Speaking at the Connective Level Up conference in the Hunter Valley last week, CBA economist Savanth Sebastian said the last couple of speeches given by new RBA governor Philip Lowe have made clear that the central bank is not keen on cutting the cash rate any further.
Mr Lowe’s most recent speech warned it is unlikely to be in the public interest… to encourage a noticeable rise in household indebtedness”.
CBA’s Mr Sebastian said housing has been off the Reserve Bank’s “wall of worry” for a while, but recent speeches and the latest RBA board meeting show it is now firmly back on the table. He added that the Reserve Bank is a good lead indicator when it comes to regulatory measures.
“In the last board meeting they started discussing housing once again. They started bringing up concerns around the potential issues of oversupply and that lift in investor loans,” Mr Sebastian said.
“So housing is back in the discussion. Wait and see, but I certainly think the regulators will have a look very closely once again at that end of the spectrum.”
Australia’s apartment market appears to be a major concern for the central bank. Specifically, the record levels of new stock hitting the market.
“Historically we have built 140,000 homes a year. In the next 12 months we are going to get 245,000 new homes,” Mr Sebastian said. “Building approvals show something of that magnitude for the following year in terms of the data coming through.
“When all of that stock hits the market, rental yields are coming off and valuations are coming off.”
Mr Sebastian said Brisbane will see the biggest impact, along with parts of Melbourne. However, with CBA tipping overall property price growth of 7 per cent next year, Mr Sebastian cannot see a major correction and says any fallout will be “more balanced”.
“Over 77 per cent of our customers are ahead in their mortgage repayments by an average 31 months. That doesn’t sound like an overleveraged market,” he said.