Housing finance points to a peak in housing cycle

The latest housing finance statistics are further evidence that Australia’s housing market is approaching a peak.

“After an extended period of very strong growth in home loans over the last few years, particularly in Sydney and Melbourne, the latest housing finance statistics for October show a 0.2 per cent drop against the September data in seasonally adjusted terms,” Matthew Pollock, Master Builders Australia’s National Manager Housing said.

“The number of transactions slipped for a second consecutive quarter, with reports by industry that limited stock for sale may be pushing up sales prices. There are more buyers in the market than sellers, with Australia overall still suffering from a housing shortage upwards of 80,000 dwellings in 2016,” he said.

“Investor loans edged up slightly by 0.7 per cent on the September data, with measures put in place by the Australian Prudential Regulatory Authority (APRA) to tighten the lending criteria on interest only mortgage loans, and to cap property lending growth at 10 per cent, curtailing the more speculative elements of investor demand,” Matthew Pollock said.

“Owner occupied housing loans fell slightly by 0.8 per cent over the month, in terms of the number of dwellings and in total loan values,” he said.

“Housing building approvals tend to follow the housing finance statistics, leading to an expectation for a further contraction in the building approvals data in December,” Mr Pollock said.

“The latest National Accounts data demonstrates the important role housing investment has played in driving economic growth in Australia, accounting for approximately 20 per cent of GDP growth over the past 12 months,” he said.

“Master Builders National Survey of Building and Construction indicates a strong pipeline of work for home builders in most parts of the country, so we expect dwelling investment to have a bounce in the December quarter statistics,” Mr Pollock said.

“Looking into next year, there is a risk that the current weakness in housing finance and building approvals will feed into slower new home completions. If that happens there is a high risk that the supply of new homes once again falling short of demand and the associated upward pressure on future house prices. It would also be removing a key growth driver of the economy,” he said.

“This latest data highlights the urgent need for the State/Territory Premiers to make a firm commitment for all levels of government to work together to remove the structural impediments to the supply of new homes at today’s COAG meeting in Canberra,” Matthew Pollock said.