CoreLogic analyses ‘credit crunch’ scenarios

According to Mr Kusher’s analysis of housing finance data from the Australian Bureau of Statics (ABS), the current slowdown in credit activity is mild in comparison to previous slumps.

Mr Kusher claimed that “although dwelling values are falling and credit growth has reduced, the term “crunch” might be a little “overzealous”.

The research analyst pointed to owner-occupied housing finance data recorded by the ABS over the past few decades, observing that:

• from April 1994 to April 1995, lending fell by 29.4 per cent;
• from February 2000 to October 2000, lending fell by 25.9 per cent;
• from September 2003 to January 2004, lending fell by 15.8 per cent;
• from June 2007 to August 2008, lending fell by 31.0 per cent; and
• from September 2009 to March 2012, lending fell by 27.9 per cent.

In contrast, Mr Kusher stated that the current value of lending for owner-occupied housing finance commitments is 1.8 per cent lower than the peak of November 2017.

However, Mr Kusher noted that investor housing commitments have fallen by 27.5 per cent from the peak of April 2015, resembling previous downturns.

For investor housing finance commitments, the research analyst noted that:

• from January 2000 to October 2000, lending fell by 33.0 per cent;
• from October 2003 to June 2004, lending fell by 27.3 per cent;
• from June 2007 to February 2009, lending fell by 32.2 per cent; and
• from May 2010 to April 2011, lending fell by 16.8 per cent.

“When analysing the current flows in credit data, it is fair to say that there has been a credit crunch for investors, but a credit crunch is not really evident for owner-occupiers,” Mr Kusher said.

The analyst added that while investor lending has been stunted by macro-prudential measures imposed by the Australian Prudential Regulation Authority (APRA), much of the recent slowdown has been driven by housing market weakness in Sydney and Melbourne.

“Another point to consider for investors is that this cohort have been most active in Sydney and Melbourne; as values have begun to decline in these cities, investor demand has waned and has not really increased elsewhere.

“What is unknown is whether it is market conditions that have led to the fall in investor demand or is it the fall in investor demand that has led to the decline in values; in reality, it is probably a combination of both.”

Mr Kusher noted that he expects credit growth to slow further, coinciding with the continued weakness in Sydney’s and Melbourne’s housing markets.

“The expectation is that dwelling values in Sydney and Melbourne will continue to fall over the coming months, which will continue to place downwards pressure on the headline growth rates, given the significant weighting applied to Sydney and Melbourne due to the larger number of dwellings in these cities,” Mr Kusher added.

“Given this, the overall value of housing finance commitments is anticipated to fall and the expansion in housing credit will likely continue to slow.”

[Related: Mass property sales could trigger market crash, says economist]