National Australia Bank predicts RBA rate cut amid housing headwinds

National Australia Bank has changed its cash rate outlook from a hike to an eventual cut, following further steep falls in home loan lending.
House lending
Source: Shuang Li (Shutterstock)

Total lending to households dropped 4.4% in December, with a large fall in home loans being the main driver behind the weak Australian Bureau of Statistics’ figures published today.

The data showed owner-occupier home loans declined 6.4% to $12.5 billion and investor mortgages slipped 4.6% to $4.9 billion (excluding refinancing) in December, compared to November.

Over the year, the value of owner-occupier mortgages slumped 16.2% and the value of investor home loans plunged almost 29%.

“The slowdown in lending for investor dwellings this month continues the steady decline over the past two years, with the value of new investor loan commitments down around 40% from the peak at the start of 2017,” ABS Chief Economist Bruce Hockman said.

“The slowdown in lending for owner-occupier dwellings is more recent, with falls concentrated in the last half of 2018.”

Shortly after the release of the weak lending figures, National Australia Bank economists announced that they no longer expect the RBA to lift rates in late-2020.

Instead, they now expect the next move is likely to be a rate cut, potentially as soon as the second-half of 2019.

A note by NAB’s Chief Economist Alan Oster, Senior Economist Gareth Spence and Global Head of Research Ivan Colhoun said consumers still faced a number of headwinds.

“In particular we see ongoing slow wage growth, falling savings rate, high debt levels and falling house prices as ongoing headwinds,” they said.

“While there is very limited evidence, as yet, of a significant negative wealth effect of house prices, lower prices clearly will not help.”

They also said a sharp downturn in new home builds is likely and dwelling investment was expected to fall by almost 20% over the next two years – a much larger peak-to-trough decline than the RBA’s outlook.

BIS Oxford Economics Managing Director Robert Mellor said the latest ABS housing finance data gave a clearer picture of investor appetite for property with the total value of new investor lending for housing down 42% since the peak in early 2017.

“The slowing in demand from both owner-occupiers and investors reinforces weaker consumer confidence in the property market and confirms the slowing is across the board,” Mr Mellor said.

“It’s not just among investors, but also upgraders and first home buyers.”

The data also showed a fall in lending to first home buyers, with the number of loans to owner-occupier first home buyers down 12.6 per cent from a year ago, seasonally adjusted.

A statement from Commonwealth Bank said the fall in home loan approvals over the past 18 months indicated there are further house price falls to come.

“The falls should remain concentrated in Sydney and Melbourne, the two cities where investor activity was the strongest,” CBA said.

CBA researchers expect a further 5% drop in Sydney house prices, taking the peak to trough decline to 15%. They also expect a peak to trough fall of around 13% in Melbourne.

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