The latest minutes from the RBA says little about housing, considering the words on the last page of the statement on monetary policy.
Private dwelling investment had declined unexpectedly in the September quarter, largely because poor weather had disrupted construction. However, dwelling investment had grown at an above-average rate over the previous year, supported by low interest rates and further increases in housing prices. The large amount of work in the pipeline was expected to support dwelling investment at high levels over the next year or so, although there was some risk of more cancellations than usual if conditions in apartment markets deteriorated.
The combination of increased supply and lower population growth had already depressed rents and apartment prices in Perth and, increasingly, Brisbane. In contrast, conditions in the established housing markets in Sydney and Melbourne had strengthened over the second half of 2016 and investor housing loan approvals had risen over recent months. Members noted that housing market activity in Melbourne and surrounding areas had been supported by strong population growth and improvements in transportation infrastructure.
Over recent months there had been a small increase in variable housing lending rates for investors in housing, but little change in overall lending rates for owner-occupiers and in business lending rates. Over the prior year, the major banks had lowered lending rates by a little less than the decline in the cash rate.
Conditions in housing markets varied considerably across the country. Housing prices and rents had been falling in Perth and there were signs that the significant increase in the supply of apartments had begun to affect prices and rents in Brisbane. In contrast, activity in the established housing market had picked up in Sydney and Melbourne in the second half of 2016, and investor credit growth had increased. Supervisory measures had strengthened lending standards and some lenders were taking a more cautious attitude to lending in certain segments.
A reminder of the warning in the SMP.
Housing prices have picked up over the second half of 2016, most notably in Sydney and Melbourne. This could see more spending and renovation activity than is currently envisaged.
On the other hand, a widespread downturn in the housing market could mean that a more significant share of projects currently in the residential construction pipeline is not completed than is currently assumed. While this is a low-probability downside risk, it could be triggered by a range of different factors.
Low rental yields and slow growth in rents could refocus property investors’ attention on the possibility of oversupply in some regions.
Although investor activity is currently quite strong, at least in Sydney and Melbourne, history shows that sentiment can turn quickly, especially if prices start to fall. Softer underlying demand for housing, for example because of a slowing in population growth or heightened concerns about household indebtedness, could also possibly prompt such a reassessment.
Not sure I can reconcile the two!
