UBS economists have upgraded their house price forecasts over the next year by up to 10 per cent after July’s lending figures returned their largest monthly jump since the post-GFC rebound in 2009.
The economists, led by George Tharenou, significantly revised their outlook after the surprise lift in lending figures—home loans recorded a 9 per cent rise in the two months to July—predicting a 5 per cent to 10 per cent growth in house prices.
Previously, the investment bank had flagged a more modest recovery of between 3 per cent and 5 per cent.
Of the four potential scenarios UBS flagged for Australia’s housing markets in May—ranging from “bounce back” to another downturn—Tharenou said that credit growth will now tick up toward the more positive bounce back scenario.
“We expect home loans to lift to 15 per cent to 20 per cent year-on-year over the next year, underpinning stronger house price growth of 5 per cent to 10 per cent.”
And while the recovery trend is still in its early days, with sluggish GDP and weak building approvals putting downward pressure on credit growth, UBS said that the July uptick in lending has significantly offset a record 27 per cent collapse in lending from its August 2017 peak.
The value of new lending commitments increased 5.1 per cent in July, with most of the increase coming from new lending rather than the refinancing of existing loans.
“For both owner-occupiers and investors it was the second successive month in which the value of lending has increased,” Corelogic’s Cameron Kusher said.
House prices stabilised, not yet ‘off to the races’
As for further rate cuts, Tharenou said that a strong rebound in prices would present a “material risk” to the Reserve Bank’s willingness to cut the cash rate in October.
Tharenou said updated comments by governor Lowe set to be published later this month are key, while deputy governor Guy Debelle told the investment bank that house prices “[don’t] seem to me to be off to the races”.
“For now the onus is on unemployment and global central bank easing, to get the RBA over the line to cut.
“That said, regulators should ‘stand ready’ to use macroprudential tightening and consider further measures in the future should circumstances change.”
Tharenou said it is possible the Reserve Bank will cut rates at the same time as it tightens the credit reigns to “target” stronger than desired home loans and house prices.
“[And] at the same time support record low household income and limit any upward pressure on the Australian dollar.”