Hilton Parkes Real Estate
2nd March 2019

RBA To Cut Rates Twice: Westpac
One of Australia’s biggest banks has predicted the Reserve Bank will reduce the official interest rate twice this year, to reach an historic 1% low. Westpac chief economist Bill Evans predicts the RBA will reduce the cash rate by 25 basis points in August and then again in November. This represents a significant change in his interest rate forecast – he had previously forecast rates to remain on hold for an extended period. If a 0.25 percentage point reduction is passed on by lenders in full it would save a household with a $400,000 mortgage roughly $1,000 a year in interest costs. Last year the Reserve Bank said consistently the next move in interest rates was more likely to be up than down. But recently RBA Governor Philip Lowe has flagged the possibility of a rate cut if the economy proves to be weaker than expected. “Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios,” he says. “Today, the probabilities appear to be more evenly balanced.”

ANZ: Too Conservative On Loans

ANZ Bank chief executive Shayne Elliott concedes the bank may have been too cautious in its home lending decisions, after new figures showed its mortgage book shrank in late 2018. They will now look to expand more quickly in the investor market, which has been dragging on growth in the wider $1.6 trillion mortgage market, partly due to the tighter conditions. Figures published by ANZ last week showed its mortgage portfolio contracted in the last three months of 2018 by $542 million, or 0.2%. During 2018, ANZ said its loan growth was just 1%, compared with industry-wide growth of 4.2%. The bank explained the slow growth by pointing to tighter credit policies within the bank and its preference for owner-occupier and p&i loans, which tend to be paid off more quickly. “While we are maintaining our focus on the owner-occupier segment, we acknowledge we may have been overly conservative in our implementation of some policy and process changes,” Elliott says. “We are also taking steps to prudently increase volumes in the investor space.”

Labor Backs Down On Brokers

Federal Labor will allow mortgage brokers to continue being paid by banks if it wins government, abandoning its previous support for the Royal Commission’s call that consumers should pay brokers. Shadow Treasurer Chris Bowen says upfront commissions, which are paid by banks to brokers for arranging loans, should be allowed to continue but be capped at 1.1% of a loan’s value. That would roughly double current upfront commissions, which would partly cushion the impact from Labor’s already flagged policy to ban trail commissions. The policy is a stark change from Labor’s initial “in principle” support for the Royal Commission’s recommendation that all commissions be phased out and replaced with a fee paid by consumers. Investors are now betting the outlook for mortgage brokers is as grim as feared. After shares in listed brokers Mortgage Choice and AFG crashed in response to the Royal Commission’s call for an overhaul of remuneration, both stocks rebounded following the back down from Labor.

Auction Market “Back to Life”

The big city auction market has “shot back to life” with a record bid of $23.25 million for a mansion on Sydney Harbour and higher clearance rates in Sydney and Melbourne, injecting some optimism among sellers for the first time in months. The change in sentiment came as the overall auction market also had its first key test with volumes across all capital cities rising above 2,000 for the first time this year. There were 2,303 homes taken to auction last weekend with a clearance rate of 54%, according to Core Logic. In the previous week, 1,450 auctions were held with a 51% clearance rate. Sydney’s preliminary clearance rate was 59%, up from a final result of 55% in the previous week, and in Melbourne the clearance rate edged up to 53% from a final result of 52% the previous week. Brisbane and Canberra also saw a rise in clearance rates week-on-week. Core Logic says this marks the third week in a row where the clearance rate was above 50%, an improvement given the weekly auction clearance rate had been stuck at or below 42% for five weeks at the end of last year.

Foreign Buying Remains Strong

Foreign investor interest in Australia remains strong, the Foreign Investment Review Board chair David Irvine says. The latest FIRB report on foreign investment showed the US recorded a $10 billion increase in approved investment to $36 billion in FY2018, with significant increases in real estate and the manufacturing, electricity and gas sectors. China was the second largest source country following a $15 billion decrease in approved proposed investment to $23 billion. Despite the decrease, China is still a big-time investor in Australian property. Chinese investment in real estate dropped to $12.7 billion in 2017-18 from $15.3 billion the year before, but China accounted for a quarter of foreign real estate investment. Victoria gets the greatest share of Chinese residential investment, receiving 46% of all approvals, with NSW in a distant second with 23%, followed by Queensland’s 17%. The data doesn’t track people who don’t need to request approval, which means NSW might be actually getting more investment.

Quote of the Week 

“While we are maintaining our focus on the owner-occupier segment, we acknowledge we may have been overly conservative in our implementation of some policy and process changes. We are also taking steps to prudently increase volumes in the investor space.”

Shayne Elliott, ANZ chief executive