Government cautioned as new data flags market dip

New Financial Aggregate data released by the Reserve Bank of Australia (RBA) has revealed that housing credit growth slowed by 1.6 per cent in the year to 31 December 2018, rising by 4.7 per cent compared to a 6.3 per cent increase in the previous 12 months.

The slowdown in residential lending growth was driven by weakness in the flow of credit to investors, which grew 0.9 per cent in the year to 31 December 2018, compared to a 6.8 per cent rise in owner-occupied credit growth.  

Australia’s owner-occupied mortgage portfolio now sits at $1.21 trillion, with the nation’s investor lending portfolio $594.2 billion.

The RBA data coincided with the release of property group CoreLogic’s latest Hedonic Home Value Index, which revealed that national home values dropped by 1 per cent in the month to 31 January 2019, driven by a 1.2 per cent drop in combined capital city dwelling values and a 0.2 per cent fall in regional home prices.

In the month to January, property prices declined in every capital city except Canberra where they rose by 0.2 per cent, with Darwin reporting the sharpest drop (1.7 per cent), followed by Melbourne (1.6 per cent), Sydney (1.3 per cent), Perth (1.1 per cent), Brisbane and Adelaide (0.3 per cent), and Hobart (0.2 per cent).

According to CoreLogic, national home values have fallen by 5.6 per cent year-on-year, with the national median home price declining to $528,553.

Reflecting on the figures, Tim Lawless, CoreLogic’s head of research, observed: “January can be a difficult month to read the housing market due to low levels of activity; however, the recent trend in housing market data has generally weakened over the past three months, with the pace of decline accelerating across markets already in the their down phase and growth generally moderating in other areas.

“Tight credit conditions, weakening consumer sentiment, less domestic and foreign investment and higher levels of housing supply are the primary drivers of the worsening conditions.”

Reacting to the CoreLogic data, AMP chief economist Shane Oliver warned that ongoing price falls, particularly in Sydney and Melbourne, could “depress consumer spending” as home owners become “less inclined to allow their savings rate to fall further”.

“It’s also a negative for banks and is consistent with our view that the RBA will cut the cash rate to 1 per cent by year end,” he said.

“Price weakness has now gone beyond levels where the RBA started cutting rates in 2008 and 2011 and the 2015-16 property slowdown was also turned around by rate cuts in May and August 2016.”

The continued slowdown in market conditions has prompted calls for a carefully calibrated government response to Commissioner Kenneth Hayne’s recommendations set out in the financial services royal commission’s final report, set to be released to the public this afternoon.

The latest warning has been issued by the Property Council of Australia, which has urged the federal government to “fix problems” identified by the royal commission without further diminishing market sentiment.

“A strong, stable and well-functioning financial system is the lifeblood of our industry and the Australian economy,” Property Council of Australia CEO Ken Morrison said.

“In fixing the issues highlighted by the royal commission, we must avoid creating new problems in other leading areas of the economy, especially around the efficient and responsible provision of credit for qualified borrowers.

“How government, regulators and financial institutions themselves respond to the Hayne recommendations will have direct consequences for first home buyers, up-sizers and down-sizers, property investors and the 1.4 million Australians who work in the property industry.”

Mr Morrison emphasised the importance of credit availability as a growth stimulant across the public and private sectors.

“Access to credit matters for people looking to buy new or established properties, including first home buyers,” he said.

“The property industry also underpins state and territory government budgets, accounting for more than half of their total revenues.

“A strong property industry delivers great places for Australians to live and work, provides jobs and drives economic growth, and helps Australians save for their future.”

Mr Morrison concluded: “The government’s response to the Hayne royal commission must fix the problems of financial services without damaging the rest of the economy.”

 [Related: Opposition urged to ‘come clean’ on ‘absurd’ housing policy]