Slowing investor demand impact on dwellings – Louis Christopher

Slowing investor demand impact on dwellings – Louis Christopher

Louis Christopher from SQM Research says the measures taken by APRA in slowing investor demand are now having an impact on the market and it is likely the measures will slow the rate of dwelling price inflation recorded, rather than create a price correction. He joins us today.


Kevin:  Louis Christopher from SQM Research says the measures taken by APRA in slowing investor demand are now having an impact on the market, and it’s likely the measures will slow the rate of dwelling price inflation recorded rather than create price correction. He joins us.
Louis, I wonder if you’d just explain a little bit more about your thinking behind that?
Louis:  Sure, Kevin. We know that what APRA has done via the major banks has had an impact upon the market. We know this because we are seeing in our stats – for example, the total listings number jump in July, which is a pretty abnormal time for that to happen – and we know through reports on the ground of mortgage brokers and real estate agents stating that a number of their potential buyers and borrowers have decided to leave the marketplace.
We think there is a bearing there, but it’s very difficult to work out at this stage what the magnitude of this is going to be on the housing market, how much of an impact this is actually going to be on the housing market. We need to see more information come through. It’s very early days yet.
The two major factors are that, number one, property investors need to put up more money as a deposit or as equity in order to secure the investment property, to get the loan to get the investment property, and two, interest rates have gone up for property investors. Historically, of course, we know whenever those two events have occurred it has slowed the market.
I think those measures on the top of it will continue to slow the market, but I don’t think it will create a major correction. When it comes to the actual interest rate increase, it’s effectively come out at about 25 basis points, or a quarter of a percent, which in itself shouldn’t create a correction in marketplace. We need to see higher interest rates than that.
Secondly, of course, this is just one element of the market. Obviously, first-home buyers and owner-occupiers are still there, and indeed, the banks have actually loosened the purse strings a little for first-home buyers. While they’ve actually announced a rate rise effectively for property investors, they’ve lowered interest rates for first-home buyers.
Kevin:  I was really interested in your latest set of figures, too, to notice that the Melbourne listing numbers have actually fallen. It was interesting that the same day you released that, we noticed that the prices in Melbourne had increased. Is there anything you can draw from that?
Louis:  Overall, Melbourne has definitely recorded an improving property market where we’ve definitely noticed more activity except for this month. As it’s gone by, listings have actually started trending down, so it’s becoming increasingly a seller’s market.
But I don’t think Melbourne is an actual state of a total property boom, not like what we’ve been seeing in Sydney. The price growth rates have been hovering around the 8% to 10% mark per annum for Melbourne, whereas Sydney has been doing 15% to 20%. Definitely, Melbourne has been picking up.
Also know, too, the Reserve Bank of Australia, in its most recent update on monetary policy, left out the city of Melbourne in terms of discussing the housing boom. Whereas before, they were including Sydney and Melbourne, they now only just said Sydney.
Kevin:  Is that because they’re not sure what’s happening in Melbourne?
Louis:  I think so. I think that’s the case. Calling it like it is, Kevin, Melbourne historically has been very difficult to call the numbers. Usually you see very inconsistent data coming out of the city of Melbourne when it comes to housing market information.
Kevin:  And listings around the rest of the country – apart from Hobart, where there was a just very small fall month to month – they’re holding pretty well?
Louis:  They are. It was still an abnormal month in the sense that normally you see subdued listings activity just before springtime, but this month we recorded increases for all cities except for Hobart. That was a little abnormal, and just goes back to the point about whether the APRA initiatives are actually having an impact upon the market.
Kevin:  Louis, do you think that APRA’s decision, then, to apply those changes across the country is the correct one?
Louis:  I don’t. I think this is one of the failings of what APRA is doing. Macro-prudential tools have the opportunity to be very tactical in the sense that you can focus them very geographically. You can set policy, for example, just for the city of Sydney if you wanted to, but they’re not doing that.
They have basically left it up to the banks to decide how they’re going to meet their overall criteria, and what the banks are doing is applying policy changes basically everywhere. They’re not just focusing on Sydney; they’re doing it across the board.
I’m not so sure whether that’s something that the RBA wants to see. This is all about trying to contain the boom in Sydney, not trying to contain a national housing boom, of which there isn’t any.
Kevin:  Well, Louis, I guess it’s just a matter of wait and see. Thank you for joining us. Louis Christopher from SQM Research.
Thanks for your time, Louis.
Louis:  Thanks, Kevin.

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