The Reserve Bank has released the monetary policy meeting minutes for March. The minutes state the housing market remained soft, with auction clearance rates for February mostly unchanged from late last year. Housing credit also continued to grow at a slower rate than nominal income. The RBA also took notice of the major banks passing on some of their higher funding cost pressures, noting the increases were small and mostly confined to housing loan interest rates.
On the subject of bank funding costs, a new report by Citigroup has called into question claims by the banks that they are not making profits on new mortgages. The study has found the return on equity the banks earn on home loans has almost tripled over the past six years. According to the report, Commonwealth Bank of Australia’s
(ASX:CBA) return on equity in the mortgage market rose from 15 per cent in 2006 to 43 per cent this year. And Citigroup says the returns for other major banks are only a little lower. Last month the banks increased mortgage rates independently of the Reserve Bank, blaming higher funding costs.
Meanwhile, a controversial opinion piece written by The Australian’s economics editor, David Uren, claims our housing market is only a jobs crisis away from collapse. He says there are stocks of unsold apartments and houses, and buyers are deserting the housing market. The media report claims the market is at a 16-year-low, with RP Data counting 375,000 properties sold, compared with 600,000 a year in more “normal times”. Uren says rising unemployment could unleash a wave of distressed sales.
And briefly, a look at the rental market. SQM Research says the level of residential vacancies declined during the month of February, slipping from 1.8 per cent to 1.7 per cent, a total of 47,000 vacancies. It’s the second consecutive monthly decline in an already tight rental market. Hobart was the only capital city to experience an increase in vacancies month-on-month.
