Yesterday’s housing finance data from the Reserve Bank of Australia (RBA) delivered further bad news for Australia’s housing market.
Quarterly housing credit growth slumped:
Driven by a crash in investor mortgage growth:
This data came out the same day as it was revealed that Australian dwelling values fell for the 10th consecutive month in July, falling by 0.6% over the month, 1.1% over the quarter, and by 2.6% year-on-year, driven by heavy losses in Sydney:
The immediate outlook remains poor in light of yesterday’s mortgage data. There has historically been a very strong correlation between the value of investor finance commitments and dwelling price growth nationally:
And an even stronger correlation in Sydney, where investors comprise more than half of all mortgage commitments:
Therefore, Australian dwelling values should continue to fall, and potentially at an increasing rate given the extent of the investor slowdown.
The outlook beyond the short-term also remains poor in light of the following headwinds, which are likely to build through 2019:
- The massive roll-over of interest-only mortgages into principle and interest (raising repayments by 35% to 50%);
- Tightening lending standards arising from the banking Royal Commission;
- Rising bank funding costs; and
- Labor’s negative gearing and capital gains tax reforms should it win the next federal election.
These factors combined will continue to weigh on housing values and make investing in property a particularly risky proposition, especially in Sydney and to a lesser extent Melbourne, whose markets are most over-valued and where investors are most dominant.
