UBS analysts change home price forecast after home loan drop

The accelerated drop in home loans has prompted UBS analysts to downgrade their peak-to-trough forecast of home prices from a fall of 10 per cent to now 14 per cent.

"We cut our peak-to-trough forecast of home prices from falling '10% or more if regulators don't ease', to dropping '14%, even assuming the RBA cuts' (with Sydney and Melbourne closer to 20%), UBS analysts George Tharenou, Carlos Cacho and Jim Xu said.

"This is double the -7% decline so far."

They said they expect the RBA to cut rates in November.

The change in forecast comes after home loan approvals and values dropped to GFC levels in December.

The December 2018 slump for home loans approved, which was -5.9% month on month, was the worst since decline the GFC. UBS had predicted a -3% decline.

The -19.8% year on year figure was the worst since the GFC.

"The accelerating fall in home loans shows tighter credit is playing out," the UBS report stated.

"Looking ahead, while the Royal Commission didn't make material changes, we downgrade out long-held forecast peak-to-trough drop in home loans from '20% with risk of 30%' to '25% with rising risk of 30%.'"

They said it would mean housing credit growth will likely slow to 2% year on year by 2020, with risk of flat.

Click here to enlarge.

Investor lending slid another 4.6% month on month to be 27.8% down year on year.

Despite holding a 16% share of total loans, the highest since 2012, first home buyers retracted sharply, down 8% month on month and 12% year on year.

Owner occupiers also weakened, down 6.4% to be 16.2% down year on year.