Macquarie goes all in on housing recovery

Via Macquarie equities:

“multiple catalysts [have] improved the domestic growth outlook”.

“With positive housing catalysts in the last week, we are more confident housing will improve in 2019.”

“Based on an average of 6 months, we could see month-on-month house price rises as early as July 2019.”

“This should flow through to better growth in housing finance and building approvals.”

To their model portfolio they have added building materials in CSR, banks in NAB, SGP for property. They expect higher bond yields and AUD so have also reduced exposure to offshore earners.

The last time we went through a similar turn in property fundamentals was in late 2011:

It took eight rate cuts and a wave of Chinese capital to awaken the market on that occasion, with a lag of roughly eighteen months:

Domestic demand is just as weak now as it was then with rising unemployment ahead. And credit is much tighter. So I can’t see property turning on a dime.

That said, readers will know that I buy the housing recovery story. The question is how fast and how strong, and will both be enough to make Australian growth a sufficiently strong story to see rising bond yields and equity rotation into domestic demand.

Macquarie looks early to me. Especially since the risk of major trade accident for global growth is climbing and it may well be that equities need to crack to bring about renewed negotiations.

But this Macquarie narrative is not be dismissed.

David Llewellyn-Smith
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