A myriad of contrasting forces aside, households are responding strongly to cheaper money as policy-makers push more stimulus
- Australian house prices fell for a fifth month in September, as declines in Melbourne and Sydney outweighed recoveries in the smaller markets. House price expectations and auction clearance rates have however improved as restrictions on movement ease across much of the country.
- An increase in the demand for credit (actual and expected) is being primarily driven by very low mortgage rates (cost of credit) in response to central bank policy and the likelihood of an easing in the accessibility to credit as the government plans to repeal responsible lending obligations, shifting the emphasis from ‘lender beware’ to ‘borrower responsibility’ (for completeness, lenders will still need to satisfy prudential underwriting standards).
- The easing in availability and cost of credit contrasts with at least three existing and emerging impediments--the unwind of both mortgage repayment deferrals and various fiscal support packages (JobKeeper, JobSeeker and early access to superannuation), rising unemployment, as well as a collapse in migration.
- As the country muddles through the unwind of various income support measures, pressure on dwelling prices is likely to persist. The outlook for heavily geared property investors looks particularly soft, as does the outlook for greater Melbourne and tourism/student-dependent cities.
- However, with considerable monetary and fiscal policy aimed toward making credit cheaper and more accessible, the potential for a sharper than previously anticipated rebound in dwelling prices is increasing. At the very least, we would suggest country-wide price declines would peak at less than 10%, which would largely unwind price gains over the preceding 12 months.
- We remain comfortable with Prime RMBS and would focus on higher-rated, prime issues. Given the preceding period of strong prices over recent years and average seasoning of around five years, the accumulation of credit support as loans are repaid translates into a level of excess hard credit support above minimum rating requirements. Cash reserves (or liquidity facilities) provide good support against mortgage repayment deferrals.
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