Yesterday’s Lending to households and businesses release from the ABS revealed that total mortgage lending (excluding refinancings) began to rebound in June; albeit it was still down a hefty 18% over the year in trend terms, driven by an epic 26% crash in investor commitments, whereas owner-occupied commitments also fell by 15%:
As regular readers of MB will know, we consider the flow of housing and investor finance commitments to be 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 particularly hard across Sydney and Melbourne, but is also weak across the other major capitals. However, there are early signs of improvement, at least on a national level, as shown by the first chart.
Given the RBA’s recent interest rate cuts (with more to come), macro-prudential easing by APRA, and announced first home buyer subsidies, our base case is for a modest rebound in mortgage credit over the second half, with house prices likely to rise modestly into 2020.
It should be stressed, however, that changes to the Household Expenditure Measure (HEM) presents a structural barrier to loose mortgage credit, and should thereby limit any upswing, as will the deteriorating labour market. These issues were discussed in detail in our Half-Year Report.