CBA: Home buying intentions smashed by “aggressive” RBA

CBA’s Home buying intentions index tanked 4.4% in September to be down 24.6% year-on-year, with the bank still tipping a 15% peak-to-trough decline in Australian dwelling values:

The Home buying intentions index declined by -4.4%/mth in September, partly offsetting some surprising strength in August. On an annual basis, Home buying intentions are now down -24.6%/yr –reflecting the RBA’s monetary policy tightening and higher interest rates.

The number of home loan applications was lower in September, both relative to August 2022 and September 2021. In addition, Google searches related to home buying were also lower on the month.

We would note that, based on Corelogic data, dwelling prices fell by a further -1.4%/mth in September and are low marginally lower than September last year. We continue to expect a peak-to-trough decline in dwelling prices of -15% in this cycle.

The CBA’s Household Spending Intentions index also fell 0.5% in September suggesting household are “clearly beginning to show the effects… of the RBA’s aggressive interest rate hiking cycle –with further impact expected in the months ahead”:

The CommBank HSI Index declined by 0.5%/mth in September, taking the index down to 114.9 –from 115.5 in August and a peak of 116.2 in December 2021.

The fall in September was the first monthly decline since April this year and is clearly beginning to show the effects on the household sector of the RBA’s aggressive interest rate hiking cycle –with further impact expected in the months ahead.It is important to remember this is in nominal dollars. With prices rising the real spending will be even weaker.

Last month, CBA’s head of Australian economics, Gareth Aird, released research showing that it takes an average of two-to-three months for an increase in the official cash rate to be felt by mortgage holders.

This means that most of the RBA’s aggressive rate hikes have yet to be felt by Australians with mortgages, meaning “there’s a degree to which the RBA Board is flying blind. It has simply been too early for the spending data to pick up the impact of the already delivered rate hikes”.

Separately, Gareth Aird cautioned that the RBA’s aggressive monetary tightening is “like having five shots of vodka in an hour and saying, everything is OK. But you know that it will soon have a big effect”.

The RBA’s monetary policy statement accompanying last week’s rate hike stated that “the Board expects to increase interest rates further over the period ahead”, suggesting a few more 0.25% hikes could arrive if data permits.

Accordingly, the official cash rate should rise further over coming months.

The danger is that the delayed impact of the RBA’s rate hikes will hit around the all-important Christmas period, hammering both household consumption and the nation’s growth.

Retailers should, therefore, prepare themselves for a challenging Christmas.