Gauges looking like a Grimm fairy tale

According to the report, three gauges show negative levels, two show neutrality, liquidity shows neutral-to-positive signs, and one also shows neutral-to-negative signs.

Affordability remains at extremely expensive levels for home buyers, which according to the gauge report is a negative sign. However, this could also be viewed as a positive effect on the market in terms of housing prices reaching their limit, and with affordability out of reach for most people, prices have nowhere to go but down.

With affordability so high, serviceability and indebtedness are also extremely high. This is because of historically high interest rates, which affect homeowners’ debt relative to income. Interest payments show no signs of consolidating yet. The bank says, “Housing affordability measures remain over-extended, and higher mortgage rates are starting to bite. Don’t expect any respite for a while yet.”

The final negatively geared gauge relates to consents and house sales. With housing affordability and debt so high, it is not surprising housing sales volumes are falling and consent issuance easing.

However, the supply-demand ratio is showing neutrality within the market.

Globalisation, which plays an extremely important role in the property cycle, is also showing neutrality, even though levels are “not that cheap. Median house prices are more expensive compared to the US (based on current exchange rates), but are cheaper than in Australia.”

Liquidity shows signs of being neutral-to-positive and despite the current financial market, remains abundant. But, the bank believes “global financial market volatility and changing attitudes towards risk have increased the likelihood that diminished appetites to lend could be pending from certain pockets.”

Migration inflows are stabilising, but are below historical averages. Migration is a key source of demand for new housing, and indicates neutral-to-negative influence on hosing prices, and only medium levels.

The bank concludes by saying,  “Increases in fixed rate mortgages over the past two weeks suggest housing demand will remain under pressure over the coming months. If house sales continue to fall, expect further downward pressure on house prices.”