Daily Commentary BY THE CURVE TEAM –

RBA Considered Covid Restrictions on Housing Transactions

18th of June, 2020

With so much of the outlook for interest related reliant on demand for housing, the credit report out overnight showed the RBA considered extreme action on housing transactions.

Interest rate investors around the country have been faced with lower and lower deposits rates throughout the Covid-19 crisis period as demand for new credit slows. Actions by the RBA to bolster the funding arrangements for banks, whilst needed, have left the nations ADIs with extreme levels of liquidity. For that liquidity to be reduced, demand for credit must pick up.

For a national fixated on housing prices and investment in property, reports out overnight indicated the RBA was concerned with a sharp decline in prices throughout the Covid-19 period. The documents obtained by the ABC under a Freedom of Information request reportedly showed internal speaking notes for Assistant Governor Luci Ellis contemplating a restriction or pausing of housing transactions.

In what would have probably been a structure similar to what we see in other markets where ‘circuit-breakers’ are applied when prices fall through set threshold in a given time period, the system would pose significant challenges with the portion of housing turnover still entirely unrelated to price. People would still need to buy and sell property for non-investment related purposes, relocating for work, liquidation of deceased estates and many other practical reasons.

It must be stated that the board has no official position supporting this and in official documents such as meeting minutes, the board outlook for housing is much better than reported in the overnight release. The key takeaway is that inside the walls of the RBA they are considered both upside and downside scenarios for the outlook and theorising measures that would be needed in these scenarios. Not an entirely un-comforting prospect.

Today’s data, out at 11.30am, are headlined by the Labour Force. As we discussed earlier this week, market expectation is for an uplift in headline unemployment to 6.9% with the participation rates holding somewhat steady. The key upside risk for unemployment today is for the reduction in the participation rate. If those who were out of work and not looking for new roles due to the lockdown begun looking for roles in May, there is a possibility we will see the participation rate rise and unemployment rise more than the forecasted 0.6-0.7%.

Matthew Dunshea

Client Relationship Manager