Saturday, December 2, 2023

Australia’s strong housing market a bonus for banks

residential mortgage

Moody’s Investors Service says for banks, robust residential mortgage growth will support their revenues

Australia’s strong housing market is a bonus for banks, developers and material suppliers, a global credit rating agency says.

Moody’s Investors Service says for banks, robust residential mortgage growth will support their revenues, particularly at a time when low interest rates and intense competition are weighing on net interest margins.

The earnings of developers and building material suppliers are also set to rise thanks to new residential construction and “remodelling”, senior Moody’s analyst Saranga Ranasinghe said.

Real estate investment trusts Mirvac Group and Stockland Group, and material manufacturers Boral Limited, BlueScope Steel Limited and Infrabuild Australia Pty Ltd, all derive a significant portion of earnings or revenue from the residential market.

Moody’s analyst Tanya Tang said record-high housing finance approvals and construction approvals for standalone houses are being supported by low interest rates, government stimulus and a rebounding economy.

Although the government’s HomeBuilder subsidy program has now expired, the extension of the construction deadline will continue to support sector activity for the next year or more, she said.

Moody’s drew some comfort that new loans have been largely to owner-occupiers, a segment it views as having a lower credit risk, and a positive for bank asset quality.

However, banks have increased higher loan-to-value lending as government incentives have increased demand from first-time homebuyers, it says.

But the Reserve Bank, in the minutes of its April board meeting, says there is no notable evidence of deterioration in housing lending standards.

Members agreed that it would be important to watch carefully for increased risk-taking by lenders and any deterioration in lending standards and larger shares of higher-risk loans, the minutes released on Tuesday said.

National Australia Bank CEO Ross McEwan confirmed there were more first home buyers getting into the market than have been seen in the past five to 10 years.

In our book alone about 16 per cent of new lending is going to first home buyers, he told 2GB radio. First home buyers with low interest rates are finding it cheaper to actually buy, as long as they have got a deposit than it is to rent.

He said house prices were rising across Australia with the pandemic showing people could work from home, which was seeing a big trend to moving out of cities. House prices out of the main centres are going up much, much higher than those in the inner city.

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