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ISCOVER
Paul Lahiff
Bottom line for the mortgage sector from Tuesday night’s Budget – nothing good, nothing bad.
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First, the overall economic settings revealed no new news that we didn’t know prior (apart from the size of the deficit):
- the Budget deficit came in at $19.4 billion compared to the predicted surplus of $1 billion from last year
- Treasurer Swan forecasts this will be the peak deficit, with this moving to a surplus of $800 million by 2015/2016
- GDP to run slightly below trend at plus 2.75 per cent
- inflation under control
- unemployment at 5.75 per cent
- the high Australian dollar still producing heartache for exporters but starting to come off
- interest rates at record lows (and according to some, including Westpac, to get as low as two per cent by March 2014)
More importantly for the mortgage sector is data not referred to last night.
Firstly, housing credit growth appears to be bottoming out at around 4.4 per cent with forecasters expecting it to pick up to between five and seven per cent by this time next year.
Secondly, housing finance approvals are starting to respond to lower interest rates – the value of new approvals in March rose by 4.5 per cent for the month, with owner occupied up by 5.8 per cent and investor lending increasing by 2.1 per cent. Worryingly though, the proportion of first home buyers dropped further, from 14.4 per cent to 14.2 per cent.
With most of the Budget detail leaked before last night, there wasn’t a lot to get too excited about in general, or regarding the mortgage sector, apart from some minor assistance to senior Australians looking to downsize their property without affecting their pension.
However, we should probably count our blessings that an initiative like the First Home Buyer Grant didn’t disappear, as the government looked at just about every way to reduce the size of the deficit. There was some pre-Budget discussion that it may have been in the gun sights of the Expenditure Review Committee.
In conclusion, the Budget is likely to have more of an indirect impact via creating more fragile business and consumer confidence than through its direct impacts. If this is the case, the benefits from the RBA reducing interest rates is likely to be neutralised.
Bottom line – more upside from housing credit growth bottoming and ABS housing finance data starting to pick up than anything from Treasurer Swan’s 2013 Budget.
