August 22, 2019 by Dymphna

Insider Reveals: Banks are gearing up for a boom

What do the banks really think will think to house prices? An insider reveals all…

The banks had a big win last week.

(I know right? So nice to see the little guys win one for a change.)

ASIC had taken Westpac to court because Westpac had been too reliant on benchmarks when assessing people’s loan applications.

But yeah, nah, apparently not. Apparently Westpac’s in the clear.

And all the banks breathed a sigh of relief.

And it’s back to business as usual.

And this is just one of the reasons why the banks now reckon the property downturn is finished, and there’s nothing but upside from here.

That’s what a CBA analyst wrote in an internal report recently, in a memo titled, “Property’s gonna go off mate.”

(not really).

But he could of called it that. They’re calling the end of the downturn and a return to growth from here:

Australian capital city dwelling prices, led by Sydney and Melbourne, were in a trend decline since late-2017. But most of the leading indicators have turned and suggest that prices will move modestly higher from here. Indeed, the latest data reveals that dwelling prices have inched higher in Sydney and Melbourne over the past two months.

Would you check out that chart! As a former economist, I can tell you that the correlation there is about as good as it gets. CBAs internal model does a very handy job of predicting house prices.

And right now it’s predicting that property prices will bounce back, quick smart.

Our base case for property prices in Sydney and Melbourne has them rising by 2½% and 2% respectively over H2 2019. Such an outcome would see prices ending 2019 down by around 2% in Sydney and Melbourne. For Brisbane and Perth, we see prices tracking broadly sideways over H2 2019 and lifting modestly in 2020. Nationally, we think prices will end 2019 down by around 2% and see them rising in 2020 by 3%. 

The indicators certainly have turned. Auction clearance rates are at a two-year high, and the sentiment indicators are all up strongly.

The CBA have their own House Search Index (HIS), based on Google searches, and it’s also showing strong search activity in the housing market.

CBA also note that the easing of government restrictions is having a sizeable impact on the credit market:

On 5 July 19 the Australian Prudential Regulation Authority (APRA) announced that it will proceed with proposed changes to its guidance on the serviceability assessments that ADIs perform on residential mortgage applications…

… In effect, this means that the reduction in mortgage rates will have a greater impact on credit growth than otherwise as prospective borrowers will be offered a bigger loan amount than before the APRA amendments. On some calculations the changes are likely to increase the borrowing capacity of a potential home buyer by up to 14%.

So right now the banks are rubbing their hands with glee. The government is backing off, and their most profitable business unit – mortgage lending – is poised for lift off.

Happy days for the banks.

Boom time for the property market.