Via Bloxo comes his housing risk case with five possible triggers for a price crash:
One possible driver could be a further tightening of credit availability, possibly in response to recommendations from the banking Royal Commission, which are due to be announced in early 2019,…there is considerable uncertainty on this issue.
[The] availability of finance for developers has been significantly curtailed recently, which could deliver a sharp decline in residential construction at some point. As RBA Deputy Governor Guy Debelle noted in a recent speech, he sees this as a larger risk to the growth outlook than the fall in housing prices itself.
Another possibility is a squeeze on household incomes as interest-only loans convert to principal and interest loans over the coming period. This reflects that a high share of new loans in 2016 and 2017 were issued on interest-only terms, but that these loans are due to automatically reset to principal and interest loans over the coming years. Importantly, some of this has already occurred, with the share of housing loans with interest-only terms falling from 40% of the national total to 27% over the past year or so.
The full text of this article is available to MacroBusiness subscribers
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.
