Another lockdown, another good economy story!

Global pandemic; snap lockdowns; industries all but wiped out. But the economy is still thriving!

The RBA held the official cash rate at 0.1% at their monthly meeting this week. It comes off the back of encouraging economic data which reveals our economic activity is above pre-COVID levels. Indicators such as retail spending, and unemployment and underemployment rates, show we’re in a much better position than before the pandemic.

But what about housing?

It was noted in the RBA meeting that investors are starting to flow back into the market after property investors numbers plummeted in 2017 when APRA tightened lending standards.

According to Tim Lawless, research director at CoreLogic;

“Investor credit has been rising across two key measures; financial aggregates from the RBA show investor credit growth has been rising at an above average rate over April and May, while lending indicators published by the ABS show the value of investor lending has surged by almost 70% over the six months to May which is more than double the rate of owner occupier credit growth.

“Investors are still a smaller than normal share of mortgage demand, comprising 28% of mortgage activity by value compared with a 10yr average of 35%, however at this rate of growth, investor concentrations could lift to above average levels over coming months, increasing the risk of a regulatory response.”

The strengthening rental market may have something to do with the lure back to investing.

Check this article out in today’s online Domain.

DOMAIN

It has been widely reported and known that the record low interest rates have helped fuel the current property boom. But what has been different about this upswing is that it has been mainly the participation of owner occupiers that has contributed to record price growth. What lenders have observed more recently is that there has been a shift towards investor credit outpacing that to owner occupiers. This may prompt the RBA to take action to avert financial instability relating to a lift in housing related debt and a worsening dwelling value to income ratio.

Meanwhile, the RBA has held its stance that the cash rate will remain stable until 2024. This is giving consumers confidence to take on debt in the belief that property prices will continue to rise, regardless of the rate of acceleration, to offset any future rate rise.

However, as we have seen in the past, conditions can change rapidly and there are some commentators that believe the RBA and/or APRA may intervene sooner to implement stricter lending conditions and higher mortgage rates.

Mr Lawless believes that affordability constraints and higher supply will gradually slow price growth but if either agency intervenes the slowdown will be potentially more acute.

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Published August 24, 2021

By Belinda Cassano