A leading economist at the Commonwealth Bank of Australia (CBA) has denied speculation of an impending housing bubble, pointing to how well its mortgage holders are repaying off their loans.
Despite the RBA
’s warnings of risk in the housing market, there is no huge collapse coming, said equities economist Savanth Sebastian
at mortgage broker Atelier Wealth's Business Partner Update in Sydney yesterday (23 March).
“From our perspective, we don’t call it a housing bubble. The reason I say that is because if I take CBA and our $200 odd billion home loan book, of that, over 85% of our customers are ahead on mortgage repayments. And they’re ahead by an average of almost one and a half to two years.”
The reason behind this is because most customers are paying a higher rate despite the low interest rate environment. With most people paying these larger rates, the Reserve Bank of Australia (RBA
) has come to the conclusion that further rate cuts will not work, he said.
While the market will not collapse – bolstered by mortgage holders with extra funds in their redraw facilities – Sebastian said that the risk levels still depend on certain suburbs and sectors.
“Sydney’s holding up really well from what we can see even with the amount of supply that’s coming in over the next 12 to 18 months. I think it’s going to be absorbed relatively well because population growth is still relatively strong.
“My concern probably arises with Brisbane and Melbourne to a greater degree. Brisbane because that economy is one of the weakest that we’ve seen in the last five years.”
This weakness is due to the state government pulling out of infrastructure projects around two or three years ago, he said, causing the business community to walk away. He saw the environment in Brisbane as improving incrementally however.
A dramatic increase in supply and tighter bank regulations mean that the apartment market is another area of concern, Sebastian warned.
“Historically, we build about 140,000 homes a year. For the next 12 months, we’re going to do 240,000. The following year after that, we’re going to do another 220,000. So when all of that supply hits and you’ve got the banks tightening as the regulators are telling us to and we’re increasing serviceability, that apartment market has to be watched very, very cautiously.”
This means however that there will be some very good opportunities for first home buyers in 12 to 18 months’ time thanks to the amount of supply coming in, he said.
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