The overseas appetite for Australian residential mortgage-backed securities (RMBS) should keep compressing spreads in the sector, according to a report by analysts at Bank of America Merrill Lynch.
One of the strengths of the sector is the lack of concerns afflicting the Eurozone countries, the analysts said. They added that international investors will help bring total issuance of Australian RMBS to around A$20 billion ($20.8 billion) this year.
BofA Merrill predicted Australia would make additional cuts in the country's benchmark interest rate, snipping another 50 basis points from the current 3%, already a half-century low point. This would back up RMBS prices but would not go as far as previous cuts in stimulating housing prices, the analysts said.
There are other factors that would at least keep prices from falling as well. “The tight supply (shortfalls chronically at 10% and 20%) provides support for housing prices,” the analysts said. BofA Merrill predicts 2.3% growth in Australian GDP this year, and an unemployment rate of 5.9%. These indicators are significantly better than many advanced Western economies, particularly the more beleaguered ones of the Eurozone.