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.
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.
