Morgan Stanley view of housing status - they are often wrong, but make interesting reading.
Note the potential to spill over into many areas.
Our proprietary housing market indicator, MSHAUS, is now at its lowest point in its 28-year history, suggesting conditions will deteriorate further into 2018,” Morgan Stanley said. https://edge.alluremedia.com.au/uploads/*/2017/12/MS-housing.jpg
Morgan Stanley’s MSHAUS index is based on six sub-indexes. It’s largely comprised of supply/demand balances (30%), mortgage serviceability (25%) and credit supply (30%).
“The key incremental negative has been the sharp fall in the share of interest-only (IO) mortgages,” Morgan Stanley said, as banks adhere to APRA’s 30% cap on new interest-only loans.
Data released by APRA this week showed a sharp decline in new IO loans in the September quarter, and JP Morgan economist Tom Kennedy raised the prospect of further macro-prudential restrictions to come.
The Morgan Stanley analysts also expect construction activity to decline, given housing approvals and commencement have declined from their record highs.
“However, with housing supply continuing to outpace our estimate of demand, price growth will trend lower and likely see modest falls in Sydney,” the analysts said.
“Conditions are worsening more notably in Sydney, while in Melbourne demand has been supported by an increase in net migration.”
With auction volumes in decline, “price will now play its part”, Morgan Stanley said.
“Post-summer sentiment and credit availability will be key to determining risk or opportunity” in housing, and by extension the broader Australian economy in 2018.
