Weekly Broker Wrap: house prices rise; mortgage demand resilient; CommBank set to return; conditions sour for commercial property.
-House prices and rents continue to rise
-Mortgage growth continues, but mortgage stress is increasing
-CommBank ready to re-compete in the mortgage market
-Challenging conditions worsen for commercial property
House Prices
National house prices increased 0.9% in October, notes
Conditions in the rental market remain exceptionally tight. Rents in capital cities continue to increase at a double-digit annual rate (10.4%) and re-accelerated in October in both monthly and annual terms,
Similarly, rental vacancy rates sit near historical lows (1.1%) and tightened in the most recent month. Tightness continues to be driven by the combination of historic rates of net migration, and resilience of labour market conditions. Until either of these change, the rental market is likely to remain historically tight,
Not helping is housing construction, or a lack thereof, with September data remaining at weak levels. September building approvals declined -4.6% in the month, weaker than
The housing market remains an important driver of the business cycle and channel for monetary policy, the broker notes. Resilience in data this year points to lower downside risks to the economic outlook, although construction in particular is still likely to be a drag over the next twelve months, but also less disinflationary impulse from the sector.
In the October meeting minutes, the RBA noted: "The rise in housing prices could also be a signal that the current policy stance was not as restrictive as had been assumed".
As do many others.
Mortgage Stress
Citi notes despite higher rates, both system mortgage and business lending growth have remained healthy. For the past twelve months, mortgage growth has remained "extraordinarily" resilient, in a 4-6% range, despite the sharp rate tightening cycle. Business lending growth has remained robust since February, and momentum has been stronger in last few months.
Recent economic data, showing strong retail sales, still-low unemployment and rising house prices, have driven upgrades to GDP forecasts. A better economic outlook, notes Citi, suggests robust lending demand.
But higher growth, in an environment of elevated inflation, also brings the risk of additional rate hikes and a delay to rate cuts in outer years. This could prove to be a dampener, particularly for business lending growth and also for mortgage growth to some extent.
Yet Citi assumes bank results, which roll out over the next couple of weeks, will indicate mortgage growth is remaining around the 4-6% growth range, supported by migration, robust wage growth, rising house prices/rents and a lack of housing supply.
The latest data from
In the three months to September, a record high 1,573,000 mortgage holders (30.3%) were "At Risk" of "mortgage stress". This period encompassed three RBA meetings at which interest rates were left unchanged. The figures for the month of September represent a new record high, up 7,000 on a month ago.
Mortgage stress is defined with regard to proportion of income required for mortgage servicing.
Over 760,000 more households are at risk of mortgage stress after a year of interest rate increases.
As a percentage, the number of mortgages at risk of stress is lower than the peak reached in mid-2008, post GFC, which was 35.6%. Nominally, the total is higher nonetheless given growth in mortgages in the interim.
The number of mortgage holders considered "Extremely At Risk", is now numbered at 1,043,000 (20.5%) which is significantly above the long-term average over the last 15 years of 15.3%.
Extremely at risk is defined with regard just the interest on a mortgage as a proportion of income.
Mortgages "At Risk" are set to increase to over 1.58 million,
CBA Back in the Game
Over the past few months,
The bank's mortgage run-off has decelerated and the business book has regained growth. Citi believes the mortgage book could also return to growth as early as October/November, but is likely to continue to grow below-system as funding constraints remain.
The bank has a record
Unsurprisingly, notes Citi, Westpac ((WBC)) had been the key beneficiary of CBA's retracement, but is now experiencing a proportional moderation in growth. Overall, Citi thinks system mortgage growth is likely to remain concentrated among a few banks, particularly
As noted above, Citi believes mortgage growth will remain resilient in a 4-6% range supported by improved economic conditions.
Macquarie notes domestic institutional investors switched out of Westpac and into
Macquarie sees around a -2-8% risk to consensus bank pre-provision earnings in FY24 and remains Underweight the sector.
Commercial Property
Since the Fed started raising rates last year,
The gradual maturing of loans and the need to refinance is a major part of the "lag effect" of rising rates.
That fear has also spilt over to
NAB economists note challenging conditions weighed further on Australian commercial property market sentiment in the September quarter, with the NAB Commercial Property Index slipping deeper into the negative at -16 points (-7 in the June quarter), to sit well below the long-term survey average (-2).
Sectoral trends nevertheless continue to vary. The Office market index fell to a near three-year low at -38 points (down from -28) amid rising vacancy and weak capital growth. After bouncing in the June quarter, the Retail index slipped back to -25 from -17, as retail trading conditions remained soft and consumption growth slowed.
The volatile
Recent data all point to continued resilience in the economy, NAB notes, but the ongoing pass-through of higher rates and high inflation still suggests consumption growth will be soft in the second half of 2023. NAB continues to expect below-trend GDP growth of 1-1.5% in 2023 and 2024.
The economists also see the RBA hiking rates a further 25 basis points in November before staying on hold until the second half of 2024 as inflation continues to moderate -- domestic factors including wages will be a central focus.
Against this backdrop, overall commercial property confidence levels have also softened. The 12-month measure fell to -9 points (its lowest point since the December quarter 2020), with the two-year measure also lower at plus 9 points. Confidence in the next 12 months fell sharply in both the Office (-34) and Retail (-24) sectors but lifted noticeably for
Longer-term confidence levels are positive for
When commercial property sector risk first reared its ugly head, local bank analysts were quick to point out that, unlike in the US,
FNArena is proud about its track record and past achievements: Ten Years On
All material published by
© 2023 Acquisdata Pty Ltd., source