Tighter Lending Leads to Weaker Conditions

Over the past three months, Hobart was the only capital city to record a rise in values - while the remaining capital cities have recorded lower or flat values. The fact that we’re seeing weakening housing conditions across the regions where home values were previously tracking a sustainable pace and economic conditions are relatively healthy is a sign that tighter credit conditions are having a broad dampening effect on buyer activity.

Credit aggregates from the Reserve Bank and housing finance data from the Australian Bureau of Statistics have continued to show a consistent reduction in credit flows and mortgage activity with a more pronounced downturn in owner occupier credit flows visible through the second half of 2018 and now into 2019.

While a slowdown in investment was a key driver of slowing housing markets since 2015, the recent decline in owner occupier lending is far more significant considering owner occupier lending is more than twice the value of investment lending.

Of course, the slowdown isn’t completely attributed to the tighter lending environment. Other factors are at play such as relatively neutral levels of consumer confidence, higher supply in some markets and reduction of demand from foreign buyers as well as domestic investors.