Mortgage market suggests sluggish property rebound

Yesterday’s Lending to households and businesses release from the ABS revealed that total mortgage lending (excluding refinancings) rebounded strongly in July; albeit it was still down a hefty 14% over the year in trend terms, driven by an epic 22% crash in investor commitments, whereas owner-occupied commitments also fell by 11%:

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 crashed particularly hard across Sydney and Melbourne, but was also weak across the other major capitals.

However, there are clear signs of improvement, at least on a national level, as shown by the first chart and the monthly chart below:

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 the modest rebound in mortgage credit to continue over the near term, 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 looser mortgage credit like we witnessed during the peak of the bubble, and should thereby limit any upswing. The deteriorating labour market should do likewise.

These issues were discussed in detail in our Half-Year Report.

Leith van Onselen
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