Mortgage growth has completely decoupled from house prices

I cannot recall a time when the growth in mortgage credit has diverged so wildly from house price growth.

Yesterday’s October results from CoreLogic revealed that Australian dwelling values continued to surge, rising by 1.4% over the month and by 3.7% over the quarter at the 5-city level.

While annual growth remained negative, it has clearly rebounded strongly led by Sydney and Melbourne:

Logically at least, you would expect the stock of mortgage credit to also be rising, given almost all buyers borrow to buy property.

However, yesterday’s credit aggregates data for September from the RBA revealed that annual mortgage credit growth hit the lowest level on record at just 3.1%:

The disconnect between mortgage credit and dwelling values growth is illustrated clearly below:

So, what’s going on here? Why the disconnect?

Well, mortgage credit growth measures two distinct things: 1) the addition to the mortgage stock from new mortgages taken out by borrowers (increases the stock of debt outstanding); and 2) the repayment of mortgage debt by existing borrowers (reduces mortgage debt).

Only the first point – new mortgages created – actually impacts house prices. The second – mortgage repayments by existing borrowers – does not reflect new housing demand and does not impact prices.

When interest rates are at record lows – as they are currently – we are likely to see mortgage repayments rise, which lowers mortgage credit growth, but doesn’t actually impact house prices. Similarly, many investors have been forced to switch from interest-only mortgages to principal and interest, meaning they are now lowering the stock of mortgage debt outstanding (other things equal) without adding to housing demand.

For this reason, MB prefers to look at the value of housing finance commitments (excluding refinancings), which only measures new mortgages and leaves out the noise generated by repayments:

As you can see, the correlation between housing finance and house prices has historically very strong, with housing finance typically leading prices.

However, because of the long lags in receiving housing finance data, we usually find out that the market has turned after CoreLogic’s daily index has already been reported.

Accordingly, we also look at auction clearance rates, since they provide a more timely indicator and also show a strong correlation with dwelling prices:

Bottom line: do not place too much emphasis on the RBA’s mortgage credit series and focus on the ABS’ housing finance data, alongside auction clearance rates. These are the best short-term indicators for dwelling prices.

Leith van Onselen


  1. ”Logically at least, you would expect the stock of mortgage credit to also be rising, given almost all buyers borrow to buy property.“

    You are relying on data from this company with no transparency who have been constantly spruiking “positive” property data since the day of the election.

    I’m no conspiracy theorist but with excess stock, low sales volumes and the fact that core logic make more money from selling their data in a rising market than otherwise I would be seriously skeptical about this “rebound”

    • Nope, house price growth not (no longer) reliant of domestic credit growth… house prices are booming baby. Have a look around Sydney. Wouldn’t be surprised if they jump 20 to 30% over the next five years…

      • Many mainland Chinese and Hong Kongers don’t get a mortgage when they buy an Australian house. They pay cash in dirty money.

        The great Australian property laundromat cleans it for them.

        • How many is many? Majority of their wealth are trapped in Realestate. Both regions are suffering from low transaction volume. Is it really that easy for them to extract the liquidity to buy in AUS in cash?

    • Exactly.

      And the SINGLE most important indicator without any doubt is stamp duty. It is an exact, in real time measurement and it has absolutely cratered.

      There is a steadfast refusal to accept the basic reality that prices have only just stopped declining in Sydney as of last week – that means there has been zero rebound. The “uptick” in the above graphs are NOT rising prices – they are prices falling less slowly – that is a massive difference and ignored.

      Fundamentally there is absurdly low volumes of transactions, proven by stamp duty receipts, the only properties which are selling are the top of the market by extremely wealthy.

      • Ding ding ding

        Genghis concedes “.. that prices have only just stopped declining in Sydney as of last week –…..”

        What more powerful sign of an absolute bottom being reached can there be !

        Happy days indeed.

        Brokers mobiles will be igniting in their hands as their lithium ion batteries collapse under the strain.

        • reusachtigeMEMBER

          As a savvy property investor, the best thing you can do is pick bottoms, then boom, you’re at the investor relations parties!

          • I tried to enter “in the bottom”, but was a couple of months late in picking the absolute bottom. But if you can get in a bottom don’t hesitate. It’s the best type of relation!

          • Picking bottoms is a fool’s errand – apart from financial losses it’s most likely to lead to smelly fingers

      • Stamp duty is based on settlement, market has been booming since August, there will be uptick in stamp duty receipts in the next quarterly report

    • My gut says this strange divergence is not a positive. It’s a sign of dysfunction in the bowels of the market

      • In a boom/bubble, first prices increase and then volumes follow.
        Volumes may follow, they may not. But based on history, a cutting of cash rate and loosening of credit says they are going to.

        • We’ll see. If a global recession hits anytime soon then no chance.

          Europe and Japan already in recession. Everyone else slipping closer to the precipice.

  2. As we can all see by the graph prices and mortgage growth WERE strongly correlated but de-coupled around 2012.

    It would be much more pertinent to understand why that is rather than claiming they have limited relationship when the CLEARLY were very strongly related.

    The reason they decoupled was the Chinese buyers with cash. That shows just how strong their influence is. They have no departed and the market has not responded because it is only the very wealthy buying properties which is proven by stamp duty as well (along with the actual sales records).

    The top end are not taking out new loans which proves the data.

    There is no housing rebound – ONLY the very top end.

    If there was not such a desperate attempt to prove the call to BUY NOW then this analysis would be forgiving for being mistaken – but its just so obvious that you are trying to back your call.


    • Jumping jack flash

      If only the top is showing action then there’s two things as you say, Chinese buyers with loads of cash from Hoocareswhere, or the natural death throes of a ponzi with no new entrants, as those in the game try to squeeze some returns out of it by trading at higher and higher levels in the pyramid.

    • John Howards Bowling Coach

      That was my thinking as well. What I saw around the leafy inner east of Melbourne and equally in the prime regions of Sydney, was a huge slide as the Chinese capital controls bit in a little bit (those who want to get their cash out still can, just a little harder to do now). as it was the Chinese cash really pumping up the high end housing market.
      Given that end of the market fell the most, it has seen some bargain hunting and reflated to some degree.

      But the overall markets of Actual Aussies buying appear to still be on the floor

    • Rorke's DriftMEMBER

      Genghis you make a fair point about Chinese buyers with cash. But I wonder how much cash buying in Australia is drug related and from general criminal activity. I suspect its an outsized portion of our economy and is washed through house prices but no way of knowing. It wont be going away.

  3. From what I saw the market for Toorak houses is strong give the bidding on an also ran house 2 weeks ago, with bidding from 2 absentees.. From what I hear from the conveyancing solicitor there is carnage on the fringe.

    • Makes sense. The people with the best access to credit are the wealthy.

      Whether this translates eventually to easier lending standards for the less well off remains to be seen.

      I wouldn’t be so sure. The banks are not going back to 2016.

      • “I wouldn’t be so sure. The banks are not going back to 2016.”
        It seems everyone in power is determined to get them there.
        Lending standards relaxed by the authorities. Government guaranteeing 5% deposit loans.

        • Dahls ChickensMEMBER

          Zackly. Australian policymakers will continue to drink and drive until someone/something takes the keys away. The question is: what is the EXTERNAL factor that will bring about the day of debt reckoning?

        • “It seems everyone in power is determined to get them there.”

          Correct. But back at HQ the banks know the gig is up and are dialling back the risk. Josh will need to nationalise the banks to get credit to levels that he would like.

          • Sure they are, but what risk exactly? They are government guaranteed.
            Privatise the profits and socialise the losses.
            Gotta get those big executive bonuses for increasing short term profits and all that.

        • “Sure they are, but what risk exactly?”

          The key difference is the following: all losses will still accrue to the banks / shareholders. The point at which the Govt steps in is the point at which the bank is about to fail. There’s a huge difference between that and the government agreeing to underwrite every loss on new vintage loans — so, unless Josh is willing to ‘go there’ the banks will pull their horns in and try to pluck as much low hanging fruit as possible while avoiding the risky stuff.

          Joshie can whinge and whine at them but it really won’t make much difference. While banks will welcome looser oversight, the CEOs know that we are entering treacherous waters and the bad credit cases will be blocked from accessing mortgages etc. Burgeoning credit losses could cost the CEOs their job. It’s a fine line.

          • It seems that nothing less than an overt display of contempt for the royal commision will cost a CEO of a bank their job.
            Hindsight says the contempt was justified.

    • – The socalled “Premium suburbs” (e.g. Vaucluse, Rosebay, …. etc.) are doing well. But suburbs in the West of Sydney (e.g. Liverpool, Kellyville, ……… etc.) or “the fringe” are doing poorly.

  4. Wouldn’t trust dodgy rp data core logic at all. No transparency. also hides and gives out wrong figures at times…owners will say it sold for x then a different figure appears…blame the 0ffice girl or a data error

  5. All this assumes Core Logic isn’t a crock. Didn’t the RBA dump them a couple of years ago?

  6. Isn’t this all explained by the fact that prices are rising on low volumes? Low volumes = less mortgage credit growth because not many houses being transacted (so not as many new mortgages).

    • People forget that a single sale can reprice an entire stock of property in a given geographical area ie. one in which there is deemed to be some kind of parity in land prices.

  7. reusachtigeMEMBER

    LOLOLOL. Over-analysing “why” again. It’s just boom times. Needs no explanation. No one who is anyone cares “why”.

    • Jumping jack flash

      The magic of cash rate cuts.
      They can do anything and still make you eggs in the morning.

    • JumpingJack. That sounds so much like something Tom Waits might say. I don’t think he did, just sounds like it. Eg:

      Frank’s wife was a spent piece of used jet trash,
      Made good bloody marys,
      Kept her mouth shut most of the time…

  8. It is just that no sane person would touch a sydney or melbourne appartment these days and that demand is now chasing established properties. Given there is a finite supply of established properties, the price is heading up?

    • That is my thoughts too. Lots of those apartments were being purchased by foreign investors. Not so many locals. Most Aussies want a backyard and a house. Not townhouses and apartments.

      Demand for those has collapsed thanks to shoddy building standards. If you don’t sell any, you don’t record lower price sales. What is selling is good homes in good suburbs for slightly higher prices thanks to interest rate cuts.

      • Newly arrived vibrants piling into ‘cheap’ flood-prone properties here in my neck of town in Brissy, not having any knowledge of the 2011 catastrophe. They’ll get the shock of their lives when they get the insurance quote – mandatory with any mortgage. And if they’re planning to develop they’ll be disappointed. Will make good high density living though for slum landlords

          • Oxley. Several homes along the Oxley Rd have sold recently – some have gone to developers but a lot of it can’t be developed because it’s too low lying (is my understanding). A number of inundated properties have had height restrictions removed so they can build well above flood levels – houses on stilts but I don’t think units can go there.

            Anyway, depending on how long these people stay, they could find themselves the proud owners of homes ‘on the water’

  9. The obvious take away from the outstanding mortgage credit versus house price growth graph is that outstanding credit quite clearly lags price growth considerably, so makes a very poor indicator to use for predicting house price growth. If anything house price growth is a better predictor for mortgage credit growth.

  10. Some denial here with some of the above comments. House prices are clearly growing in Melbourne and Sydney. And stock isn’t even that low anymore, yet the market has absorbed it with consistently strong clearance rates. I’ve been to quite a few auctions lately in Melbourne and all I can say is that if someone thinks that prices aren’t rising they are living in a different city to me.

    • But, but, but……… housing is going to crash any day now……………it’s a bubble and has to, don’t you know.
      Can’t possibly continue.
      Said the same ole suspects back in 2012 as well and still haven’t learnt the lesson.

      • The problem is that as they’ve increasingly become priced out of the market and increasingly foregone potential capital gains their denial has in many cases grown deeper.

      • Davey, Yup. That’s me.
        Does owning my failure get me a free house?
        It would if I had borrowed recklessly, told lies and used parent’s equity to get into the market, bugger the risk to them. I would be given a rescue package for sure under those circumstances. But I didn’t have a go…what an eeediot

    • I agree, my own experience looking at properties in Spring was that there was a lot of people coming back to the market. At first it upset me because I wanted prices to keep going down. But it also motivated me to actually do something and act now rather than wait and see again. I don’t know if it will last, I suspect it’s a bull trap, but I feel better having taken action this time around because I plan to be there for a while and if it’s mostly paid off then it doesn’t matter to me if prices fall. It’s still better than renting in this country unfortunately.

      • There are no guarantees in this world, but I believe that this is a decision you definitely won’t regret Gavin. I’ve seen your posts and realise it wasn’t an easy move for you, so well done for taking the plunge.

      • There is still a mountain of ammunition that can be fired to push house prices up. Don’t expect a crash any time soon.
        Retail IR currently around 3%? halve that to 1.5% and IO can now fund twice current property prices on the same income and repayments.
        The intentions of the regulators/Government have been made well and truly clear. A large portion of the locals here just refuse to hear it.

        • Unfortunately I somewhat agree. I believe it’s morally wrong, but I had to stop being stubborn and just accept that for now at least (I am wrong on a 40% correction) but long term I think it will need to happen…

          • Worrying about what is likely to happen is a much more productive thing than what should happen, or is morally right.
            Long term I think inflating the debt away is the most likely outcome as a 70% crash in nominal property prices would be catastrophic. Under this scenario owning is the best course of action as any savings will get munched by the inflation.
            Of course I am not an economist, but over the last 10 years I seem to have been right a lot more than they have.

          • I agree the only way out is via inflation, but it needs to be wage inflation which ain’t gonna happen with high immigration. So I expect at some point the political class will get it, that immigrations needs to be lowered and then we will get higher wages, higher wages are good for those in debt, but also those taking on debt. To me it’s the only solution, less trickle down and more money in the pockets of everyday punters. I would not want to be holding a large sum of savings if that was going to happen though and I’d rather have my money in hard assets as it’s sure to appreciate with that wage growth.

          • Wage inflation isn’t the only solution.
            Jacob’s favourite hobby horse of UBI would provide the same effect at a high enough level, although I guess it could lead to wage inflation itself since work becomes less necessary to survive.

          • Gavin — I don’t think that lower immigration is around the corner. Donors of the major parties love it and hence it is likely to continue barring something unforeseeable happening. Expect more smokescreen and waffle on reducing migration without it actually in substance happening.

    • The nature of the data has certainly changed, without any disclosure from Corelogic as to why that might be so. Regular daily jumps of 0.3+ points and greater simply didn’t happen previously when prices were rising steeply in 2016. The Sydney and Melbourne markets are no doubt rising, but I don’t believe that the Corelogic numbers reflect the actual situation. Not that I ever had a lot of faith in them in the first place.

      Also, the rises in both markets (particularly Sydney) that started with massive discontinuities on 12-Aug have been suspiciously straight, as though someone drew a line and said “this is where the market is going over the next 6 months”. It’s weird.

      • I would be interested to understand the reasons why Cameron Kusher walked out of the place a few months ago and joined REA (who were the ones who bought hometrack). Did he know something…??

        I agree, their price action is weird and not a credible outcome.

  11. so without much newly created money entering the system we are booming LOL
    we need something like $4-5 of debt credit money to generate $1 of GDP growth so it’s clear how this is going to end

    Australian one trick pony economy is not about house prices it’s about debt driven house prices where new money created by exchange of houses drives economy

    Imagine a place where banks became illegal but people started using savings to buy houses from each-other at ever increasing prices, for simplicity assume no costs of trading or tax implications. So after few transactions where a person buys from a person nearby by moving savings of one person to become savings of the other and so on … so after a while everyone sold one and bought another house and on the way prices doubled
    Did this price doubling made economy any better? did it inject any money into system? do people on average have more money to spend? did they created anything on the way to generate GDP growth?
    Now imagine if each of them bought using credit to fund the rising price

    Without credit growth, rising house prices actually hurt the economy (here I think short term view of GDP growth reduced meaning of word economy). What we need is around $200b of new extra debt money every year to generate those $30-$40 billion of GDP growth

    • Did this price doubling made economy any better?
      No, but it didn’t make it worse either.
      did it inject any money into system? do people on average have more money to spend?
      Exactly the same amount of money exists now as did before, so they have the same amount of money on average.
      did they created anything on the way to generate GDP growth?
      No, but they didn’t destroy aything either, merely transferred money around between each other in a heap of zero sum transactions.

      So overall price house increases are neutral in terms of the economy??
      Debt makes everything better and the house price increases are incidental?
      Hell is approaching so take out brimstone insurance??
      I’m not sure exactly what point you were trying to make.

      • my point is that price growth without debt increase will leave a huge hole, because of decade or two our economy was growing thanks to debt injecting new money into the system
        without debt growth, construction will collapse (construction is not part of zero sum game), retail spending will fall, …

        I cannot see anything that could offset fallout from housing stop generating ever increasing amount of new money … mining capex is gone, government wants to run a surplus, …

  12. We need to dissect out the practical reality that many with mortgages are repaying principal with grim determimination. ANZ in the AFR today is wringing its hands over this – as is every retailer in the country.

    Good luck making a meaningful change to a $500k debt. Pay back say $50k, a heroic sacrifice from current income, and the debt is still $450k. And if it is PPOR, this is post-tax dollars being squirrelled away.