UBS: mortgage tightening coming in spring

UBS with the mention:

May 21, house prices explode 2.3% m / m and 10.6% y / y; now up 11.7% since Sep-20

CoreLogic house prices in May-21 rose again by 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 increase in April, with prices up 11.7% from the September 20 low. The price increases were generalized by capital. Sydney again posted the biggest gain (2.9% m / m, 11.1% y / y); but regional areas are also still booming (2.0%, 15.3% y / y). Melbourne has consistently grown despite the recent foreclosure (1.9%, 4.8% yoy). Overall, homes 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 drive prices up sharply. Low borrowing rates, consumer optimism and house price expectations continue to support demand. In addition, the total number of registrations remains low, at about 24% below the five-year average. This imbalance will continue to push prices above 10% yoy, and should now reach our previous upside risk scenario of around 15% yoy within a few months. Therefore, we expect the boom to continue until there is a policy response, which we still believe is more likely to be macroprudential tightening, rather than RBA rate hikes or federal government policy / taxation changes (unlike New Zealand).

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

The volume (number) of home sales continues to rise around a record pace on May 21, up around 25% m / m and ~ 92% y / y. There has also been a compositional bias towards greater strength in higher priced homes – prices in the top quartile of the housing market having climbed 9.2% in the past 3 months alone. As a result, the value of total sales hit a record monthly level in May, with a massive 121% year-over-year increase. This is a very positive signal for state government stamp duty revenue.

Macro-pru still expected in ~ October, but data on upcoming loans is critical for timing

Over the next few days, we’ll get more housing data with April loans (June 4) and detailed first quarter loan quality metrics (June 8). We, and APRA, will be watching closely for signs of the scale of the increase in high risk lending, especially the share of high LVR loans (90% +) and high DTI loans (6x +). Our view remains that the macroprudential policy tightening will likely be implemented around October 21 – when the CFR is due to meet and the RBA releases its biannual FSR. The trigger APRA reported was a substantial increase in home loan growth on top of income growth – which is a condition that we believe will be met by then, given that we believe that housing credit will increase above 6% year-on-year. It is worth noting that if the RBA (today) signals a new area of ​​concern is investor strength. Indeed, the growth of home loans already accelerated in April (+ 0.5% m / m, + 4.4% y / y) at the fastest since 2018; housing loans from investors have also recently registered a strong recovery (+ 0.4% m / m, + 1.1% y / y).

David Llewellyn Smith
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