Elevated housing growth will become tougher to maintain
Balance sheet growth continued to gain momentum at the end of 2016, largely underpinned by ongoing strength in investor housing volumes. Investor lending growth is currently tracking at ~9% (3m ann.) and approaching APRA’s 10% growth cap. This will undoubtedly attract scrutiny from the regulator, particularly given sustained property price appreciation on the eastern seaboard. While in the short term this will likely lead to further potential investor book re-pricing and/or ongoing unwinding of discounts as banks look to curb their balance sheet growth, ultimately we see current trends as unsustainable. We continue to expect moderation in housing volume growth in the medium term as a result of regulatory scrutiny and reduced borrowing capacity from the over-leveraged household sector (particularly when interest rates start to rise). With that being said, we note that recent trends bode well for the retail banking businesses.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
