Shots in the arm for property sector are not before time.
With the Reserve Bank tipping a June rate cut on the same day that APRA signalled it would remove the minimum 7 per cent rate benchmark used to assess a borrower's ability to service a loan, the mood is understandably bullish.
SQM Research and My Housing Market are both quoted in this ABC article tipping a return to positive growth in Sydney property prices by the end of 2019. Sydney prices dropped by 0.7 per cent in April to reach their lowest levels since 2017. At the moment, Canberra is the only capital city experiencing a lift in home prices.
In looking at the market prospects of Australia's largest listed residential developer, Stockland yesterday, Macquarie issued a note titled Turns on a dime, saying the combination of a June rate cut by the RBA, the planned First Home Buyers Loan Scheme, and APRA's planned changes to mortgage serviceability benchmarks all represent a likely change of fortunes for the company and broader residential housing sector.
The word is that in addition to a June cut, the RBA will do it again before Christmas - bringing the cash rate to 1 per cent. For this to have any real impact on home buyers, mortgage rates will need to follow. This means the banks need to act - and APRA's decision to cut the serviceability buffer will give them more room to do that.
And not before time. Latest construction figures released yesterday showed the fastest fall in home building in two years during the March quarter. The big drops were in major engineering works. This didn't stop Citi upgrading its housing price forecasts however, citing the potential of an expected 10 per cent increase in borrowing capacity as a result of APRA backing off on lending benchmarks.
As you'd expect, questions are being raised around the wisdom of making home loans easier to access. Domain Group released figures yesterday showing that while recent and pending events may make borrowing more attractive, low wage growth still means the average Sydney household buying in the city today will need to spend more than 40 per cent of their pay packet to service a loan.
With that as context, there's little wonder why some lenders are actually tightening the screws in response to APRA's announcement on Tuesday. ING and Teachers Mutual Bank are playing particularly close attention to credit card debt and household expenditure when assessing a borrower's capacity to service a home loan.
Speaking of servicing and affordability, the ABC's 7:30 ran a piece on the proposed First Home Buyer Loan Scheme earlier this week. Lots of stuff in there about it not being a guarantee of home ownership - which we knew - but the main criticism boiled down to the fact that no single leg-up for first home buyers is as effective as lower house prices when it comes to assisting them into the market. The link above includes video of the segment.
Lastly, one for the railfans: Sydney's new metro trains will be free for passengers on its opening day this coming Sunday. For everyone who has been waiting with baited breath for this rail corridor to open up their development patches to the world, Happy Metro Day.