Implications: house prices set to rise modestly, but activity still set to drop Optimism has returned to housing following the surprise election result, and coordinated policy easing from APRA & the RBA. Positively, we now expect a ~10% y/y lift in home loans to drive house price growth of 3-5% y/y ahead; albeit we still don’t expect a sharp reflation given ongoing tight credit availability. But in contrast, we think the residential construction outlook is still negative. Building approvals are down by 26% y/y, and we forecast no recovery with dwelling commencements to drop to 170k this year. Hence, as the still near record pipeline of activity completes, GDP-basis dwelling investment will likely still decline for at least a year, & probably slump by ~10% y/y, dragging down construction jobs. Indeed our tracking of construction job ads is consistent with ~100k jobs losses ahead. Given this, we expect the RBA will cut rates by a further 50bps to 0.50%; with -25bps in both Oct-19 & Feb-20.
Given the apartment quality control crisis the risks are all to the downside of the UBS outlook. Made worse by this:
That’s roughly 150k jobs about to disappear:
And given the few years that same sector was adding 75k per annum, it’s a swing of -225k over the year. That’s roughly three quarters of the size draw down that we saw in the mining capex cliff of 2012-15.
RBA to slash and burn and print!