Correction over?

Australian house price falls are slowing as new listings fall sharply
Interesting data, will be interesting to see if the trend maintains

 

The number of new listings is down sharply but total listings still higher than last year, which suggests that there's been much less turnover in the last 12 months (due to the soft conditions). Makes sense.

Have we hit the bottom? Who knows? Irrespective of how low rates go, until banks turn the credit taps back on, I doubt we'll see any meaningful increases in house prices.

 

... and I thought the End of the World was nigh .

Can I come out of my underground bunker now?

 

Inflation numbers in @ 0% over last quarter

Very likely rate cut during election campaign. The banks will definitely be under pressure to pass on which would make servicing bit better.


Cheers,
Oracle.

 

If you mean lower rates makes servicing the loan easier, I agree.

However some clarification may be useful...

At this point with only a few exceptions, rate cuts don't change serviceability or they in fact make it worse.

* Lenders are required to have a 'floor' assessment rate, usually 7.25% or more. Rate cuts don't change this, so it doesn't matter how much rates drop, the benchmarks lenders use aren't changing.

* Most lenders use the actual rate to determine the negative gearing add-back. Larger add-backs help your servicing. As rates go down, your gearing add-back reduces. Thus as rates go down, so does your serviceability (if you're an investor).

 

Hmmm, we're going into winter. Traditionally, there are less new listings. Oh. History never repeats, I tell myself before I go to sleep.

 

@Peter_Tersteeg would it seem the single most effecting thing for Asic (assuming they wanted to revive the market which they may not actually want to do just yet) to do short term would be to announce a drop in the required assessment rate by 0.5 - 1%? I have no idea how likely this is...any thoughts?

 

Nailed it. Completions are still rising, bank finance is not picking up, and my forecast is that as $bn's of construction work comes to an end, jobs growth will keep on slowing*. That directly correlates to slower population growth, so more houses and less people is the forecast for coming years. There is zero case for property price growth in the short term. Even if its stops falling, I'm not convinced its going up anytime soon.

(*yes there is a government infrastructure boom, but A) it is not as much $$ as there is coming off private construction, and B) in Victoria at least, the government is unwinding infrastructure spending between now and 2021, dropping 40% from peak levels. the industry is going to get flogged.)

 

My experience is that it's very difficult if not impossible to predict macroeconomic trends even at a national level, often what happens is not rational or predictable

 

There's been some debate in the broker community about this. IMO a flat 2% loading on the actual rate would generally be sufficient for risk purposes, given that it would take a significant amount of time and some very interesting economic conditions for rates to increase that much.

I haven't heard a whimper about this from the banks and nothing from the various regulators. Everyone has their conservative hats on at the moment. The banks clearly want to lend money as evidenced by their various fixed rate and cash back offers, but they're not willing to relax their policies to actually allow people to borrow more. All they're doing at the moment is fighting over the same small, dwindling pool of borrowers with some servicing left.

All that said, the floor rate for assessments is probably more of a political question than practical one at this point.

 

Putting my regulator hat on, this would be a massive change, adjusting one of the key pillars of mortgage lending assessments that's been theoritically in place for a long time and well before this boom (floor assessment rate, that noticeably wasn't policed very well in regards to OFI debt during the boom period). It also signals to markets that the neutral level of interest rates is far lower than historical averages (which is probably true).

Also our regulators have put a microscope on this and seem to have data that shows borrowing power isn't really the problem, its other factors (demand for credit, bank slowness, etc).

 

why is that, stagnent income? gig jobs?

 

No, it is not, unless the big banks raise the interest rate for more than 1.0%, it is not over. In fact, we are not even in the middle of the downturn cycle yet.

 

Interest rate for more than 1.0%? Not sure what you mean there.

 

I think dropping interest rates, whilst I'd welcome it, is not the right course of action and has wider, global implications. I reckon it's already low (enough). And I do think choking credit has impacted the economy.

Not that it's going to happen, but I would look at one or more of the following:

• reduce loan serviceability assessment rates by circa 1%
• reset loan terms for those on IO (and struggling with a potential move to P&I) to at least 30 years, and offer them Owner Occ rates.
• encourage a reduction in the spread between OO and IO interest rates
• potentially introduce an OO mortgage interest deduction like the US

 

hmmm, I see red, I see red, I see red.

 

Making credit cheap and easily accessible is what caused these problems in the first place. As much as it pains me, I think we should just let this correction run its course and focus on funding small and medium business to strengthen our economy.

 

Few things that caused boom and bust

Lack of policing on existing borrowing capabilities which caused prices shot up as if cash rate was -ve
Exposure of bank data to credit agencies like Veda
Market sentiment by media
Population stagnation
Recent proposal of driving new comers to country towns

List goes on...


no confidence for investors to take debt and speculate growth.

Bare in mind investors caused the boom and they are no where to be found. All in the new jail called banks!

 

I think the election will dictate where the bottom is. If Liberal stay in then I believe that will signal the bottom. If Labour, then the uncertainty with tax changes I believe will see us fall a fair bit lower (before maybe a mini increase as investors try and lock in NG grandfathering).

The decline in house prices for Melb\Sydney are now starting to align with the new borrowing capacity ceiling for people.

IMO if the uncertainty from tax changes are removed and house prices are now in-line with borrowing capacity then confidence will start to return. I’m not expecting an increase in values, more the fall to stop. Then it’s inflation increase until the next boom

 

Comonweakth dropped its IR last wee I think? Does this count??