Housing boom has peaked, says Morgan Stanley&Ranger

Housing boom has peaked, says Morgan Stanley

Date
September 22, 2015 - 3:05PM

Mark Mulligan

Markets and economy reporter

National price growth was 4.7 per cent between the March and June quarters, and 9.8 per cent year-on-year. Photo: Glenn Hunt
Morgan Stanley analysts are calling the height of the housing cycle in Australia, with a tighter regulatory environment, slowing immigration and frothy prices set to blunt the powerful growth momentum for the sector.
The US investment bank said in a note this week that housing activity in the country had "peaked", which in turn had intensified the risks of recession.
The slowdown in immigration to Australia was undermining the property boom, the bank argued, as were efforts by the Australian Prudential Regulation Authority to limit growth in lending to buy-to-sell and buy-to-let investors.

Homes are 20 per cent overvalued, according to investment bank Goldman Sachs.
"Despite common belief that lower-for-longer RBA [Reserve Bank of Australia] rates will see strong housing conditions persist, we think macroprudential is effectively tightening policy settings," the bank said.
"Fundamentals are also deteriorating, with slower net migration taking our underlying demand estimate down by 30,000 to 155,000.
"We are now calling the peak in the housing cycle, and expect further falls in auction clearance rates and house price momentum, with a negative impact on construction occurring over 2016."
It said the housing slowdown had come at "an awkward time", as the sharp fall-off in resources-related business investment continued to drag on gross domestic product growth.
"This outlook anchors our bottom-of-consensus forecast for 1.9 per cent GDP [gross domestic product] and 0.7 per cent domestic demand growth in 2016, and we believe recession risks are elevated as regulators attempt a difficult soft landing of the housing market amidst external and income challenges," Morgan Stanley said.
The bank is the latest in a growing list to warn that softening demand for residential property in Australia's two biggest cities could lead to a supply overhang, particularly of apartments.
Auction clearance rates in Sydney dropped to 75 per cent for the week ending September 13 from a peak of more than 90 per cent in April, as buyers' tolerance for some of the most expensive property in the world and a median price that touched a record $773,000 (including apartments and units) cooled, according to property researcher CoreLogic.
Nationally, auction clearance rates have dropped to just over 70 per cent from a high of more than 80 per cent in April.
At the same time, demand from investors, responsible for more than half the mortgage commitments since August 2014, is being choked by tighter lending requirements to landlords. Investor loan growth dropped from 29.6 per cent of the total in April to 16.5 per cent in July, according to official figures.
Homes are 20 per cent overvalued, according to investment bank Goldman Sachs, which sees a 1-in-3 chance of a recession in Australia over the next 12 months, while Barclays says dwellings are, on average,14 per cent overpriced.
Until recently, however, Sydney prices appeared to be running out of control.
The Australian Bureau of Statistics said on Tuesday that national price growth was 4.7 per cent between the March and June quarters, and 9.8 per cent year-on-year. These rates compared with the 2.3 per cent and 8 per cent, respectively, expected by economists in a Bloomberg survey, and 1.6 per cent and 6.9 per cent between the December 2014 and March 2015 quarters.
Within the figures, however, there was a marked difference between price growth in Australia's two biggest cities and the rest.
Prices in Sydney grew at 8.9 per cent in the quarter, to give 18.9 per cent over the year. According to the ABS, the quarterly growth rate was the largest since the current series started in 2002.
Melbourne was second with quarterly growth of 4.2 per cent and a year-on-year rate of 7.8 per cent.
The rest of the capital cities lagged far behind, with Perth and Darwin both posting price contractions for both the quarter and the year.
Brisbane managed quarterly growth of 0.9 per cent and 2.9 per cent for the year, while Hobart was flat in the quarter and ahead just 1.5 per cent for the year. Adelaide house prices rose 0.5 per cent for the three months to end-June, and 2.7 per cent year-on-year.