UBS: Mortgage tightening coming in spring

UBS with the note:

May-21 home prices boom 2.3% m/m & 10.6% y/y; now up 11.7% since Sep-20

CoreLogic dwelling prices in May-21 boomed a further 2.3% m/m (sa, UBS: +2.0%, 2.2% nsa) and 10.6% y/y, the strongest since 2010. This follows a 1.7% m/m lift in April, with prices now up 11.7% since the trough in Sep-20. Price rises were broad based by capital city. Sydney posted the strongest gain again (2.9% m/m, 11.1% y/y); but regional areas are also still booming (2.0%, 15.3% y/y). Melbourne still lifted despite the recent lockdown (1.9%, 4.8% y/y). Overall, houses remain stronger (2.5%, 12.4% y/y), but units are also starting to accelerate (1.5%, 4.7% y/y). This ‘excess demand’ continues to push up prices sharply. Low borrowing rates, buoyant consumer sentiment and house price expectations continue to support demand. Furthermore, total listings remain low at ~24% below the 5-year average. This disequilibrium will continue to drive prices sharply higher – over 10% y/y, and are now set to reach our prior upside risk case of ~15% y/y within months. Hence, we expect the boom to continue until there is a policy response, which we still think is most likely to be macroprudential tightening, rather than RBA rate hikes or Federal Government policy/tax changes (in contrast to NZ).

Sales volumes still booming around a record high pace, +25% m/m & 92% y/y

The volume (number) of dwelling sales continues to boom around a record high pace in May-21, up by an estimated ~25% m/m and ~92% y/y. There has also been a compositional skew towards more strength in higher priced homes – with prices in the upper quartile of the housing market spiking by 9.2% in just the last 3 months. Hence, the value of total sales surged to a record high monthly level in May, to be up by a massive 121% y/y. This is a very positive signal for State Government stamp duty revenue.

Macro-pru still expected in ~Oct, but loans data ahead is key for timing

Over coming days we will get more data on housing with April loans (4 June) and Q1 detailed loan quality metrics (8 June). We, and APRA, will be watching closely for signs of the extent of the increase in higher risk lending, especially the share of high LVR loans (90%+), and high DTI (6x+) loans. Our view remains that macro-prudential policy tightening will likely be implemented around Oct-21 – when the CFR is due to meet, and the RBA release their semi-annual FSR. The trigger flagged by APRA was a substantial increase in housing credit growth to above income growth – which is a condition we expect to be met by then, given our view housing credit lifts above 6% y/y ahead. Of note will be if the RBA (today) flag a new area of concern is the strength of investors. Indeed, housing credit growth already accelerated in April (+0.5% m/m, +4.4% y/y) to the fastest since 2018; with investor housing credit also just recently seeing a sharp upturn (+0.4% m/m, +1.1% y/y).

David Llewellyn-Smith

Comments

  1. Lord DudleyMEMBER

    “Macro-pru still expected in ~Oct” HAHAHAHAHA! LOLOLOL!

    Thanks for the mental image of Lucy holding the football. Yeah, this time she’s definitely not going to pull it away at the last second.

  2. MathiasMEMBER

    Thankyou David. Your my new MB friend ;p

    I was beginning to think MB was turning into fairfax. Before long, MB will have an audience of real estate agents and boomers all spewing crap at each other and blaming everyone else but themselves, blaming the young for everything and acting like right royal a$$holes because they couldnt extort enough from someone else lol.

    You got to wonder whats changed so drastically in Australia to turn us into the sh*thole we’ve become. Oh yeah. migrants lol. Thats right.

    Multiculturalism. Loving every moment of it. Hows the African gangs in Melbourne? I heard they have them in South Australia now as well. Someone I was speaking to saying they dont feel safe in Adelaide anymore lol.

    Boy, hasnt Australia changed. All for the best, Im sure.

  3. MathiasMEMBER

    Victorian residents should brace themselves for another seven days in lockdown as the state’s Covid-19 cluster continues to grow – fast
    https://www.news.com.au/finance/business/victorian-lockdown-should-be-extended-for-seven-days-expert-says/news-story/04319bbb0c379c4a27841b8a5931a520

    Well… at least its not as bad as Australias Corruption. Got to look at the bright side when it comes to these things. Wouldnt want to upset the Boomers. They are such fragile little blossoms after all.

    Why do I have a feeling that NSW and ScoMo is behind this attack on Victoria? It seems like the sort of thing NSW would do in order to bolster its own Ego.

    If I had Covid and I was living in Melbourne, I’d take a nice little trip into NSW. Spread the love. Its the least anyone in Melbourne could do. I hear Wentworth is a nice place to visit.

  4. New Zealand housing market … massive bubble top …

    Average asking price for homes listed for sale on Realestate.co.nz down $22,000 in last two months, Auckland asking price down $27,000 … Greg Ninness … Interest Co NZ

    https://www.interest.co.nz/property/110666/average-asking-price-homes-listed-sale-realestateconz-down-22000-last-two-months

    The average asking price of properties listed for sale on property website Realestate.co.nz has declined for two consecutive months, providing further evidence the housing market is cooling.

    The average asking price of all the residential properties listed for sale on Realestate.co.nz in May was $841,193, down by $22,203 from the March average of $863,396.

    It was the second month in a row that the national average asking price on the website has declined.

    In Auckland, the country’s largest property market by a substantial margin, the average asking price also declined for the second month in a row, from $1,132,716 in March to $1,105,635 in May. That’s a decline of $27,081 over two months.

    Other regions where the average asking price was lower in May than it was in March were Northland, Coromandel, Waikato, Bay of Plenty, Hawke’s Bay, Central North Island, Wairarapa, Marlborough, Canterbury and Southland (see the table below for the full regional trends). … read more via hyperlink above …

    Latest dwelling consent figures suggest the residential building boom is stronger in the North Island and Christchurch than in most of the rest of the South Island … Greg Ninness … Interest Co NZ

    https://www.interest.co.nz/property/110657/latest-dwelling-consent-figures-suggest-residential-building-boom-stronger-north

    Building consents issued: April 2021 … Statistics New Zealand

    https://www.stats.govt.nz/information-releases/building-consents-issued-april-2021

    … Note in particular Selwyn County (adjoining Christchurch to the south) remarkable (excel Table 8 line 84) provisional 2021 25.9 consents per 1000 population per annum.

    If New Zealand, with its population of about 5.12 million was generating consents at Selwyn Councils 25.9, New Zealand would be generating 132,608 new residential consents in a year ! …

    … Compare the consents / approval rates of Australia, Canada, United States, Ireland and the United Kingdom …

    Budget 2021: Is New Zealand on the eve of a new brain drain to Australia? … Luke Malpass … Stuff New Zealand

    https://www.stuff.co.nz/national/politics/125142382/budget-2021-is-new-zealand-on-the-eve-of-a-new-brain-drain-to-australia

    • MathiasMEMBER

      Is Australia about to experience Emmigration? lol.

      Well, when your Australian Government has no loyalty towards you then why should anyone else have loyalty to the Australian Government? Seems kind of obvious really.

    • Mike Herman TroutMEMBER

      Whats’s wrong with these NZer’s…? Didn’t they get the memo? Prices go down? Wha…

    • Here we go
      And then some NSW and Victorians sneak into Townsville for state of origin

        • The Travelling Albatross

          Yea victoria is cursed that way for some reason but no other state. It must be Labor fault

          • FUDINTHENUDMEMBER

            It’s coming everywhere bnich. Other states can’t hold it out as long as they’re still faffing about with hotel quarantine (and even then, it’s coming in eventually). Look at Taiwan numbers. Crazy increase from nothing.

            States self-imposed job was to hold the fort best as possible until proper quarantine and vaccine cavalry arrived to help. Vaccine cavalry in Australia has been waylaid by corruption, apathy, avarice and ineptitude.

    • Frank DrebinMEMBER

      Hopefully that individual doesn’t spend too much time in air conditioned venues in close proximity to large groups of other individuals on their camping trip. Otherwise we will really be in trouble.

  5. Mortgage tightening is coming and MP won’t even matter
    The market is going to drive interest rates higher
    The US 10 year will be possibly 3%
    The AUST 10 year will be maybe higher maybe 3.5%
    Banks will be raising rates whether you, RBA or whoever doesn’t want them to go
    You can write all your fangdango terms, inflation is enough of a problem the market will take care of the tightening needed
    Banks will increase mortgage rates fixed rates probably up around 3.3 to 4.%, variable now 2.7% will be 4 to 4.5%, there’s 1 to 2% will be added on top
    These idiotic home builder program ……..they won’t even be able to build the homes, shortages and price rises in materials
    The FED will do the same
    This will come more apparent over next few weeks…..the key here is what happens to commodity prices. I know there are quite a few saying there is a commodity crash coming, I don’t think so, I think commodity prices are going much higher from here.
    I think copper, lumber, steel, food commodities etc are going much higher ….. think we may see iron ore above $300
    This is genuinely what I think, these central bankers are imbeciles……I know it’s not consensus but I even think AUST CPI might surprise to the upside……I’m not 100% sure but it wouldn’t surprise me
    I think it’ll be rising commodity prices from here over next 3 to 4 months that will cause market, central bankers, governments etc to tighten considerably……in what ever combination
    I said when DXY was 92/93 we were going much lower,,,,,,,,FED is still on very easy monetary settings,,,,think USD keeps falling & commodities up….think DXY heading much lower into mid low 80s
    Anyone who has been around long enough, seen 1980s etc knows this not sustainable, the whole thing is just one big circus

    Note …..Paul Bloxom was on ABC Business last night, he was excellent, he even said this is not sustainable

    My personal view on top of that is they’ve pushed this debt machine so far there is no coming back.

    All these young kids on TV/media paying such exorbitant prices with 4 or 5% interest rates won’t survive

    These young FHB I saw a girl so excited just bid an exorbitant price for a 1 bed unit, they interviewed her on business insider….she’d saved 10% and borrowed 10% from mum and dad

    They are the ones that concern me, it’s going to be very sad to see what happens to young innocent FHB that have been sent to the slaughter house by RBA & Gov because they have no other means than drive interest rates to zero and spin propaganda …..there parents should be smart enough not to fall for this

    I seriously can’t believe people are falling for interest rates will remain low for 4 years or what ever ……tightening is coming big time in second half

    My more extreme is a few of our banks will be gone by this summer….but either way it’s going to be harder and more expensive to borrow

    I think it’s going to be very sad when those whole Ponzi scheme unwinds ,,,,,many innocent people are going to be hurt

  6. I don’t want to be depressing, but this virus is getting worse ……I think it’s going spread across AUST and US will have more waves and lockdown
    Honestly we are going to have a major economic downturn next year,,,,,,more virus problems,,,,,the world population is too big and unsustainable.
    This decade won’t be like the last few decades
    There is a major reality check & wake up call coming to everyone…..
    Think there’s a few months left,…..enjoy it

    On another note, when can I come home to Melb from QUEENSLAND, my car is sitting in the airport car park…..farrk

    Anyway I’m going to gold coast this morning, booked a suite at the new Star Grand Casino for a few days ….$170 a night…..cheap
    Looks great ….

    I’ll play roulette, few cocktails by the pool, keep you all updated

    Can someone get my car for me please

    • Jumping jack flash

      More virus means more stimulus. More stimulus means more inflation. More inflation means more growth. More growth means more happiness.

      There’s nothing to worry about. Its all perfectly sustainable once they switch the hyperinflation on, if they haven’t already: 8 trillion is a lot of money, and just think how much it will turn into with the magic of debt!

      • JJF
        You conveniently left out the last 2

        Higher interest rates and then more misery

        The only people happy when interest rates rise is savers

        Assets will be deflating and savers will benefit

        We are at a major turning point

        In 2022 we start a many year cycle of what was taught many years ago

        Saving Saving Saving will be what to do

        Debt will be considered a losing strategy

        It’ll be a very hard mindset shift

        The thrifty & resourceful will be the ones who survive this decade

        It’ll become very apparent in 2022

        • Savers don’t benefit from high inflation, high interest rates may help but it just means they aren’t going backwards (if lucky).

        • Jumping jack flash

          “Assets will be deflating and savers will benefit”

          Look, I agree with you in principle, banks are totally evil and the quagmire of the global economy is a direct result of putting them in charge of it. Greenspan is/was a panicking shortsighted fool operating way above his level of incompetence and deserves to be covered in honey and eaten alive by ants, etc, etc.

          But in reality I’m pretty sure they will do whatever it takes to stop your scenario from happening. It is in their best interests.

          And right on cue, RBA announces infinite bond purchases…

    • Reusa is the wisest person on MB. Has always been, from the moment he saw the light with exceptional clarity. He was the first. How many years has it been Reusa?

      All those who matter attend Reusa’s relo parties regularly, and that’s why he is on top of everything and everyone (pun intended).

    • blacktwin997MEMBER

      Just your bog-standard Chinese development application process, nothing to see here.

    • We should start a crowd funding account for them. They were having a go so should get a go.