Last week, the Australian Bureau of Statistics (ABS) released mortgage data for December, which recorded a massive 4.3% decline in new mortgage commitments (excluding refinancings) over the month, with the value of loans crashing 29% over 2022.
This, of course, followed 300 basis points of monetary tightening from the Reserve Bank of Australia (RBA), which are the most aggressive interest rate hikes in Australia’s history.
The value of new mortgage commitments (excluding refinancings) is a strong leading indicator for home values, as illustrated clearly in the next chart:
New mortgage growth typically leads home value growth by between three and six months.
Thus, the crash in mortgage commitments signals ongoing house price falls at the national level for the foreseeable future.
The same forces are in play across Australia’s three biggest capital cities, which are leading the nation’s housing downturn.
Sydney mortgage growth crashed by 35% in the year to December, which pulled home values down 13.8% in the year to January 2023:
Melbourne mortgage growth collapsed by 30% in the year to December, which dragged home values down 9.3% in the year to January 2023:
Finally, Brisbane mortgage growth plummeted 28% in the year to December, which has pulled annual home values down 4.1% as at January 2023, with heavy declines inbound:
With the RBA’s 0.25% rate hike on Tuesday, and further increases likely in the months ahead, buyer demand will inevitably shrink in response to reduced borrowing capacity.
In turn, Australian home values will be pulled deeper underwater, with a recovery unlikely until the RBA changes track and begins cutting rates.
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