The number of new home loans approved last year plunged almost 20 per cent, signalling further price falls and cheaper houses, according to economists.
Tighter lending conditions, cooling investor demand and the then-impending banking royal commission final report were the major factors for the decline.
The number of mortgages taken out across the country dropped by 19.8 per cent in the year ended December 2018, Australian Bureau of Statistics data released on Tuesday showed.
ABS chief economist Bruce Hockman said: “The slowdown in lending for investor dwellings this month continues the steady decline over the past two years, with the value of new investor loan commitments down around 40 per cent from the peak at the start of 2017.
“The slowdown in lending for owner-occupier dwellings is more recent, with falls concentrated in the last half of 2018,” he said.
Home lending will determine property prices in 2019, said Domain economist Trent Wiltshire.
“Changes in home lending is closely linked to changes in house prices so this could be a sign of further price falls in 2019, it could be a leading indicator of what happens in the housing market,” Mr Wiltshire said.
He believed the uncertainty in the lead-up to banking royal commission’s final report exacerbated home lending in December, which recorded a 4.4 per cent drop, almost double the previous month.
AMP Capital chief economist Shane Oliver said both supply and demand contributed to the overall decline in home lending last year.
“The banks have made it harder to get a loan but there’s also less demand for loans. A lot of that weakness is concentrated in investors,” Dr Oliver said.
A decline in investment home loans made up the lion’s share of the home lending downturn, recording a 27.8 per cent drop in the past year.
“They’ve lost a bit of interest with the expectation prices are still falling,” Dr Oliver said.
Both economists said the figures were consistent with ongoing weakness in the property market in the past 12 months.
The silver lining of investors increasingly dropping out of race was that one in four buyers taking out new owner-occupier mortgages were first-home buyers.
“The one bright spark of the data is that first-home buyers make up a larger share of new lending,” Mr Wiltshire said.
“They’re about 27 per cent of all owner-occupier commitments excluding refinancing. That’s up from 20 per cent at the start of 2017.
“There’s always two sides to price falls. It’s not always bad news.”
But the decline in home lending was inevitable, said Dr Oliver.
“The boom time is coming to an end. Conditions are ultimately getting easier for first-home buyers, which makes it easier to get into the market,” he said.
“They’re the winners in this. The losers are people who might have got a mortgage a couple of years ago and are seeing less demand and falling prices and wondering whether they should have waited.
“We had a boom in property prices and boom in debt levels. Now we’re falling back to earth, which is probably a good thing and will ultimately mean sustainable house prices and sustainable debt levels.”
Peak construction and development lobby group Housing Industry Association principal economist Tim Reardon said the decline in investor activity would pick up once house prices stabilise.
“This downturn has long been forecast but there are ongoing risks regarding its length and depth,” Mr Reardon said.
“The longer-term outlook for the market remains solid while the unemployment rate and population growth remain at current levels.”
