The Reserve Bank says it’s more than just tighter lending – there’s four main drivers pushing down our house prices.
RBA assistant governor Chris Kent made the comments this week at the Australian Securitisation Forum in Sydney, and said the significant adjustment in house prices in Melbourne and Sydney this year was itself impinging on the demand for credit.
The four big drivers listed by Mr Kent were:
Reduced supply of credit due to regulator-imposed limits
Increased housing supply due to high construction rates
Weaker foreign buyer demand due to polices both home and abroad
Substantial run-up in housing assets that have pushed prices to high levels compared to household income raising the chance of a correction
Mr Kent pointed out that that the markets of Melbourne and Sydney are the ones experiencing the sharpest falls after being the two boom markets that rose the most since 2012.
According to Mr Kent the falling house prices are weighing heavily on the minds of buyers and in particular investors whose primary incentive is to make a return on the asset,
“An expectation of even a modest capital loss provides a strong incentive for them to delay buying a property,” he said.
RBA data shows mortgage rates and investor loans are declining.
“This suggests that banks were responding to weakness in credit demand by competing more vigorously to provide loans to high-quality borrowers.”
Other RBA data shows non-banks for the most part are increasing their lending to investors, filling that breach left open by tighter lending from the bigger banks and Mr Kent said the RBA was keeping a close eye on it.
“Anywhere where something is growing fast, is one of the first places to look for financial stability risks,” he said.
“We are watching it closely and as best we can tell arrears in the non-banks are not especially high.”
