The week that was & the week ahead

The week that was       

The tightening in bank lending for dwellings is working, with the number of interest only loans dropping to just 15 per cent of new loans written. During 2015, the peak level of interest only loans was a stunning 45 per cent. This ‘easy’ lending was cited as a factor fuelling the house price boom, especially as investors maximised their leverage to take advantage of the negative gearing laws.

This dip in interest only lending has coincided with a sharp weakening in house prices. House prices have fallen in each of the last five months which is set to see the annual growth rate turn negative by March. The extent of the house price decline will be an important issue for the health of consumer spending, and hence the overall rate of economic growth, through 2018 and into 2019.

Source: Westpac


The week ahead

Two super-duper economic releases coming up next week – the official house price series together with the next round of labour force data.

To a large extent, the house price data are known as the official data encompass a lot of the information from a range of private sector surveys (see above). Suffice to say, house prices are likely to have fallen marginally in the December quarter which will drag annual growth down to around 1 per cent. 

The labour force data for February are set to reinforce the notion that conditions remain subdued with relatively high levels of unemployment and under employment. The reason for this was is plain sight with the recent GDP data confirming the economy mired in the slow lane of growth. The economy is not strong enough to sustain solid increases in employment which is limiting the ability of the unemployment rate to fall. Suffice to say, a further mediocre data release with a small rise in employment and little change in the unemployment rate is widely expected.  

Source: RBA

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