ANZ gives up on rate hikes

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Via ANZ:

We have revised our housing price forecasts. Sydney and Melbourne, in particular, have been downgraded.

The fall in Sydney housing prices is already the largest in many years. Prices are now 9% below the June 2017 peak, a larger correction than in 2010-11, 2008, 2004-05, 1994-95 and, by the end of this month, the fall will be larger than the 9% fall in 1988–91.

We think there is further to go

We now expect housing prices in Sydney and Melbourne to fall around 15–20% from peak to trough.

However, we do not expect price falls in these cities to be as significant as in Sydney and Melbourne because they don’t have the same concerns around highly leveraged borrowers and a lack of affordability.

While the Perth and Darwin markets are expected to remain weak, this is based on the ongoing adjustment away from the mining boom, rather than issues around credit tightening.

This outlook is based primarily on ongoing credit tightening, while additional downside risks are possible changes to negative gearing and the eventual arrival of higher interest rates, whether from higher funding costs or RBA rate hikes.
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It is difficult to ascertain for how long banks will continue to implement further credit tightening, or if further tightening will flow from the Royal Commission’s final report.

Also, next year’s federal election could see a change of government and adjustments to negative gearing and capital gains tax breaks.

Although households and the economy more broadly have absorbed falling housing prices quite well, we think the RBA will be cautious about adding to the downside risks by tightening while housing prices are under a reasonable degree of downward pressure.

As a result, we now expect that the RBA will hike rates in August 2020 as evidence accumulates that the downturn in housing is coming to an end.

Except that they won’t stop falling until the RBA cuts. Next move in the cash rate is down.

About the author
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.