Australians are rapidly losing confidence in housing and property investors are starting to exit the market as regulatory measures, cooling prices and tighter credit begin to bite.
The Westpac and Melbourne Institute’s consumer index for June 2017 recorded its lowest monthly reading since April 2016, with an index of 96.2 points. Scores above 100 mean consumers are more optimistic than pessimistic, while scores below indicate the reverse.
The negative index for June marks seven consecutive months in which the index has recorded negative sentiment, the longest run since January 2015.
At the same time, the ‘time to buy a dwelling’ index recorded 90.9 points, a slight uptick over the previous months; however the index is still hovering around its lowest numbers since the financial crisis.
Additionally, the percentage of respondents who selected real estate as the ‘wisest place for savings’ is at a record low, with 13.3 per cent of respondents selecting that option in the June 2017 quarter.
CoreLogic suggests that a number of factors including a fall in monthly building approvals, accelerating migration away from Sydney, easing auction clearance rates in Melbourne and Sydney and a “noticeable” year-on-year increase in the number of properties advertised for sale in Sydney, coupled with this negative sentiment suggest that housing markets across the country have “lost momentum”.
CoreLogic also noted that investors were particularly impacted by an easing of housing finance commitments along with increasing mortgage rates and a slowing monthly change in housing credit growth.
Investor interest slowing
Data from the Reserve Bank of Australia (RBA) for April 2017 recorded an investor credit increase of 0.55 per cent, its lowest monthly increase since August last year, while investor housing commitments came to a value of $12.6 billion, the lowest number since September.
Cameron Kusher, research analyst at CoreLogic, pointed to lenders “rationing credit” within the investor segment and rate hikes as contributing factors in the drop in investor interest.
Mr Kusher said: “The mortgage rate premium for investors appears to finally be biting into the market with weakness in both total investor credit and investor housing finance commitments.”
However, Mr Kusher added that the question was whether the slowdown is set to persist, or whether investors will return to residential property, should the limits on investor credit ease.
The CoreLogic report CoreLogic Property Pulse, released 8 June remarked on the proportion of investor lending occurring in NSW (49.3 per cent) and Victoria (27.4 per cent) in April 2017, with Mr Kusher noting: “A pullback in lending to investors is inherently likely to have more of an impact on the NSW (Sydney) and Victorian (Melbourne) housing markets.”
As investor demand softens, Mr Kusher predicts the rate of value growth in the Sydney and Melbourne housing markets will continue to slow, adding that the full impact of policies designed to curb interest-only lending are yet to be seen.
[Related: Property dream alive, but ‘redefined’: CBA]