Haslem estimates that even with this slowdown, some of the country’s housing markets remain under-built. The preponderance of medium-density housing, particularly high-rise units, in current building approvals data means a lot of the new stock will take longer than average to come onstream.
“Hence, despite a moderation in commencements next year, completions are still likely to surge further to a record high peak above 200,000 in 2016,” he wrote.
“This suggests a positive spill-over to consumption on furnishings and household equipment, albeit the fall in total housing sales, with established housing sales dropping, implies the peak in momentum is already passed.”
The emerging mismatch between supply and demand will help slow price growth, he says
“The valuation of the housing market is clearly stretched, with the dwelling price to average household income ratio lifting to a record high of 5.6 now,” Haslem wrote.
“However, with record low interest rates, housing affordability – proxied by the mortgage repayment share of income – is still only a bit around its long-run average, albeit the worst since since the first quarter of 2012,” he wrote.
Countering these metrics, he says, will be the attractiveness of Australian housing markets to foreign, particularly Chinese, buyers because of the sharp depreciation of the Australian dollar.
“As we have highlighted previously, foreigners are increasingly a key driver of Australia’s housing market, with approved investment more than doubling in 2013-14,” Haslem wrote.