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APRA lending spotlight to aid housing correction

A leading economist has warned that a combination of factors including increased lending guidance from the prudential regulator represent a “clear risk” of a property price correction.

While Australia has recorded improvements in the job market, its long-term economic prospects remain gloomy, an AllianceBernstein economist has warned.

In a report entitled Australia: Still Fundamentally Bearish, AllianceBernstein senior economist Guy Bruten said positive employment news may not hold up to scrutiny and the next phase of the Australian economy could bring a housing correction.

“With employment likely to be under pressure, attention will turn to the shape of the housing correction over the next year,” Mr Bruten said.

“Yes, people are still talking about the upswing phase, but we suspect that will change in the coming months,” he said.

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Mr Bruten said the end of the mining boom has had an obvious impact on the Western Australian housing sector.

“Perth has already been underperforming, relative to Sydney at least, after outperforming dramatically through the commodity-boom phase,” he said. “More of that is likely to come.”

A 30 per cent increase in Sydney property prices over the past two years largely reflects investor activity, Mr Bruten said, observing that, in aggregate, lending growth to investors is running at 10 per cent year on year.

“But with signs of oversupply starting to emerge in pockets of the market, and with APRA starting to offer ‘guidance’ — a weak form of macro-prudential policy — one wonders how long this can continue,” he said.

“There’s a clear risk that falling house prices may be the next phase in the post-commodity boom adjustment story.”

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