March 22, 2018 by Dymphna

Did property just enter the ‘goldilocks zone’?

A senior reporter at the Australian Financial Review reckons that this is as about as good as it gets.

Chis Joye – one of the AFR’s senior columnists – reckons that Australian property just entered the ‘goldilocks zone’.

Not too hot, not too cold, not soft, not too hard… just right.

He acknowledges that since September 2017, the property market has been cooling. But this was after some pretty hot times, so when the property market is running at the equivalent of 40 degrees in the shade, a little cooling isn’t a bad thing.

To make that point he looks to auction clearance rates. They’re currently hovering around 65% at the national level. Sure, this is well down on the 74% high-water mark we hit in February 2017. But it’s also well above the low tide mark of 50% – the mark that normally signals a downturn in the market.

Not too high, not too low… just right.

And then looking forward, he reckons there are three tailwinds gathering behind the property market – tailwinds that should keep the market cruising forward, in a leisurely, hand-me-some-more-prawns-James kind of way.

The first of these is looser regulation. APRA are signalling that they’re about to scrap the 10% pa speed cap they’ve had in place for a couple of years. This has put a limit on how quickly bank lending to investors could grow, and has been a brake on the market over all.

Scrapping that hand brake should give the market a boost.

Second, after aggressively raising rates on interest-only loans to try and meet regulator demands, banks have actually started cutting interest-only rates in recent weeks.

The Adviser was reporting last week that:

“Two major banks have announced rate cuts of up to 50 basis points to their fixed rate home loan offerings.

ANZ Bank and the National Australia Bank are the last of the big four to announce cuts to their fixed rates, following similar announcements from the Commonwealth Bank and Westpac.

NAB has dropped its five-year fixed rate for owner-occupied, principal and interest home loans by 50 basis points, from 4.59 per cent to 4.09 per cent.

The bank has also reduced its fixed rates on investor loans by up to 35 basis points, with rates starting from 4.09 per cent.

As of Friday (9 March), ANZ also dropped fixed rates on its “interest in advance”, interest-only home loans by up to 40 basis points, with rates starting from 4.11 per cent.

In part this reflects a more relaxed approach from regulators. However it also says a bit about where banks think interest rates are going.

RateCity money editor Sally Tindall believes that the rate movements have been influenced by the banks’ cash rate expectations.

“The fixed rate war shows our big banks are not pricing in a rate hike anytime soon,” Ms Tindall said…

Back to Mr Joye. The last tail wind he says gathering behind the property market is greater competition in the banking sector itself.

A more level regulatory playing field should allow the regional banks to take market share from the majors, with the non-bank sector already seeing a strong pick up in securitisation volumes.

All in all he says,

So long as the Reserve Bank of Australia does not aggressively raise rates, the outlook for housing has a “goldilocks” feel about it.

I reckon he might be right.