Mortgage crash signals more sharp house price falls

By Leith van Onselen

Yesterday’s Lending to households and businesses release from the ABS revealed that total mortgage lending (excluding refinancings) tanked by 19.2% in the year to January 2019 in trend terms, driven by an epic 27.7% crash in investor commitments, whereas owner-occupied commitments also fell by 15.4%:

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 from the above charts, investor and housing finance growth as well as dwelling price growth has crashed across Sydney, Melbourne and Perth, and is also soft in Brisbane and Adelaide.

The decline is particularly dire in the investor mecca of Sydney, where investors remain the marginal price setter.

We already know that investors face stiff headwinds over the foreseeable future due to:

  • Ongoing uncertainty following the Hayne Royal Commission, especially around the Household Expenditure Measure and legal action by ASIC against the banks, as well as various class actions by aggrieved borrowers;
  • The possibility of 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 crash.

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Comments

    • proofreadersMEMBER

      Happy clappys are all sweetness and light on the way up, but on the way down they’re more likely to eat their own than anybody else. The hypocrisy of piety – you have to laugh?

  1. Are you ready for a decade where a substantial portion of households are trapped in negative equity and to sell is to be bankrupted?

    The RBA is standing by to save the banks by extending eye-watering amounts of credit and thereby fail Australia in a conventional manner as this does nothing to help the indebted. Once the RBA steps on the bank bail-out landmine, we all lose a leg.

    Consider a Modern Debt Jubilee. Credit every citizen with, say, $50,000 with the proviso it be first used to extinguish debt.

    The banks would be made whole in an instant. Many households would be saved, though not all. And the FHB’s – over whom truly embarrassing amounts of crocodile tears have been shed – might get a start with their HECS debt gone. There is a risk the unencumbered might buy assets or smashed avo breakfasts (horrors). Their funds could be directed to super.

    Orthodox thinking will only deliver stagnation.

    Don’t Buy Now!

  2. RMS Titanic aka Australia.

    Full speed slam into the dark deep migrant iceberg : 4.4 million unskilled useless migrants. 1.9 million third world PR & another 2.5 million third world non resident migrant guestworkers on pretext visa alibis.

    Listing & going down by the bow, the hull ripped open, thousands of tonnes of debt..

    Meanwhile up on the bridge.

    Treasury: “She can stay afloat with the first four compartments breached, but not five. Not five. Australia will go down by the head, that debt will spill over all of our bulkheads, from one to the next, front to back, there’s no stopping it! “

    Capt. Morrison (Smith): “The pumps, open the migrant pumps !!!”

    Treasury: “The migrant pump will only buy you time! But only until after the election. From this moment there’s no matter what to do. Australia will founder.”

    RBA : “But this ship can’t sink. The gas will keep us afloat. And UK Brexit no tariffs ! they will buy our mutton! More foreign students, the Indonesians coming in, wages will fall. Surely we will float.”

    Treasury: We are made of Iron & coal sir! And the migrant overload. All negative. I assure you we will sink. It’s a mathematical certainty!”

    Capt. Morrison : “How much time?”

    Treasury: “A quarter. Two at most. Just after the election”.

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