Westpac pours cold water on hot housing boom

Westpac is out with a wet blanket for all those real estate agents wanting to upgrade their Porsches into Teslas this year, with some cooling messages over the out of control Australian property market.

Despite raising their previous 10% forecast to 15% for the full calendar year, they give four reasons why its likely to fall off from mid year onwards. To wit:

1. Sellers return

The first is that we will see some near-term rebalancing around supply and demand. The surge in demand caught markets on the hop last year with many sellers having decided to hold off listing new properties until the next year. They are now coming back strongly and while new listings are still playing catch-up to rampant demand, the balance is shifting.

2. Affordability bites

More importantly, the sharp run-up in prices will start to discourage buyers – the air gets pretty thin at these levels, especially for would-be first-time buyers. We are already seeing the early signs of a pull back with the ‘time to buy a dwelling’ index in our Consumer Sentiment survey down nearly 20% from its November high. This index, which we know to be particularly sensitive to affordability, has correctly picked every twist and turn in Australia’s housing market since the early 1970s, usually with a lead of three to six months.

3. Macro prudential policy tightening

Reasons 1 and 2 will see some near term slowing in the rampant price gains seen since the start of the year but are unlikely to bring an end to the boom. That is only likely to happen some time down the track once other elements comes into play: an expected lift in investor activity and a subsequent tightening in prudential policy.

With official rates still on an extended hold, authorities will need to revisit the macro-prudential policies deployed in 2015 and 2017. The precise response will depend on exactly how things evolve but may include: caps on particular loan types viewed as riskier; limits on aggregate lending growth for investors; and even ‘micro-prudential’ changes to guidelines for individual loan assessments.

These measures will likely be more effective at taking the heat out of the market, although we expect authorities to favour light-handed approaches that see a ‘soft landing’ for housing rather than heavier moves that might risk a more disorderly correction.

4. Potential oversupply

The fourth reason for slowing is not part of our central view but is a factor that may come into play as we move through 2022, particularly if our external borders stay closed for some or all of next year.

Australia’s population growth slowed dramatically as migration stopped during last year’s COVID lockdown. That in turn means new building, which is currently being boosted substantially by the HomeBuilder scheme, will run well ahead of population-driven requirements – we are likely to see over 180k dwelling completions this year while ‘underlying demand’ over 2020-22 tracking around 80k a year at best.

However, the longer the combination of stalled population growth and strong building goes on the more susceptible we are to more widespread imbalances and oversupply problems. Some specific markets may also see issues emerge sooner – notably Melbourne’s rental vacancy rate recently lifted to 6.5%, an all-time high.

While the market micro-factors (points 1 and 2) may be turning, the macro (3 and 4) remains up in the air. Authorities (aka the entire property/monetary/political complex) will do everything they can to keep prices elevated, even if that means opening the floodgates to more COVID migration or keeping prudential policy in its current lettuce leaf rough mode.

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Comments

  1. For decades we have had the undersupply story bandied about despite evidence there is large volumes of empty homes

    The problem isn’t a lack of supply, its a lack of supply of the property type people want in a location where they can find adequate work to fund a lifestyle.

    One of the reasons we are seeing a jump in prices at the moment is next to no one is buying apartments and almost all the focus is on standalone dwellings, Add to that the limited stock on market with overly generous stimulus and the rise of the bank of mum and dad and and have supply being well outstripped by demand.

    Maybe if we had distributed state economies instead of centralised ones there would be a lot more properties that meet the criteria of being decent in a location that is capable of supporting the purchase…

    • darklydrawlMEMBER

      In Melbourne at least – many folks have decided after spending months locked up in a small sky/dog box that a backyard and garden in the ‘burbs are groovy and to hell with ‘vibrant / cosmopolitan’ inner urban living.

    • Numbers at open inspections have dropped by two thirds in as little as a few weeks. Outer outer east Melbourne detached houses.

      I put it down to the 100k – 200k price jump throwing a bit of a wet blanket over the initial post lockdown frenzy.

      It will be interesting to see what happens. It’s been a depressing few months in the buyer market 🙁

    • For decades we have had the undersupply story bandied about despite evidence there is large volumes of empty homes

      This is because there is a severe undersupply of decent houses.
      For example if we are short 500,000 decent houses, and 50,000 decent houses are empty at any one time, then not even the best liar could reduce the shortage below 450,000 decent houses.

      The problem isn’t a lack of supply, its a lack of supply of the property type people want in a location where they can find adequate work to fund a lifestyle.

      Yes and No. If you correctly define supply to be decent housing then there is a severe shortage.
      If you define supply to be any rubbish anywhere, then your shortage is magically solved.

      Why the @#$% would you accept such a definition of supply? Of course quality matters. A million cardboard boxes dumped in the desert is not a supply of housing. The size, durability and location are all wrong.

      • kannigetMEMBER

        I agree that quality matters, it does to me, Would not buy anything built in the last 15 years unless I knew the builder personally. Lived in too many “new” houses that had so many issues, much prefer older builds as the majority of issues have already been addressed.

        If quality really mattered that much in terms of supply then we would have indicators in the pricing. i.e. The quality houses would fetch a ridiculous price and everything else would not sell for much. Location is far more important, but even that seems to be dwindling as a prime criteria since Covid.

  2. 5. The greatest ever financial crisis in H2, they have no idea is going to hit them …….they’ll be lucky if Westpac is around next year

    5. Overrides any of the 4

      • Darkly
        I believe they’ll all go down together holding hands

        I think a few who didn’t believe me are now seeing what a disaster this is going to be

        • Jumping jack flash

          Put me into the camp of believing you, but also believing there was hope that our leaders would realise the path to a bankers’ utopia and take it. This path was [controlled] hyperinflation, of course.

          It looks like they didn’t take the hint nor the opportunity, so we are consigned to more economic shenanigans of increasing amplitude and frequency until total system failure.

        • darklydrawlMEMBER

          If it goes real bad, they are all likely toast. One action you can take to protect your assets if you have more than $250,000 in the banking system is to ensure it is spead out over multiple ADI holding institutions. This will ensure you are covered by the Australian Government guarantee on deposits.

          Do your homework though as a single ADI can cover multiple ‘brand name’ banks. For example U-Bank and NAB are under the same ADI, which means if you had $200 K in each (for a total of $400K), only $250K is guaranteed by that ADI licence and the balance you might lose.

          Note: the $250K applies per ADI, per person. Thus you can have $500K in a joint account with your partner and still be covered. Anyway. It’s worth checking you are covered for this.

          https://www.apra.gov.au/financial-claims-scheme-0

          • boomengineeringMEMBER

            Can be activated, but may not be.
            Once activated, or if activated.
            .
            If you must put your money in ADI’s then put only small amounts in each one so you will lose small amounts at a time in each one until you decide on another so called safe haven.

      • Nothing to do with AUST
        This is global
        It’s the insolvency phase of the crisis that was delayed by liquidity but has never fixed the problem
        Interest rates are going much higher
        Rising rates are going to trigger the unwind of the global derivatives market …. I’m hearing $2 Quadrillion possiblly
        50% or a quadrillion of interest rate derivatives
        That’s 1 million billion

        Remember the 08:09 bailout was $970 billion

        Global debt is something like 50% higher and derivatives I’m hearing a huge amount higher

        It’s a ticking time bomb

        The biggest ever financial crisis and worldwide collapse of the banking/financial system

        Possibly 50x the GFC

    • Unfortunately bank failures are no longer permitted as it messes with the eternal lending growth ponzi. Anything that supports the ponzi is considered too big to fail.

    • lol, I’m still waiting for a trading update from all those WFH hedge funds on MB that were shorting the market last year?? ‘repayments cliff’ ‘foreclosure cliff’ etc. etc. Then is was Q121 apocalypse….. now it’s Q2-Q4…. so on an so forth. I guess insolvency makes it a little hard to publish return updates.

      MB should start a some form of faux trading register, a 1-6 scale bull v bear register on a 3,6,12,24 month timeline. Members want to forecast markets…. go ahead, do it on record?

    • @ Bcnich – Please give us a very detailed overview of what your crystal ball is telling you. We need enough detail, so as to make decisions to protect the little wealth we have from the next crisis.

      I do not know or understand your methods, and i probably would not approve of them, but after what happened in Q1 2020, i am willing to accept that your methods work. Please do tell.

  3. The funny thing is that one day someone will wake up to the fact that the Dems are in charge of Washington, and then the time bomb will explode. Naturally, it will all be Labor’s (left’s) fault! We have already seen interest rates move higher, that is just the precursor! Bcnich is right, get with the strength!

  4. I just saw 2 identical 2-bed-1bath art deco apartments right next to each other go for wildly different prices.
    Sydney east.
    One went for $1.075m and the other for $1.39m
    Both guides were $1m
    Emotions are really running wild on some places for no logical reason.
    Prices are all over the place in just the last 1-2 months. The spread is very wide.
    Its trading like a penny stock.

  5. Drug den, ex pubic housing terrace home went for $3m + around the corner from me (Glebe). Somewhere between 700-$1m in reno costs on top of that.

  6. Jumping jack flash

    … or the most obvious and simplest explaination of the super money is all spent.

    Admittedly this does also go with the point about rising prices. As prices rise due to the super money being leveraged into colossal piles of debt, those remaining people with a pocketful of super money that weren’t fast enough may find that it simply isn’t enough anymore….

    They’d do best to stash it away now.
    However if they have the economy’s back they should spend it on CPI.

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