Deloitte has released its Australian Mortgage Report 2018, which forecasts that Australia’s housing correction will continue on the back of falling mortgage volumes:
Australia’s leading lenders and mortgage brokers predict the nation’s housing settlement volumes will either remain flat or more likely decrease by up to 5% from the highs of previous years…
“It is already appearing as if 2018 will be the second consecutive year since 2012 that settlement volumes (that is, the level of new mortgages issued in the market) either flattens off or reduces. (See chart)…
Deloitte Access Economics’ Director Michael Thomas said: “Regulators aiming to restrain increasing property debt amid concerns of an overheating market, have targeted investor lending. Tighter lending standards and restrictions on the volume of ‘interest-only’ loans to total new residential mortgages, have pushed up rates for investors. Market activity has begun cooling, with house price growth slowing in the latter half of 2017 and continuing into 2018.”..
Thomas added: “Despite the vulnerabilities, the residential market generally continues to be buoyed by other fundamentals.
“Underlying demand remains solid with strong, albeit uneven, population growth expected to continue into 2020 (see chart). Jobs growth has also been strong, especially in Victoria.
“The outlook for construction activity in the near term varies across the state. For both NSW and Victoria, growth in housing construction has slowed from its peaks but remains at high levels and is underpinned by solid underlying demand.
“Taken together with the outlook for interest rates, slowing house price growth, moderating the prospect of further capital gains, restrictions on lending, such as on interest-only loans and loans to investors as well as to lending to foreign investors, we expect a period of moderation, rather than an abrupt adjustment.”
Deloitte is down playing the situation. The crashing of investor finance points straight down for prices:
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As does the crashing of sales volumes:
The fact is there are stiff headwinds facing Australian property from:
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;
Labor’s negative gearing and capital gains tax reforms should it win the next election;
Weakening Chinese property demand, and
A looming offshore shock.
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This means that Australia’s property correction will likely be deeper and more protracted than prior episodes.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
