Aussie mortgage collapse signals house price doom

Data released on Tuesday by the Australian Bureau of Statistics (ABS) shows that mortgage commitments fell by 4.4% June, which was the biggest monthly decline since May 2020.

This decline in mortgage commitments captured the first two RBA rate hikes – i.e. 0.25% in May and 0.50% in June – but obviously has not captured the 0.50% rises in July and August.

As we know, Australian dwelling values have fallen sharply since the RBA first began hiking rates, with values down 2.9% at the 5-city aggregate level, driven by heavy falls across Sydney (-5.4%) and Melbourne (-3.5%):

Australian dwelling values index

Heavy house price falls following rate rises.

Mortgage growth has historically been a strong leading indicator for house price growth. Therefore, the sharp fall in mortgage commitments in the year to June indicates further price falls nationally:

Mortgage demand versus price growth

Falling mortgage demand signals house price falls.

The situation is especially acute for Sydney and Melbourne, which are leading Australia’s house price bust:

Sydney and Melbourne mortgage demand versus prices

Demand collapses across Sydney and Melbourne.

As explained yesterday, the four consecutive interest rate hikes from the RBA has already reduced borrowing capacity by 23%, which is one of the reasons why mortgage demand has shrunk:

Australian mortgage repayments - current

Borrowing capacity has already shrunk by 23%.

The other key factor is that “fear of overpaying” or FOOP has taken over from “fear of missing out” [FOMO].

The situation will obviously get worse if the RBA continues to hike interest rates aggressively, as predicted by ANZ, Westpac and the financial markets.

FOOP will intensify, buyers will stay on the sidelines, mortgage commitments will fall, and Aussie house prices will continue to fall.

Unconventional Economist
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Comments

  1. Hugh PavletichMEMBER

    United States …

    When can we expect middle United States dwelling pricing in Australia and New Zealand ? …

    Check out the excellent graph based on Redfin data ‘Median Home Value by State’ … bubble pricing is stuffed in the internet accelerated era of dispersal and decentralization … and too … with the restoration of sound money…

    Home prices are dropping throughout California. This Sacramento-area county is an exception … Ryan Lillis … The Sacramento Bee

    https://www.sacbee.com/news/business/real-estate-news/article264059676.html

    Demographia US Housing Affordability – 2022 Edition

    https://www.newgeography.com/content/007483-demographia-us-housing-affordability-2022-edition-released

    • When Australia fulfils two factors: 1. dispersing economic activity across rural territories to the same extent, &
      2. Australia settles enough non-European, & non-Asian migrants in sufficient locations to drive up crime and decrease safety to such an extent that a great deal of areas are considered unsafe and poor places to live.

      And don’t shoot the messenger here, I am just pointing out something that is literally true, not how I want things to be.
      The Australian Bureau of Statistics and other federal bodies have released datapoints and reports on ethnicity, race and crime previously, and you can verify the over-representation of certain groups both here and in the US. And in more stark ways than the media will bring to your attention.

      • Hugh PavletichMEMBER

        … When do politicians and planners intend to lift the current ban on the construction of affordable new housingby dealing effectively with fringe land supply and infrastructure debt financing …

        … or do they intend to do nothing and allow New Zealand consents / approvals per 1000 population per annum to fall to California’s 2009 level of 1.0 / 1000 … as I explained soon after the GFC comparing Texas and California housing markets …

        … Currently New Zealand is about 10.0 / 1000 … Australia 7.0 / 1000 pop pa …

        Australia Building Approvals June 2022 … Australia Bureayu of Statistics

        https://www.abs.gov.au/statistics/industry/building-and-construction/building-approvals-australia/latest-release

        https://www.stats.govt.nz/information-releases/building-consents-issued-june-2022/

        https://www.stats.govt.nz/information-releases/building-consents-issued-june-2022/

        … A couple of my articles following the GFC … What has been learnt since ? …

        Housing Bubbles: Jumbo Mortgages = Jumbo Problems … Hugh Pavletich … Scoop News New Zealand

        https://www.scoop.co.nz/stories/WO1003/S00019/housing-bubbles-jumbo-mortgages-jumbo-problems.htm

        Housing Bubbles and Market Sense … Hugh Pavletich … Scoop News

        https://www.scoop.co.nz/stories/BU0901/S00046.htm

      • Hugh PavletichMEMBER

        … When do politicians and planners intend to lift the current ban on the construction of affordable new housingby dealing effectively with fringe land supply and infrastructure debt financing …

        … or do they intend to do nothing and allow New Zealand consents / approvals per 1000 population per annum to fall to California’s 2009 level of 1.0 / 1000 … as I explained soon after the GFC comparing Texas and California housing markets …

        … Currently New Zealand is about 10.0 / 1000 … Australia 7.0 / 1000 pop pa …

        Australia Building Approvals June 2022 … Australia Bureayu of Statistics

        https://www.abs.gov.au/statistics/industry/building-and-construction/building-approvals-australia/latest-release

        New Zealand Building Consents June 2022 … Statistics New Zealand

        https://www.stats.govt.nz/information-releases/building-consents-issued-june-2022/

        … A couple of my articles following the GFC … What has been learnt since ? …

        Housing Bubbles: Jumbo Mortgages = Jumbo Problems … Hugh Pavletich … Scoop News New Zealand

        https://www.scoop.co.nz/stories/WO1003/S00019/housing-bubbles-jumbo-mortgages-jumbo-problems.htm

        Housing Bubbles and Market Sense … Hugh Pavletich … Scoop News

        https://www.scoop.co.nz/stories/BU0901/S00046.htm

        • Hugh PavletichMEMBER

          Apologies for the repeat postings above guys.

          In my old age I mistakenly had an extra hyperlink ,,, above the 4 max … so got popped in ‘to moderation’.

          In correcting it back to 4 hyperlinks, it was immediately accepted by MB on the second go.

          Leith kindly popped the mistaken one out of moderation … the one with the double Stats NZ hyperlink.

          MB’s coverage of NZ housing issues is outstanding. And housing issues generally.

          • Don’t apologise for your age Hugh, this stuff keeps you young. Mate at work is 71 and powering, all his mates are retired and falling apart.
            Keep it up.

          • boomengineeringMEMBER

            71 eh, youngster.
            That reminded me of consoling my 46yo mate with the fact that a cycle club in Syd has their best rider being 75yo and no one can beat him.
            ( use it or lose it)

      • It never ceases to amaze me the simplistic beliefs that can be held on crime and that usually involves blaming “new” cultures. In the 60s and 70s it was the southern Europeans and Asians. I guess if you take out europeans and non asians, Leroy must be taking aim at the Africans here, funny thing is crime stats don’t seem to indicate an increase in over all crime.

        Deny people the ability to get decent paying work etc and you’ll get crime regardless of where they’re from, it’s as simple as that. Crime generally follows disadvantage.

        Btw, in Perth from ’75 to ’80 violent crime in Perth was driven by skin heads, the soccer scene was a dangerous place to be at times. You never had the media pointing the finger at “white British youth.”

        • pfh007.comMEMBER

          “..You never had the media pointing the finger at “white British youth.”..”

          Huh – you must not have had a TV, Radio or newspapers as there was a great hysteria about white Skinheads and students were threatened with immediate expulsion if their hair was too short or involved the use of superglue etc.

          And earlier on there was hysteria about slum gangs, Catholic gangs and assorted thugs, toughs and sharpies across Sydney – especially the poor inner suburbs once the middle classes escaped along the train lines..

          It is fanciul to believe that the newsmedia did not worry about terrible white kids before Post War immigration.

          • No pfh,

            I had a tv and I came across those skin heads a number of times in my youth, but the media NEVER referred to them as White British youth, simply as Skin Heads, nothing said about where they came from or conflating skin head behaviour with other British youth, no calls for stopping immigration from the UK and tarring all British youth with the same brush, neither was there any damning of British cultural values etc. Compare that with today and how the media report on African crime or back in the day Asian crime and the “wogs” during the 60s & 70s.

            And pfh, thank you for giving more examples of the different treatment back then.

            A monumental difference.

  2. After so many years of property madness it’s great to see a little sanity return.

    I see that a number of people will take a hit, but what about the positive side of the story for those that have worked hard, saved, and missed out year after year with prices rising faster than they can save. We don’t see much about them in the media. The people who keep getting priced out. Now we start to have a little opportunity and hope (and sanity) come along and we get one side of the story from the media, as expected.

    I hope this return to opportunity continues and the property spell gets broken.

    It is only a glorified campsite after all!

    • Their borrowing capacity also decreases during this time, so they are stuffed regardless.

      • But hopefully prices will come down enough that the new borrowing power and their savings will be enough to purchase something and the lower house prices which hopefully will be 4 x income will be the new norm!!!!!

        • If it crashes to that level there will be 30-50% unemployment. Banks wont be lending money. Only the rich, with cash, will be able to buy these assets on the cheap.

          Its not the utopian dream many of you are hoping for. I understand where the hope is coming from but you would be better spent lobbying government for loan to income caps, changes to neg gearing and valuations on existing asset holders equity.

          • 2.5 .million baby will be dead in the next 10 years in Australia, worldwide much greater number.
            Could have a big influence on things to come maybe.

          • So Gareth, you consider affordable housing after hard work and patiently saving to be “a utopian dream”? Oh, whatever dude.

            I’ll take the hopes of optimists like Ivan and Lochc over the venal, lizard-like cynicism of Alexey and Gareth every day of the week. How mean spirited do you have to be to try and snuff out any kind of positive aspirations for those who are just trying to get a place for themselves and their family.

            The market has been manipulated for so long here that it has become a DYSTOPIAN HELL. And you guys don’t want that to end ;cause you’re either too dumb, too greedy or too blind to see it.

      • If there are 7 decent houses for 10 families then 3 families must miss out.

        Changing interest rates cannot change the number 7, it can only cause some to obtain decent housing at the expense of others who lose decent housing.

        The real solution is to ensure that the supply of decent housing outstrips the increase in population over the long term.

        Concentrate on the physical shelter situation, ensure abundance of quality housing, and let house prices be as they may.

        • Maaate that sounds far too logical
          you’re forgetting that 3 out of 10 of those families are scumbag renters, unacceptable company in any community of owners. They should be eternally grateful to their Landlord better’s that they’ve even got a moldy pillow to lay their sorry head on. /sarc
          It’s F’ing disgraceful

        • If your 7 Vs 3 was real that would be a good outcome, but it isn’t and I get you’re justing making a point. I think we need to look at the situation differently, we’ll never have 9/1 or anything close to it and it would appear that no one else does either. Maybe we need to change how the rental market operates, instead of various individual investors who are really chasing CG riches and gouging renters when VR are low, we need larger investors looking for secure income flows and have laws like in Germany on how renters are treated etc.

          • Dennis, In 1970 we had 9 decent houses for every 10 families. In those days almost everyone lived in a house. Your teacher lived in a house. Your bus driver lived in a house. Your checkout chick lived in a house. Your cleaner lived in a house.

            Almost everyone who had a job and wanted a house could obtain one. Those who did not own a house could easily and cheaply rent a house.

            If a person did not have house in those days then there was another problem at work. eg alcohol or drugs or gambling or spendthrift.

            The difference between then and now is that the number of extra people has far outstripped the number of extra decent houses. As a society we have eagerly embraced vastly inferior housing, far longer commutes, far higher rents and far higher houses prices.

        • TC,

          I’m how confused as to what you mean by 7 out of 10, I thought you were referring to home ownership rates and the highest we have ever been from the charts I’ve seen here and elsewhere is around 68%. I’m pretty certain your not claiming a “homeless rate” of 30%?? Back then the other 22% would have been renters with a large portion of that in social housing and over in WA that was WA State Housing Commission.

          Edit: No argument from me about house costs, commuting etc. I’ve had this discussion with those under 50 and to me it’s a case of the frog in a pan of water on the stove. People just don’t seem to get it as it’s all they’ve known and just seem to accept it.

  3. I’m not sure how much of a thing FOOP really is. Buyers have always paid ‘whatever it takes’ to secure a property. The difference today is that they can’t access the funds to do it. The last couple of years shows us what happens when unbridled funds are available to buy.
    I’ll suggest FOMO is still there, but being suppressed by the inability to muster funds, and only whilst that’s the case will Demand remain Desire.

      • Arthur's Poodle

        Once there are stories from people’s social circle, and social media, it may start to sink in.

        Not happening yet.

        • It will be interesting to see just how willing Aussie are to share their experience with NG and eventual foreclosure.
          I suspect they’ll be very tight lipped, there is no greater shame in Australian than losing your house to foreclosure?
          Information will filter out as secrets whispered behind hands, their immediate neighbors definitely won’t be interest in hearing the truth, better to think of the recently departed as possible kiddie fiddlers
          There’s a lot more to this than just the rational actions of reasonable people.

    • Agree, the banks fear Negative Equity much more than the mugs a bidding these insane sums.

        • I think they’ve already done their sums quite precisely and know exactly who is really on the hook for their extravagance.
          Privatize the profits, Socialize the loses

    • You have always told us to buy whatever the price. Fear of overpaying has never been part of your playbook.

      In fact I would declare that FOOP is the complete reverse of Reusachtige.

  4. pfh007.comMEMBER

    While a state/ private cartel model of public money was a major contributor to this mess it is good to see that the RBA is not listening to the angry clown army demanding that it make the mess worse by ignoring inflation.

    With unemployment at 3.5% and still falling the RBA will serving up rate rises for a while to come.

    The main thing that will stop the RBA is Albo and Chalmers becoming class traitors and deciding to throw low income and low skilled workers under the bus by extinguishing the first bargaining power they have felt for decades with loads of imported labour.

    It is one thing for right wingers to claim that higher wages will force jobs off shore to desperate cheap labour suppliers it is entirely another thing to import cheap labour onshore to turn Australia into another cheap labour ghetto.

  5. Hey Leith,
    That correlation between “new” mortgage commitments and price growth is pretty amazing. However, the term “new” is confusing me.

    Does the “new” mortgage commitments represent only brand new loans for new entrants (first home buyers), or does it also include existing borrowers taking on bigger debts via refinances (overall credit growth)? What’s the difference between the “new” mortgage commitments and “overall” mortgage credit growth or contraction?

    I am wondering if prices are driven more by new entrants (or lack of) which allows existing property owners to upgrade at higher prices (flow through effect), or if its just the expansion or contraction of mortgage / credit across the entire market (ie; existing mortgage holders)?

  6. 4.4% drop aint that much and mortgage lending remains at historic levels.
    We have only just started the process of getting back to more historic levels of mortgage lending. The price impact so far before lending had yet to roll over, makes me think that the total price falls will exceed expectations.