Goldman Sachs is out with a note this morning forecasting structurally weak mortgage growth:
While we expect lower interest rates to stimulate mortgage credit growth in the near term, we believe investors should expect structurally lower growth to continue in the medium/ long term.
Mortgage credit growth helped in the near term by lower rates …
After 200 bp of cash rate cuts over the past 18 months, the more recent tick up in housing finance approvals does suggest the recovery in mortgage credit growth is taking hold.Indeed, we note that the number of 12-month rolling housing approvals was up 6% on pcp in March, with value rising 7%. As a result of this cyclical recovery in finance approvals and stabilizing house prices, we expect mortgage credit growth to rise from the 4.3% yoy growth recorded in March 2013, to 4.7% by September 2013, before peaking at 6.1% by September 2014 (broadly consistent with our previous forecasts).
… but structurally, mortgage credit growth to remain weak
Despite our expectation of a gentle cyclical recovery in mortgage credit growth, we continue to view the structural outlook for mortgage credit growth as weak.…We currently forecast house prices to rise 4% over the next 12 months before settling on a long-term path of 2.5%.
Goldman offers seven reasons for this conclusion. On the positive side: decent household formation growth; inflation; higher house prices freeing up greater credit capacity, and structurally low interest rates. On the negative side: baby boomer retirement deleveraging; low growth in household income and the structural inability of banks to borrow offshore.
In case you’re wondering Goldman is talking about the period to 2026.
I agree and encourage you to consider whether these returns outweigh the risk of a shakeout as Australia goes through its post mining boom adjustment.
