Momentum mounting into Spring

Written by Mark Thomas

27 August, 2019

The bounce in auction clearance rates in August shows a return of enthusiasm. We have also seen a rise in the number of properties sold, up around 20%.

There have been two rate cuts, a shift in the reference rate from lenders and an astonishing ruling from the Federal Courts in favour of a bank over the regulator related to responsible lending practices.

Anecdotally, there are now more listings creeping into the market. It is my expectation that this Spring season will see a rush of property listings aimed at buyers who are now able to get finance with some relaxation in lending standards.

    Source: ANZ

    Interest rates have continued to fall and when we look at the interest rates of Australia versus the US we see more scope for lower mortgage rates.

    The bond market has lowered Australia’s long term interest rate and this has been very positive for share markets.  Our 10 year bond rate is now almost 1%, while the US 10 year bond rate is almost 2%.  This suggests a lot of liquidity will be available in the Australian economy in the not too distant future as falling long bond rates means cheaper financing for banks.

    Property has rising momentum right now which will be difficult to derail.

    This will enhance the expansion in lending as the banks shift back into growing their loan books and will provide a solid base for property prices and activity. 

    Certainly the banks are now in a good financial position given that their capital base is now quite strong compared with history. (The regulator monitors their capital to ensure that the financial system is stable.) Again this is in a positive position.

    Some are talking about a potential US recession and stalled trade talks as being a headwind for the property market.  I see these negatives as things that are headwinds for shares not property.  Whenever shares are weak we get a flight to quality and this means rising property activity and ultimately prices.

    My thoughts are that property has rising momentum right now which will be difficult to derail.