Fund managers finger tight credit as key driver of housing downturn: UBS survey

The Australian 12:38pm February 26, 2019

David Rogers

If we are having a credit crunch in Australia, Reserve Bank officials and the big four bank economists don’t see it yet.

But limited credit availability is already the main driver of house price declines, according to the consensus of more than 100 fund manager clients of UBS.

“When investors rank the top issue or driver for house prices, credit availability was very far ahead — consistent with the UBS credit tightening thesis as the main driver,” said UBS chief economist George Tharenou.

“That’s followed by a similar focus on tax and regulatory changes, demand, interest rates, while housing supply is a lesser issue.”

His UBS Evidence Lab survey early this month found fund manager sentiment about the outlook for house prices over the next 12 months was “very negative”.

The survey found that 93 per cent of funds were “bearish” on house prices, and 22 per cent were “very bearish”, expecting falls of at least 10 per cent nationwide from here.

On top of a nationwide fall of about 7 per cent since 2017, the more extreme forecasts unearthed in the UBS survey would imply a peak-to-trough fall in the high teens.

Some 71 per cent expected falls of 5 to 10 per cent, while just 4 per cent expected flat prices and 3 per cent were “bullish”. None expected gains of 10 per cent or more.

“The simple average weighted response implies home prices are expected to fall at least 7 per cent in the coming year, which is probably a bit more negative than the sell-side consensus of economists, but similar to UBS’s expectation of another 8 per cent decline for a record peak-to-trough collapse of 14 per cent,” Mr Tharenou said.

“Overall we continue to expect credit tightening to see ongoing weakness in housing, leading to a negative wealth effect on consumption, resulting in below trend GDP growth, which sees the unemployment rate rise, and the RBA cut rates in November 19 and February 20.”