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:
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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.
