The CEOs of the big four banks appeared before the House of Representatives economics standing committee last week, as they answered questions about their lending operations as part of the Review of the Four Major Banks and other Financial Institutions.
All four major bank CEOs were asked about the current heat in the property market, and what their expectations were for house prices moving forward.
The CEO of ANZ, Shayne Elliott, was the most bullish of the big four bank CEOs, reiterating the bank’s stance that house prices could rise by 17 per cent this year.
While he suggested that this was not yet a figure that should cause alarm, he added that he expected regulators would be monitoring house price increases with a close eye.
He told the committee: “The housing market is another sector showing robust activity.
“We expect continued gains in house prices before they taper off next year.
“Much of this activity is from owner-occupiers.”
Mr Elliott also revealed that loans to first home buyers over the last three months are up 75 per cent on last year and, across the industry, those getting into property for the first time are taking out 35 per cent of owner-occupier loans.
“All buyers are being helped by low interest rates, high levels of savings and government policies,” he said.
The Commonwealth Bank has revised its property price forecast for 2021 on the back of strong growth in February and March, but its modelling suggests softer growth beyond the first quarter.
CBA has upgraded its property price growth forecast for calendar year 2021 from 8 per cent to 10 per cent, on the back of an extremely strong first quarter, CEO Matt Comyn said before the Parliamentary hearing in Canberra.
“We expect house prices will continue to grow during the course of this calendar year and next but not at the rate that we’ve seen in February and March, which is quite rapid,” the CEO said.
“We were thinking 8 per cent, and we are now thinking 10 per cent,” Mr Comyn noted.
Referring to current price growth as “a positive”, Mr Comyn admitted that while CBA initially expected a 10 per cent fall in prices as COVID-19 struck, “they only fell 2 per cent”.
“There’s been a recovery clearly that’s a preferable situation to the alternative.”
Asked about threats to broader financial stability as house prices soar across the country, Mr Comyn said he is not concerned.
“We are not overly concerned with what we are seeing at the moment in the context of broader financial stability,” he said.
The bank’s confidence is underpinned by the fact that the mix of buyers doesn’t resemble previous cycles, with owner-occupiers currently making up 75 per cent of applicants.
Similarly, on Friday (16 April), NAB CEO Ross McEwan agreed that house prices “are going to be up significantly this year”.
“It may well be in excess of 10 per cent,” he said.
The CEO added that location was also a factor, noting that dwelling prices in regional areas were currently up 11.4 per cent, while those in cities were up 4.8 per cent.
However, Mr McEwan added the caveat: “But time will tell what happens… I cast my mind back to the committee meeting last year or even before that, when we were predicting house prices to go down 8-10 per cent. Here we are now talking about them going up. So, as we know, house prices do fluctuate for a vast number of reasons.”
The NAB CEO said he expected the bank’s mortgage book to therefore grow, but added that it might not accelerate as quickly as house prices given the fact that “customers are paying down the mortgages at a greater rate because of low interest rates”.
Chief risk officer Shaun Dooley agreed, stating: “If we just use the last six months as an example, just because house prices go up doesn’t mean it necessarily flow through in terms of [loans] outstanding.
“So, arguably house prices have gone up, maybe 10 per cent across Australia since September last year, but our housing loan outstandings have been pretty stable over that period.”
Also addressing the Parliamentary hearing, Westpac’s CEO, Peter King, said the bank was confident prices will continue to soar.
“We have a forecast of 10 per cent housing prices increase for this year and next year,” Mr King said.
“There is not a lot of turnover in the market and stock is very tight, so houses are being well bid.”
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.