National Australia Bank chief executive Ross McEwan says the bank believes house prices have bottomed, citing a shortage of homes for sale at a time of strong demand and underlining the need to boost housing supply.
As NAB reported a 17 per cent jump in its half-year profits to a record $4.1 billion, McEwan said Australia's housing market had stabilised, and he also believed interest rates were close to their peak.
Despite the strong profit growth, the result missed market expectations, and the bank's net interest margin was weaker than expected. In early trading, NAB shares had plunged 6.8 per cent to $26.61.
McEwan's comments are consistent with the views of NAB economists, who last month reined in their forecasts for house price falls amid signs the market was flattening.
“I think what we are seeing is there are very few houses on the market for sale at the moment,” McEwan said on a call with journalists.
“House prices we think bottom out from there, from a decline that's been happening over the last six to 12 months. So I think, you're seeing more and more prices going sideways as opposed to down.”
Figures from CoreLogic on Monday showed Australian home prices posted their second consecutive monthly rise in April, but economists are divided over whether prices could resume falling as the impact of interest rate rises flow through.
McEwan, who also predicted Australia's economy could dodge a hard landing, said there was strong demand for property from buyers and renters, and increasing immigration meant there would be “continued demand for housing.”
“It is a demand and supply issue. Not a lot on the market place, lots of people looking for it, lots of people looking for rental accommodation, and the big issue is we actually need to get more supply through more building going on in what is quite a difficult construction sector at the moment for residential housing,” he said.
McEwan made the remarks as NAB's profit result showed it was benefiting from the rise in interest rates, which helped widen its margins, while the number of customers in financial trouble remained historically low.
Despite the strong profit growth, the result missed market expectations, and the bank's net interest margin was weaker than expected. In early trading, NAB shares had plunged 6.8 per cent to $26.61.
The bank's net interest margin – which compares funding costs with what it charges for loans – rose 14 basis points to 1.77 per cent. Citi's Brendan Sproules described the result as “very soft,” due to weaker than expected margins amid stiff competition for loans and customers moving their deposits to higher interest accounts.
The proportion of customers who were 90 days or more behind on their repayments stayed flat at 0.66 per cent, but the bank said it had seen a small increase in customers who were 30 or 60 days behind on repayments.
Commenting on the economic outlook, McEwan said there were encouraging signs inflation and interest rates in Australia were peaking, and the nation would avoid a “pronounced economic correction”.
Instead, he said economic growth was likely to slow, and unemployment “drift” higher, though he cautioned the full impact of the rising cost of living on households remained uncertain.
“In Australia, consumption and overall growth has started to soften, reflecting the impact of monetary policy tightening. There are also encouraging signs that inflation is beginning to moderate, which, in combination with a deterioration in the outlook for global growth, means the official cash rate is likely at or around its peak,” McEwan said in a statement.
The bank will pay a first-half dividend of 83 cents a share, up from 73 cents in the same period last year.
NAB's flagship business banking division posted 20 per cent growth to $1.7 billion, while cash earnings in personal banking dipped 0.4 per cent to $785 million.
*** Source: Clancy Yeates - The Sydney Morning Herald ***