Turned on a dime?
The Grattan Institute indulged in a bit of gentle chartsplaining this week to claim that the post-election rebound in housing prices was largely unrelated to the election result, or to ongoing cuts to mortgage rates, but instead 'rocketing' house prices were sparked by the prudential regulator APRA and its loosening serviceability criteria.
There is some background here.
Grattan had previously argued that Labor's election policies would have an immaterial impact on housing prices (contrasting with RiskWise's detailed modelling, which suggested a 9 per cent adverse impact nationwide).
Grattan's latest argument is that since CoreLogic's now-revered daily home value index didn't lift significantly until August 12th the impact of the election was minimal - causing only a 0.14 per cent 'jump' in prices - while the impacts of the interest rate cuts in June and July wouldn't be seen in full for a couple of years.
In other words, the rebound was pretty much all about APRA.
In other words, the rebound was pretty much all about APRA.
I've recreated the below chart from CoreLogic's daily index, rebased to 19 May 2019, which does indeed show a sudden increase from mid-August, although truthfully the rebound looks a lot less dramatic when you use a sensible y-axis and take into account the declines over the preceding couple of years.
There are a few problems with Grattan's arguments, though.
Firstly, there's no logical reason why a falling interest rates should take two years to be fully reflected in housing sentiment.
Secondly, Grattan's arguments fail to explain why open homes and auctions in Sydney and Melbourne were increasingly packed out through June, a far cry from the twitchy pre-election buyer sentiment, and well in advance of any flagged or actual changes to serviceability buffers.
My reading of the market, as we discussed on the Property Couch podcast at the time, was that there was a wall of pent-up demand piling up pre-election due to to chronic uncertainty surrounding Labor's policies, which was suddenly unleashed when the election dam burst.
Lo and behold, house price expectations lifted by 'a spectacular 23 per cent' (Westpac) immediately after the election result was called.
House price expectations then continued to lift sharply further into July and beyond, so one can hardly pin the rebound solely on the actions of the prudential regulator.
We could go on to cite any number of 'the phones was ringing off the hook, guv' anecdotes here, but let's not do that.
Thirdly, and importantly, a significant portion of the data feeding into the daily home value index from the Valuer General or state equivalent must surely be lagged in any case.
Moreover, a daily home value index doesn't simply turn on a dime due to one-off factors, and it shouldn't be taken so literally in real time, not least because the index has experienced unexplained spikes and seasonality issues and in the past.
Combination of factors
The answer to the blog title, then, is 'no' (or nah!) and in fact bank lending policies generally remain very tight even now.
Alongside other factors the credit squeeze helped to push the housing turnover rate down to the lowest level in more than 20 years (a dearth of transactions is another reason to be cautious about over-reliance on a few days of data).
Alongside other factors the credit squeeze helped to push the housing turnover rate down to the lowest level in more than 20 years (a dearth of transactions is another reason to be cautious about over-reliance on a few days of data).
Housing market sentiment and prices in Sydney and Melbourne have turned due to a range of factors, including the election result, lower mortgage rates, expected further monetary easing, and changes to serviceability.
A chronically low level of listings of desirable stock, driven by a cobweb effect, has been a key factor too.
Even now - we're nearly in October - stock listings remain way down on a year earlier:
Source: CoreLogic
Naturally, it would be very interesting to hear CoreLogic's take on this!
