Global Investor Update on the Australian Housing Market

Transcription

1 Commonwealth Bank of Australia July 24 Global Investor Update on the Australian Housing Market Michael Blythe Chief Economist Commonwealth Bank of Australia Marten Touw Group Treasurer Commonwealth Bank of Australia

2 Important Information As this advice has been prepared without considering your objectives, financial situation, or needs, you should, before acting on the advice, consider its appropriateness to your circumstances. 2

3 Our View The housing boom part of a global trend; a rational response to background economic conditions; households left with more debt and riskier asset mix; households now net payers of interest and less savings. The outlook ongoing housing market slowdown not assured; construction activity likely to remain at high levels. The house price threat generalised house price falls unlikely; the first-home buyer segment is a significant deadweight - but State governments are providing assistance; dominance of investor activity has distorted the market - but most investors well placed to withstand any negatives.

4 Background Drivers From -1/ to 78rpm %pa 9 GROWTH & INFLATION (1-yr averages) %pa UNEMPLOYMENT & RATES % % GDP growth (rhs) 4 12 M ortgage rate 12 2 Inflation (lhs) Unemplo yment rate Sep-9 Sep-9 Sep-9 Sep-99 Sep-2 Sep-9 Sep-9 Sep-9 Sep-99 Sep-2 Growth stepped up and inflation stepped down. Falls in unemployment and interest rates followed. 4

5 Balance Sheet & Cashflow Changes More debt HOUSEHOLD LIABILITIES % % 1 (% of disposable income) Japan 1 NET INTEREST RECEIPTS (% of after-tax income) % % 12 UK Germany 12 Canada US 8 France 8 4 Australia 4 Italy Source: OECD Jun- Jun-8 Jun-7 Jun-84 Jun-92 Jun- - Household debt has risen sharply. Households now net payers of interest. 5

6 Offsets Padding up PRINCIPAL REPAYMENTS % $bn 1 P rincipal (% o f m o rtgage payment) (lhs) 2 11 Household debt repayment practices have changed. Constant dollar repayments have accelerated payoff of principal. 1 Cumulative overpayment o f principal* (rhs) Sep-97 Sep-99 Sep-1 Sep- *assumes prinipal repayment ratio fixed at level 5 2/ of CBA customers paying faster than necessary. A sizeable buffer exists. Effective mortgage rate 7%.

7 Housing One-way bet - but which way? Index 25 CBA LENDING INDICATORS (Jun'1=1) Index 12 FIXED RATE LENDING % (% of total) % Investor (value, lhs) (lh ) 15 Investo r Owner-occupiers (new, no., rhs) 75 1 Owneroccupier 1 5 Jan-1 Jan-2 Jan- Jan-4 Jan-1 Jan-2 Jan- Jan-4 Lending has stabilised after earlier large falls. Unemployment low, confidence high, buyers market, sentiment turning - could housing bounce? 7

8 Construction Risks Excess supply or excess demand? UNDERLYING DEMAND ' ' 2 2 Underlying demand NET MIGRATION ' ' QII (f) Pent-up demand Dwelling commencement s -1 Excess supply Sep-78 Sep-8 Sep-88 Sep-9 Sep-98 Sep /5 191/2 197/ /8 1997/98 Commencements running only a little above underlying demand. Relative price shifts favour alts & adds. 8

9 House Prices: The First Home Owner Deadweight Sidelined FIRST HOME OWNERS % % 4 (% of total lending) 4 9 RESIDENTIAL LENDING* (change in relative position, NSW vs ROA) * wks prior vs 1 wks since tax changes Jan- Jan-1 Jan-2 Jan- Jan Home Loans Investment Loans Absence of first-home buyers putting downward pressure on prices? State Government now providing significant assistance. Pent-up demand? 9

10 House Prices: The Investor Threat.8.4 Inner city & other hotspots INNER CITY & OTHER HOTSPOTS (lending to investors) % % A s a share of housing portfolio Stress Test (rents down 5%, prices down 4%) % of housing portfolio failing commitment level test.8.4 The hotspots: Inner Sydney (inc Homebush, Dee Why, Arncliffe); Inner Melbourne; Inner Brisbane (inc Surfers Paradise, Cairns). Share of investor lending: <1% of home loan portfolio. The stress test: gross rents drop 5%; prices drop 4%. The result:.1% of portfolio fail commitment level test. 1

11 House Prices: Investor Threat Hotspots not so hot Unit prices largely unchanged over October-June period at national level. Prices in hotspot areas of Sydney and Melbourne have fallen. Qld still rising. No obvious economic fallout. NSW Sydney Cit y Ultimo Darlington Darling Island Darlinghurst Elizabeth Bay Alexandra Redfern Waterloo Roseberry M ascot Forest Lodge (Glebe) Glebe Island Camperdown Dee Why Homebush Arncliffe (Wolli Creek) Queensland Brisbane City Newst ead West End Dutton Park Labrador Anglers Paradise et al M ain Beach Broadbeach Cairns Buchan Point Victoria Melbourne City Sout hbank Docklands UNIT PRICES (% change between Oct' and Jun'4) n.a. n.a

12 Housing: The RBA Roadmap Are we heading in the right direction? RBA HOUSING FINANCE SCENARIOS Index 11 (peak=1) Index 11 RBA s preferred scenario has housing credit slowing to a sustainable pace of 9%pa Actual RBA's "preferred" scenario Outside the range of previous experience % CBA May/Jun (e) -2% -4% -8% Jan- Sep- M ay-4 Jan-5 Sep Initial slowdown faster than consistent with preferred path: collapse scenario? So RBA on sidelines. Latest ABS data shows we were back on track in April. CBA data suggests now off track on the upside.

13 Housing: The RBA Roadmap Engineering the desired scenario RATES & HOUSING CREDIT % % 28 (annual % change) 2% rise in mortgage rate 4 RATES & HOUSE PRICES % % (annual % change) 2% rise in mo rtgage rate Housing credit (lhs) M ortgage rate (rhs) Sep-82 Sep-8 Sep-9 Sep-94 Sep-98 Sep House prices (lhs) M ortgage rate (rhs) Sep-82 Sep-8 Sep-9 Sep-94 Sep-98 Sep Past cycles show a 2% rise in mortgage rate needed to slow credit to desired pace and kill house price rises. Implied cash rate: 5½-5¾%. 1

14 Housing: Mortgage Write-offs CBA Mortgage Write-offs v Australian Residential Property Index CBA Mortgage Write-offs (LHS) 2 Basis Points 2 1 Housing Price Index (RHS) CBA Average Write-off Level (LHS) Index Years CBA Mortgage Write-offs v Unemployment rate CBA Mortgage Write-offs v Change in CBA Mortgage Write-offs v Advanced Interest rates Unemployment rate Basis Points Unemployment Rate (RHS) CBA Mortgage Write-offs (LHS) Years % Basis Points CBA Mortgage Write-offs (LHS) Change in Unemployment rate (RHS) Years % Basis Points Mortgage rate advanced yrs (RHS) Years CBA Mortgage Writeoffs (LHS) % 14

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