Australian fixed-income investors are now more concerned about the housing market than the end of QE

GABRIEL BOUYS / AFP / Getty Images
  • Pessimism towards the outlook for Australian home prices has increased among both consumers and property experts. Add fixed-income investors to that list.
  • According to the latest Australian Fixed-Income Investor Survey from Fitch, 82% of respondents expect prices to decline by between 2% and 10% over the next year. Over the next three years, nearly 60% expect prices will be lower than they are today.
  • Respondents believe a domestic housing market downturn is the top risk facing Australian credit markets over the next 12 months, replacing the tapering or reversal of quantitative easing measures from major centrals banks at the top of the list. They’re also concerned by threats arising from regulatory and legislative changes that have already contributed to a tightening in lending standards.

Everyone seems to be more pessimistic about the outlook for Australian home prices.

According to the latest Australian residential property report from the National Australia Bank, confidence among Australian property professionals “collapsed” in the September quarter, driven primarily by a deterioration in price expectations for Melbourne and Sydney.

Separate data from Westpac revealed expectations for house prices in the year ahead fell to the lowest level since 2009 in its latest consumer sentiment survey for October.

You can now add Australian fixed-income investors to that list, as seen in the chart below.

Fitch

From the latest Australian Fixed-Income Investor Survey conducted by Ratings Agency Fitch, it shows the breakdown of views towards the outlook for home prices.

As seen in other recent surveys, pessimism among fixed-income investors towards home prices increased in the December quarter compared to what was seen six months ago.

“Pessimism is most evident over a one-year horizon, with 82% of investors expecting prices to decline by between 2% and 10%,” Fitch said. “This is up noticeably from 52% in our Q2 2018 survey.”

The remaining 18% of respondents indicated that they expect prices will be steady on a 12-month time horizon.

Not one believed prices would be higher over this period.

Longer-term, nearly 60% said prices would be lower in three years, still larger than the 40% who indicated that prices would be flat to higher.

Given that outlook, 50% of respondents nominated a domestic housing market downturn as the top risk facing Australian credit markets over the next 12 months, replacing the tapering or reversal of quantitative easing measures from major centrals banks at the top of the list.

Fitch

“Half of the respondents ranked a downturn as the top risk to Australian credit markets over the next 12 months, up from 29% in our June quarter survey,” Fitch said.

“Withdrawal of quantitative easing (QE) by central banks has slipped to second on the list of risks… with 39% of investors ranking this as a high risk, down from 44% in the prior survey, even though the withdrawal of QE could put upward pressure on global bond yields.”

Along with the threat posed by falling home prices, respondents in the latest survey indicated that they were more concerned about threats arising from regulatory and legislative changes which have already led to tighter lending standards.

“More than 60% of investors believe standards will tighten further over the next 12 months for high-yield corporates, SMEs and the retail sector,” Fitch said.

It added that most investors expect credit spreads to widen for financials, non-financial corporates, structured finance such as RMBS and ABS and unrated debt instruments over the next 12 months.

The latest survey captured the views of 38 respondents with more than $500 billion in fixed-income assets under management, accounting for over three-quarters of Australia’s domestic real-money market.

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