Tuesday’s Lending to households and businesses release from the ABS revealed that total mortgage lending (excluding refinancings) tanked by 10.1% in the 2018 calendar year in rolling annual terms, driven by an epic 23.6% crash in investor commitments, whereas owner-occupied commitments fell by a more moderate 3.2%:
As shown above, annual investor mortgage growth is a whisker above the GFC low, which was quickly followed by a sharp V-shaped recovery.
As regular readers of MB will know, we consider the flow of housing and investor finance commitments to be the premier indicators for dwelling value growth. This view is based on the incredibly strong historical correlation between finance and prices, as illustrated by the next charts:
As you can see, investor and housing finance growth as well as dwelling price growth has weakened substantially across Sydney, Melbourne and Perth, and is also softening in Brisbane and Adelaide.
The decline is particularly sharp in the investor mecca of Sydney, where investors remain the marginal price setter.
We already know that investors face stiff headwinds in the period ahead due to:
- Ongoing uncertainty surrounding the Royal Commission, especially with respect to the Household Expenditure Measure and legal action by ASIC against the banks;
- Rising bank funding costs and further out-of-cycle mortgage rate rises; and
- Labor’s negative gearing and capital gains tax reforms in the likely event that it wins the next federal election.
Until housing finance turns and begins to rise, Australian housing will continue to crash.
