The housing credit impulse appears to be turning up, consistent with the signal from the auction clearance rate. The impulse in housing credit has been a reliable leading indicator of turns in the direction of house prices.
"Improvement in the auction clearance rate suggests the bulk of house-price weakening is already behind us.”
There is rightly a lot of focus on current and future developments in the housing market. Among other things housing plays a central role in household net worth which, in turn, is an important determinant of the household saving rate.
This means the outlook for house prices is an important component of the outlook for household consumption, particularly in a low wage growth environment.
In our view house prices are likely to be in recovery mode by the second half calendar 2018 given still-low interest rates and the outlook for household income growth.
Additional weakness in house prices from this point would require new catalysts. There are some potential ones, such as the prospects of additional credit tightening by the banks or out of cycle mortgage rate increases driven by higher bank funding costs.
We are watching both. But for now the leading indicators of house prices point to stabilisation and then recovery.
If, instead, things develop in a more-bearish fashion there will be implications for our outlooks on household consumption and the Reserve Bank of Australia.