With the release yesterday of the ABS’ lending finance data for October, it’s an opportune time to once again chart how capital city house prices are tracking against both investor and total housing finance.
As readers no doubt already know, housing finance has historically been strongly correlated with values. Therefore, it remains one of the best predictors of price growth.
The below charts plot both CoreLogic’s monthly dwelling values index against the value of investor and total finance, as measured by the ABS.
First, here are the national charts:
Next, Sydney:
Next, Melbourne:
Next Brisbane:
Next Perth:
And finally, Adelaide:
As you can see, investor and housing finance growth as well as house price growth has weakened across Sydney, Melbourne and Perth, but has experienced a small rebound in Brisbane and Adelaide.
The decline is particularly sharp in the investor hotspot of Sydney, where investors are the marginal price setter.
We already know that investors will face stiff headwinds in the period ahead due to:
- The massive interest-only (IO) mortgage reset due to take place over the next several years which, according to UBS, will see the potential expiry of IO loans in coming years (assuming a 5-year maturity and no rollover to another IO term) of up to $105 billion in FY18, $133 billion in FY19, and peak at $159 billion in FY20, thereby increasing repayments by an average of 35%;
- Tightening lending standards arising from the banking Royal Commission;
- Rising bank funding costs; and
- Labor’s negative gearing and capital gains tax reforms in the likely event that it wins the next federal election.
These factors combined will continue to weigh heavily 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 the most dominant.
