Australian Property Market Updates

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Australian: Analysts fear RBA's rate cuts could fuel property price bubble

BY:MICHAEL BENNET From: The Australian August 06, 2013 12:00AM
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Mortgages
Source: TheAustralian
RECENT history is laced with central bank actions having unintended consequences and the Reserve Bank's rate cuts aimed at helping the economy cope with the end of the mining investment boom is causing concern of a looming property price bubble.

AFG, the nation's largest mortgage broker group, yesterday revealed it processed 25 per cent more mortgages last month than a year ago, with one in four for lenders other than the big four banks.

While refinancings made up about 35 per cent, the fear is the big banks will push back if threatened by smaller rivals, which are enjoying more favourable access to capital than in previous years.

Market economists expect the RBA to cut interest rates to a record low of 2.5 per cent today and again before the end of the year, with yesterday's weaker-than-expected retail sales report highlighting the pressure on the RBA to move.

"If they (non-banks) get too aggressive then the banks will start to step in and that's when you potentially start to build systemic risk," said one prominent banking analyst who declined to be named. "It could all end in tears two years down the road, but I guess the RBA is questioning whether they want to see it end in tears in six months if activity doesn't pick up."

Capital city house prices have recovered 6.5 per cent from the bottom in May last year, with Sydney up 3.7 per cent in the last quarter and 6.5 per cent for the year to a median $570,000, according to RP Data.

Inner-city Sydney home opens reveal the level of demand, as investors desperate for yield use cheap capital to compete and price out first-home buyers. Michael Russell, chief executive of Mortgage Choice, said there had been a surge in demand for loans from investors and that the economy needed sustainable home price rises rather than a "booming property market again".

The RBA wants lower rates to fire up construction, not just pump up the price of inner-city apartments and terraces.

"There are many forces at work with respect to dwelling prices and the regulators and the RBA need to very mindful when they are pulling levers of both the intended and unintended consequences," Mr Russell said.

In New Zealand, regulators are eyeing revising loan-to-value ratios amid concern about the broader effects of rising house prices. According to Nomura analysts, the banks here too could face "macro-prudential intervention to prevent unintended consequences of low rates on housing leverage" if credit growth improved materially.

Data from the Australian Prudential Regulation Authority last week confirmed the RBA's cuts were starting to boost lending, with annual housing credit growth running at its highest level in almost a year at the same time as the rate of growth in retail deposits in the June quarter slowed.

Mr Russell said he had not seen the non-banks increase their share of loans. Data last week showed the major banks had actually increased market share.

Stockbroker Charlie Aitken said years of fear had caused investors' to squirrel away $546 billion in term deposits, which ultimately would shift into higher-yielding assets as returns got crunched by the RBA's cuts.

"This is exactly what happened in the US and it's coming to Australia as we join the ultra-low, extended period, cash rate club," he said.

Of course, the bursting of the US housing bubble remains fresh in the minds of regulators and the local banks, some of the strongest in the world.

But thanks to their large mortgage books, the big four banks have high leverage ratios. Regulators have indicated they will look at how lenders assess risk and how heavily they are geared up.

Alphinity Investment Management fund manager Andrew Martin said the banks were likely to be watching house prices closely but were not yet overly concerned as customers made mortgage payments at a rapid rate.

Bank share prices are close to their highs and analysts have labelled it "bubble territory". AFG said it did not see any signs of overheating in the market.

The RBA would be watching the market very closely.

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Rates ignite housing and . . . boom!

BY:HARRY EDWARDS AND GINA RUSHTON From: The Australian

August 12, 2013 12:00AM
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LOW interest rates have bolstered housing markets in all capital cities this month, with "boom time" results recorded at the weekend.

Sydney led the nation's strong performance with an auction clearance rate of 83.8 per cent, the highest for the year and nearly 15 percentage points above the same time last year.

Although softer than Sydney, Melbourne's rate of 71 per cent outperformed the 56.7 per cent on the same week last year, according to data from Australian Property Monitors. APM senior economist Andrew Wilson said historically lower interest rates -- the Reserve Bank cut the cash rate to 2.5 per cent last Tuesday -- had boosted confidence in the residential market.

"This was the fifth weekend in a row that Sydney has recorded over 80 per cent," Mr Wilson said.

"The Sydney market is now tracking near record levels. Undoubtedly the catalyst for this has been low interest rates."

Similarly, in Adelaide rates rose to 66.7 per cent against 48.1 per cent on the same weekend last year, while Brisbane's rate climbed to 51.4 per cent against 38.5 per cent last year.

The high clearance rates are accompanied by an increase in the number of properties listed for sale, with the first two weeks of August this year seeing 32 per cent more properties listed in Sydney and 25 per cent more in Melbourne than last year.

Mr Wilson said that Sydney's comparatively high clearance rate derived from strong demand in the middle and budget sections of the market, arising from high rental costs due to the city's underlying housing shortage.

Auctioneer and director of Melbourne-based Gary Peer & Associates Phillip Kingston said his agency held nine auctions at the weekend, all successful.

Yesterday a public auction -- held by Mr Kingston and attended by more than 100 people -- of a single-storey house in the "golden mile" of Caulfield North sold for $1.555 million, $305,000 above the reserve price.

"It was declared on the market at $1,250,000 and four bidders made 94 bids over the reserve. It sold so far over the reserve I'm almost speechless," Mr Kingston said.

"It was better than a boom-time result. Never in our wildest dreams did we expect to take 94 bids over that full reserve.

"If that is an example of the heat of the market, bring on spring!"

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http://www.afr.com/p/national/even_agent...8PNEoefJKI

Should be positive for St****** and possibly AV Jennings

Even agents worry about property getting too hot
PUBLISHED: 12 AUG 2013 16:29:00 | UPDATED: 13 AUG 2013 00:06:20
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Even agents worry about property getting too hot
John McGrath says the Sydney market’s growth rate is ‘unsustainable’. Photo: Peter Rae
JOHN KEHOE
Even John McGrath, Sydney’s most prominent real estate spruiker, is concerned the nascent real estate boom spurred by low interest rates is at risk of overheating.

Mr McGrath, the chief executive of McGrath Estate Agents, says the ­Sydney market is “hot, hot”, citing auction clearance rates above 80 per cent over the past three months.

“I haven’t seen it this hot since the last real estate boom,” he told a mortgage brokers conference in Sydney.

“If there is pressure to keep growing at this level – which I don’t suspect we will – quarter after quarter after quarter, we’d probably end up in trouble because we just can’t grow this rapidly.”

Other experts – although no one as prominent in the property industry – have raised concerns low rates are doing more to drive up prices of existing homes and apartments rather than encourage new building, which is a goal of the Reserve Bank of Australia.

Banks, wary of over-extended customers, are closely watching the ­surging market. Commonwealth Bank of Australia chief executive Ian Narev said banks had to be careful because some borrowers could find it more difficult to pay their mortgages when rates inevitably returned to more normal levels in the years ahead.

“There are advantages in the low interest rate environment and there are risks to make sure we’re aware of the whole spectrum,” he said.

“Nobody is exuberant and saying ‘for god’s sake make hay while the sun shines’,” he said.

Sydney property prices rose 6.7 per cent in 2012-13 and 2.7 per cent in the three months ended June 30, according to Australian Property Monitors. Nationally, median capital city house prices rose 5.4 per cent over the financial year and 2.8 per cent in the last quarter. The auction clearance rate in Sydney hit a record of 82.5 per cent this month. Melbourne’s 70 per cent rate is the highest since 2010.

NAB OFFERS BORROWERS $1000 TO SWITCH
On Saturday property developer Legacy Property sold 90 off-the-plan apartments in a new tower that will be built in Bondi Junction in Sydney, a sale of four every minute.

Reflecting the lucrative profits on mortgages, on Monday National ­Australia Bank offered to pay borrowers $1000 to switch from its rival. Aussie Home Loans said it would cut two-year fixed home loan rates to 4.64 per cent. Aussie Home Loans chairman John Symond said Chinese buyers and investors were bidding prices higher, making it tough for first home buyers.

He said the Reserve Bank’s interest rate cuts over the past two years had given $8000 to $10,000 annually in extra stimulus to home borrowers.

He said the trend would change the “social fabric” of Australian society, with younger people delaying buying homes and choosing to rent closer to their jobs in the city.

After the Reserve Bank of Australia cut official rates to 2.5 per cent last week, UBS bank analysts said high property prices, low interest rates and rising unemployment was dangerous and risked creating a housing bubble.

Stress tests conducted by Commonwealth Bank and the Australian Prudential Regulation Authority show the bank would remain solvent in a serious recession, even if unemployment rose to 13 per cent and house prices fell 40 per cent.

Australian Property Monitors senior economist Andrew Wilson said there was no prospect of a so-called property bubble.

“Talk of a property bubble is predictable attention-seeking nonsense as historically low interest rates generate strong market conditions in an environment of pent-up demand and confidence,” he said.

Mr McGrath said he suspected the housing market would cool off in the coming months but was upbeat about the medium-term outlook for property price increases.

CBA BELIEVES PEOPLE LACK CONFIDENCE IN EconOMY
Mr Symond said Aussie’s cheap fixed rate home loan deal was enabled, in part, from a funding line from the Commonwealth Bank, which bought a majority stake in Aussie this year.

He said borrowers should consider locking in part of their loan on a fixed rate before rates eventually increased in the years ahead.

More broadly on the economy and federal election, Mr Narev said people lacked confidence in the economy.

He called for a decisive decision at the September 7 election, but said it didn’t matter which party ended up winning. “It’s key that whoever ends up being in power has a good majority, has stability and therefore can get up and really make a good inspiring economic picture for the country,” he said.

Mr Narev said the economic outlook was positive. “We love the fact that we’re so dependent on Australia as an economy because it’s a growth economy,” he said.

“In the short term there are some confidence challenges and we’ve all got to be aware of those and just maintain a degree of conservatism because there are different ways that can all run.”

“So being watchful is the right thing to do.”