UBS doubles house price crash despite rate cuts

And quite rightly. Mortgage finance is getting slaughtered:

Investors -28% y/y; but owner-occupiers also -16%; while developers weaken
The accelerating fall in home loans shows tighter credit is playing out. Looking ahead, while the Royal Commission didn’t make material changes, we downgrade our long-held forecast peak-to-trough drop in home loans from ‘20% with risk of 30%’, to ‘25% with rising risk of 30%’; meaning housing credit growth will likely slow to 2% y/y by 2020, with risk of flat. We also cut our peak-to-trough forecast of home prices from falling ‘ 10% or more if regulators don’t ease’, to dropping ‘14%, even assuming the RBA cuts’ (with Sydney & Melbourne closer to -20%). This is double the ~7% decline so far. Hence, we reiterate our non-consensus view that GDP growth slows sharply to 2.3% y/y in 2019, unemployment drifts up to 5¼%, & the RBA cuts in Nov-19.

If anything that is still conservative. This is beginning to resemble a bona fide housing crash.

That Australian markets rallied on this data tells you only that sometimes they are very stupid indeed.

Comments

  1. Still no one has over called the crash. It’s just constant catch up despite the fact the evidence following the RC shows unambiguously that it is a massive bubble and the massive crash is playing out text book. It’s a massive supply shock that has soaked all demand, and even less demand now with tighter credit and the tighter credit that comes from participants having less equity to borrow against as prices fall. Next part is unemployment spikes and economic collapse.


    • Still no one has over called the crash.

      Quite possibly by design – they are all in a sense meant to promote the Australian economy. The unvarnished truth would scare their clients too much (although possibly they whisper their real forecast during client briefings with a strict ‘not to leave this room injunction’)

      • I think it’s more like Ben in the brilliant book “big short”. “People just can’t envisage bad stuff happening”.

      • Yes. What Robert said. I think they have been quietly trying to offload their own investments in property before it completely tanks. They see the deck chairs sliding.

    • Nobody will call it a crash until it’s finished crashing. Just like it’s only a bubble once it bursts, but not before.

    • I’m still sticking with my 50-60%. Things have been so extreme for so long with so much craziness that has literally infected the entire country, with government using up so much of it’s firepower to keep the whole insanity going that I can’t see any easy way out.

  2. This might be a silly question but I’m trying to understand the last graph. Owner occupier (excluding refinance), is this new loans going to people who already ‘own’ their own home? In other words is this equity mate extractions of equity from primary dwelling?

  3. I won’t be slightly interested until I am able to plonk a silver one ounce bar down & point “THAT building” 😉

  4. Mortgage finance is getting slaughtered ?? So we move from “irrational exuberance” by the financial elitists to regulatory forbearance and sound lending principles by lending institutions to the already existing regulatory laws and principles.
    The 24/7 happy hour at the pub of loans is over! No more speeding or driving home pissed–the cops are back enforcing the rules of law.

    But what about my Euro-tank vehicle, my investment properties on interest only, the childrens schooling,let alone what the Joneses will think?

    So if you hear some fxxkhead saying he got a promotion to another place in the recession you can take it as a move to a caravan park!!

  5. PS -Explain what non-recourse mortgage loans means to the to the “loans for f-all and your property/equity” for free gang.