How long can property values keep growing at their current pace?
Both the Melbourne and Sydney property markets have exhibited an unprecedented surge in price since their markets bottomed late last year.
House prices have surged higher over the last few months.
A recent ANZ report suggests that while the bank anticipates house price growth will rise further, they are expecting a moderation as new listings rise.
The ANZ Housing Search Index, which picked the upturn in housing, supports this view.
It combines internet search numbers for house-buying related terms, and suggests that annual house price growth has further to rise but may peak in coming months (Figure 1).
The Index is not the only indicator suggesting prices are likely to continue higher.
Housing finance spiked at 4.4% m/m in December driven by the strongest monthly result for owner-occupiers since 2015.
If this continues, there may not only be upward pressure on prices (as more money competes for homes) but also on housing credit, in the coming months.
Our Housing Credit Impulse shows housing credit acceleration trending higher (Figure 2).
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Although this may indicate that credit growth is taking off, ANZ don’t think this will be the case.
With mortgage owners paying down debt faster than usual, this housing cycle could see an unusual divergence between credit and house price growth.
For the first time this easing cycle, Governor Lowe made it clear that the RBA is closely watching housing and is concerned that low rates may fuel excessive borrowing.
The change to a relatively more patient RBA – as it tries to balance the benefits and costs of further easing – means that the way prices and credit evolve will be critical to the easing outlook.
However, ANZ don’t think the housing market will prevent the RBA easing further.
Instead, if housing credit picks up quickly while the unemployment rate is trending higher, ANZ thinks the RBA will ease but will also lean on macroprudential policy to help slow credit growth.
Source: ANZ Research for its Institutional, Markets and Private Banking clients. Not investment advice.
