December 10, 2020 by Dymphna

Revealed: the boom is already here!

Most people don’t realise, but the boom’s already started.

Right now, I’m going to let you in on a little secret.

The boom is already here.

Right now, the market is at an inflexion point. It’s changing direction. The tide is in the middle of turning.

At times like this, the market doesn’t give you a clear signal. The price data has yet to start moving with much confidence.

But if you look at the partial indicators – the data points that let you look behind the scenes at what’s driving prices, you can see all the ingredients for a boom are already here.

I’m going to show you some of these partials now.

First up, take a look at CoreLogic’s Mortgage Index – these tracks a number of things in the mortgage market – applications, enquiries, loans written etc. – and pulls them together into a single index of ‘market activity’.

And what this index is showing is that the mortgage market is not just heating up, it’s already running hot.

There was a sharp pause, as you’d expect, around March, but it’s been consistently moving upwards since then, and it’s now running at its highest level since November 2017.

This index tends to lead actual mortgage finance by about 3-months, so again, it’s something that points to the market really hitting its stride in the first and second quarters of 2021.

Let’s stay with the mortgage market for a bit. Now, one of the things that makes forecasting hard is that there’s often long lags between when the data is collected and when it’s published.

The ABS’s measure of mortgage data is like this, and it’s a bit like looking in a rear-view mirror.

Thankfully, one of the innovations to come out of Covid is real-time updates from CBA, from their own mortgage book.

This data is telling us how many new loans CBA is issuing to CBA customers (so not the complete market, but a big enough chunk of it to give us a pretty good feel for the trends involved.)

And what this data shows us – the latest here being early December – is that CBA is writing mortgages at a furious pace!

The annual change there – the orange line – is probably most interesting, and it shows CBA’s mortgage book is growing at over 20% a year!

That’s massive.

And it’s way ahead of the pace mortgages were growing in 2016 and 2017.

And if we stay with CBA, we also know that they’re model is looking for very strong price growth in the months ahead.

So CBA has a fancy model that they use to predict house prices – and to be fair, it generally does a pretty good job.

And right now, that model is expecting prices to be growing almost 10% in the first half of next year.

That kind of growth would take us back the mini-booms we saw in 2014 and 2016. (And I think that’s probably only the start of it.)

So my advice to investors is don’t wait for these things to show up in the rear-view mirror.

The partial indicators are giving us a very clear picture of where we’re going.

And where we’re going is 10%+ in the first half of 2021, with possibly as much again in the second half.