More rate cuts
There's little worse than commentary about 'the housing market', given there are so many moving parts to it.
The above having been said, it looks like rate cuts are on the way, with the end of the housing downturn likely to follow hard upon.
These things generally don't turn around in a V-shape, but far fewer listings are coming on to the market from a year earlier and the cost of funding has fallen sharply.
The AFR reported today that Macquarie and ANZ slashed their mortgage rates by up to 60 basis points, and a number of other smaller lenders have also cut their rates.
There's now a fair few 3-year fixed rate products available at just 3.69 per cent.
Cash rate to 1 per cent
It's been an interesting week for the Reserve Bank, as someone with way too much time on their hands spotted a miniscule typo on the $50 note.
Moving on to matters more serious, today's Statement on Monetary Policy included a widely expected cut to growth forecasts for the economy.
There could be a lift in fuel prices in the coming quarter, but underlying inflation is expected to remain soft over the forecast period.
The trimmed mean inflation forecast barely breaches the target range even over the next two years.
Naturally this assumes market pricing for movements in the cash rate - apparently a revelation to some of the commentariat - which in this case means two 25 basis point rate cuts.
This has all been well reported elsewhere, and perhaps the election played a part in the timing, but while anything's possible over the coming months it looks to be a fairly safe bet that the cash rate is set to fall to 1 per cent in line with market expectations to allow the economy to run a bit hotter.
The jobs market figures will be a key focus.
There's a labour force report a matter of days away, but confidence intervals are wide on monthly figures so August and November are said to be more likely dates for potential movements in the cash rate.
Most leading indicators for employment and construction appear to be heading south, it must be said.
At your service
Given the above it's not out of the question that mortgage rates could be available from around 3 per cent before the year is out, which would naturally reverse the prevailing dour housing market sentiment once the election is out of the road.
There's a potentially harsh twist in the tail for prospective housing market entrants since a lower cash rate further reduces returns on savings, in turn drawing out the time to save a deposit as housing prices finally begin to rise again.
The ensuing savings glut in this cohort could be a challenge for the economy, as young homebuyers push all of their savings towards one illiquid asset, paradoxically reducing resilience to shocks.
An issue which keeps being reported back by mortgage brokers is that otherwise impeccable borrowers are being pinged by the assessment rate at 7¼ per cent, and in my opinion that warrants a fresh look if mortgage rates fall lower still.
Of course keeping assessment rates high above the cash rate reduces the relative level of system gearing, but the average loan has a duration of only half a decade, and it simultaneously creates a number of new distortions in its stead.
Sydney pain points
It's difficult to sum up a market downturn into a media-friendly soundbite, but many Sydney homeowners have experienced a spectacular blow-off top in early 2017 and a modest reversal once the froth was blown off.
On the other hand there must be some level of pain in the 'burbs, with just shy 50 per cent of off the plan apartments now failing to value up at settlement (the ratio is even higher still in Melbourne).
Others over-capitalised on development sites at the market peak, and some sub-markets in Sydney have been battered 20 per cent lower, in particular areas around Epping, Ryde, and some others.
Common factors to these markets often seem to include a big supply response and a preceding record boom in Chinese investment.
How does this fit with Scott Sumner's theory of their being no such thing as asset price bubbles, despite the price fluctuations?
Perhaps those markets were pricing for the great wall of Chinese money to keep on coming.
But in the event it was snapped off by stamp duty surcharges in Australia and tighter capital controls on the mainland.
But in the event it was snapped off by stamp duty surcharges in Australia and tighter capital controls on the mainland.
